As filed with the Securities and Exchange Commission on November 16, 2005
Securities Act Registration No.
------------
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. Post-effective Amendment No.
-------- --------
(Check appropriate box or boxes)
AIM EQUITY FUNDS
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, Texas 77046
--------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
PETER A. DAVIDSON, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this Registration Statement will become effective on
December 16, 2005, pursuant to Rule 488.
The titles of the securities being registered are Class A, Class B, Class
C, Class R and Institutional Class shares of AIM Constellation Fund; Class A,
Class B, Class C, Class R, Investor Class and Institutional Class shares of AIM
Large Cap Growth Fund; and Class A, Class B, Class C, Class R and Institutional
Class shares of AIM Charter Fund. No filing fee is due in reliance on Section
24(f) of the Investment Company Act of 1940.
(A I M LOGO)
AIM AGGRESSIVE GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
January __, 2006
Dear Shareholder:
We are seeking your approval of a Plan of Reorganization (the "Plan") that
provides for the sale of the assets of AIM Aggressive Growth Fund (the "Fund")
to AIM Constellation Fund ("Buying Fund"). This transaction will result in the
combination of the two funds. You will receive shares of Buying Fund in
connection with the transaction if shareholders approve it.
A I M Advisors, Inc. ("AIM"), the investment advisor to the AIM Funds,
conducted a review of the funds and concluded that it would be appropriate to
consolidate certain funds having similar investment objectives and strategies.
Your Fund is one of the funds that AIM recommended, and your Board of Trustees
approved, for consolidation. The attached Proxy Statement and Prospectus seeks
your approval of the consolidation of your Fund with Buying Fund.
As more fully described in the attached Proxy Statement and Prospectus,
AIM recommended, and your Board of Trustees approved, that another fund also be
consolidated with Buying Fund. The proposed combination of your Fund into Buying
Fund is contingent on the consummation of the proposed combination of AIM
Weingarten Fund into AIM Constellation Fund, as described in the attached Proxy
Statement and Prospectus.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Equity Funds has
approved the proposed combination. They recommend that you vote FOR the
proposal.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote in person. If you expect to
attend the meeting in person, or have questions, please notify us by calling
(800) 952-3502. You may also vote by telephone or through a website established
for that purpose by following the instructions that appear on the enclosed proxy
card. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, [ ], reminding you to vote.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
President
(A I M LOGO)
AIM WEINGARTEN FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
January __, 2006
Dear Shareholder:
We are seeking your approval of a Plan of Reorganization (the "Plan") that
provides for the sale of the assets of AIM Weingarten Fund (the "Fund") to AIM
Constellation Fund ("Buying Fund"). This transaction will result in the
combination of the two funds. You will receive shares of Buying Fund in
connection with the transaction if shareholders approve it.
A I M Advisors, Inc. ("AIM"), the investment advisor to the AIM Funds,
conducted a review of the funds and concluded that it would be appropriate to
consolidate certain funds having similar investment objectives and strategies.
Your Fund is one of the funds that AIM recommended, and your Board of Trustees
approved, for consolidation. The attached Proxy Statement and Prospectus seeks
your approval of the consolidation of your Fund with Buying Fund.
As more fully described in the attached Proxy Statement and Prospectus,
AIM recommended, and your Board of Trustees approved, that another fund also be
consolidated with Buying Fund. The proposed combination of your Fund into Buying
Fund is not contingent on that other transaction occurring.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Equity Funds has
approved the proposed combination. They recommend that you vote FOR the
proposal.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote in person. If you expect to
attend the meeting in person, or have questions, please notify us by calling
(800) 952-3502. You may also vote by telephone or through a website established
for that purpose by following the instructions that appear on the enclosed proxy
card. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, [ ], reminding you to vote.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
President
AIM AGGRESSIVE GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve a Plan of Reorganization (the "Plan") under which all of the
assets of AIM Aggressive Growth Fund (the "Fund"), an investment portfolio of
AIM Equity Funds ("Trust"), will be transferred to AIM Constellation Fund
("Buying Fund"), which is also an investment portfolio of Trust. Buying Fund
will assume the liabilities of the Fund and Trust will issue shares of each
class of Buying Fund to shareholders of the corresponding class of shares of the
Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on December 2, 2005 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES
OF TRUST. YOU MAY ALSO VOTE BY TELEPHONE OR THROUGH A WEBSITE ESTABLISHED FOR
THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY MATERIALS. YOUR
VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY EXECUTING AND
SUBMITTING A REVISED PROXY CARD, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF TRUST OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
/s/ Kevin M. Carome
Kevin M. Carome
Secretary
January , 2006
AIM WEINGARTEN FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve a Plan of Reorganization (the "Plan") under which all of the
assets of AIM Weingarten Fund (the "Fund"), an investment portfolio of AIM
Equity Funds ("Trust"), will be transferred to AIM Constellation Fund ("Buying
Fund"), which is also an investment portfolio of Trust. Buying Fund will assume
the liabilities of the Fund and Trust will issue shares of each class of Buying
Fund to shareholders of the corresponding class of shares of the Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on December 2, 2005 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES
OF TRUST. YOU MAY ALSO VOTE BY TELEPHONE OR THROUGH A WEBSITE ESTABLISHED FOR
THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY MATERIALS. YOUR
VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY EXECUTING AND
SUBMITTING A REVISED PROXY CARD, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF TRUST OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
/s/ Kevin M. Carome
Kevin M. Carome
Secretary
January , 2006
AIM AGGRESSIVE GROWTH FUND, AIM WEINGARTEN FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM EQUITY FUNDS AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 347-4246 (800) 347-4246
AIM CONSTELLATION FUND,
A PORTFOLIO OF
AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
(800) 347-4246
COMBINED PROXY STATEMENT AND PROSPECTUS
JANUARY ___, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the special meeting of shareholders of AIM Aggressive Growth
Fund, an investment portfolio of AIM Equity Funds, a Delaware statutory trust
(the "Aggressive Growth Fund Special Meeting") and the special meeting of
shareholders of AIM Weingarten Fund, which is also an investment portfolio of
AIM Equity Funds (the "Weingarten Fund Special Meeting" and, together with the
Aggressive Growth Fund Special Meeting, the "Special Meetings"). The Special
Meetings will be held on February 28, 2006 at 3:00 p.m., Central Time. We intend
to mail this Proxy Statement/Prospectus, the enclosed Notice of Special Meetings
of Shareholders and the enclosed proxy card on or about January __, 2006 to all
shareholders entitled to vote at the Special Meetings.
At the Aggressive Growth Fund Special Meeting, the shareholders of AIM
Aggressive Growth Fund ("Aggressive Growth Fund") are being asked to consider
and approve a Plan of Reorganization (the "Aggressive Growth Fund Plan") to be
adopted by AIM Equity Funds ("Trust") acting on behalf of both AIM Constellation
Fund ("Buying Fund") and Aggressive Growth Fund. The Aggressive Growth Fund Plan
provides for the reorganization of Aggressive Growth Fund with Buying Fund (the
"Aggressive Growth Fund Reorganization").
At the Weingarten Fund Special Meeting, the shareholders of AIM Weingarten
Fund ("Weingarten Fund") are being asked to consider and approve a Plan of
Reorganization (the "Weingarten Fund Plan" and, together with the Aggressive
Growth Fund Plan, the "Plans") to be adopted by Trust, acting on behalf of both
Weingarten Fund and Buying Fund. The Weingarten Fund Plan provides for the
reorganization of Weingarten Fund with Buying Fund (the "Weingarten Fund
Reorganization" and, together with the Aggressive Growth Fund Reorganization,
the "Reorganizations").
This Proxy Statement/Prospectus includes information regarding both
Reorganizations. We have included the request for approval of both
Reorganizations in one Proxy Statement/Prospectus because we are proposing that
each of Aggressive Growth Fund and Weingarten Fund (each, a "Selling Fund" and
together, the "Selling Funds") be combined with Buying Fund. Consummation of the
Aggressive Growth Fund Reorganization is conditioned on the consummation of the
Weingarten Fund Reorganization. Consummation of the Weingarten Fund
Reorganization, however, is not conditioned on the consummation of the
Aggressive Growth Fund Reorganization.
Under the Plans, all of the assets of each Selling Fund will be
transferred to Buying Fund, Buying Fund will assume the liabilities of each
Selling Fund and Trust will issue shares of each class of Buying Fund to
shareholders of the corresponding class of shares of each Selling Fund, as set
forth on Exhibit A.
The value of each Selling Fund shareholder's account with Buying Fund
immediately after each of the Reorganizations will be the same as the value of
such Selling Fund shareholder's account immediately prior to each of the
Reorganizations. The Reorganizations have been structured as tax-free
transactions. No sales charges will be imposed in connection with the
Reorganizations.
i
The Board of Trustees of Trust (the "Board") has approved the Plans and
the Reorganizations as being advisable and in the best interests of each of the
Selling Funds.
Trust is a registered open-end management investment company that issues
its shares in separate series. The Selling Funds and Buying Fund are all series
of Trust. A I M Advisors, Inc. ("AIM") serves as the investment advisor to each
Selling Fund and Buying Fund. AIM is a wholly owned subsidiary of AMVESCAP PLC
("AMVESCAP"), an independent global investment management company.
Buying Fund and Weingarten Fund have the same investment objective. Both
funds seek to provide growth of capital. Buying Fund and Aggressive Growth Fund
have similar investment objectives in that Aggressive Growth Fund seeks to
provide long-term growth of capital. See "Comparison of Investment Objectives
and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that
shareholders of each Selling Fund should know before voting on the Plans. It is
both the Proxy Statement of each Selling Fund and the Prospectus of Buying Fund.
You should read and retain this Proxy Statement/Prospectus for future reference.
The Prospectus of Aggressive Growth Fund dated February 28, 2005 (the
"Aggressive Growth Fund Prospectus"), together with the related Statement of
Additional Information dated October 25, 2005, and the Prospectus of Weingarten
Fund dated February 28, 2005 (the "Weingarten Fund Prospectus" and, together
with the Aggressive Growth Fund Prospectus, the "Selling Fund Prospectuses"),
together with the related Statement of Additional Information dated October 25,
2005, are on file with the Securities and Exchange Commission (the "SEC"). The
Selling Fund Prospectuses are incorporated by reference into this Proxy
Statement/Prospectus. The Prospectus of Buying Fund dated February 28, 2005,
(the "Buying Fund Prospectus"), the related Statement of Additional Information
dated October 25, 2005, and the Statement of Additional Information relating to
the Reorganization dated January ___, 2006, are on file with the SEC. The Buying
Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus and a copy of the Buying Fund Prospectus is attached as
Appendix III to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganizations dated January ___, 2006, also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Trust and Buying Fund.
Copies of the Prospectuses of Buying Fund and each Selling Fund and the
related Statements of Additional Information are available without charge by
writing to A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173, or by calling (800) 959-4246. Additional information about the
Selling Funds and Buying Fund may be obtained on the internet at
www.aiminvestments.com.
Trust has previously sent to shareholders the most recent annual report
for your respective Selling Fund, including financial statements, and the most
recent semi-annual report succeeding the annual report, if any. If you have not
received such reports or would like to receive an additional copy, please
contact A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, or by calling (800) 959-4246. Such reports will be furnished free of
charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
INTRODUCTION............................................................................................... 1
SUMMARY 1
The Reorganizations.................................................................................... 1
Comparison of Investment Objectives and Principal Strategies........................................... 2
Comparison of Performance.............................................................................. 2
Comparison of Fees and Expenses........................................................................ 3
Comparison of Multiple Class Structures................................................................ 3
Comparison of Sales Charges............................................................................ 4
Comparison of Distribution and Purchase and Redemption Procedures...................................... 4
The Board's Recommendation............................................................................. 5
RISK FACTORS............................................................................................... 5
Risks Associated with Buying Fund...................................................................... 5
Comparison of Risks of Buying Fund and Your Fund....................................................... 5
INFORMATION ABOUT BUYING FUND.............................................................................. 5
Description of Buying Fund Shares...................................................................... 5
Management's Discussion of Fund Performance............................................................ 6
Financial Highlights................................................................................... 6
ADDITIONAL INFORMATION ABOUT THE PLANS..................................................................... 6
Terms of the Reorganizations........................................................................... 6
The Reorganizations.................................................................................... 6
Board Considerations................................................................................... 6
Other Terms............................................................................................ 10
Federal Income Tax Consequences........................................................................ 11
Accounting Treatment................................................................................... 12
RIGHTS OF SHAREHOLDERS..................................................................................... 12
CAPITALIZATION............................................................................................. 12
CAPITALIZATION............................................................................................. 13
LEGAL MATTERS.............................................................................................. 14
ADDITIONAL INFORMATION ABOUT BUYING FUND AND SELLING FUNDS................................................. 14
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.............................................. 14
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING........................................................... 15
Proxy Statement/Prospectus............................................................................. 15
Time and Place of Special Meetings..................................................................... 15
Voting in Person....................................................................................... 15
Voting by Proxy........................................................................................ 15
Voting by Telephone or the Internet.................................................................... 16
Quorum Requirement and Adjournment..................................................................... 16
Vote Necessary to Approve Each Proposal................................................................ 16
Proxy Solicitation..................................................................................... 16
Other Matters.......................................................................................... 16
Ownership of Shares.................................................................................... 17
EXHIBIT A..... Classes of Shares of Each Selling Fund and Corresponding Classes of Shares of Buying Fund
EXHIBIT B..... Comparison of Performance of Each Selling Fund and Buying Fund
EXHIBIT C..... Comparison Fee Table and Expense Examples
EXHIBIT D..... Shares Outstanding of Each Class of Selling Funds on Record Date
EXHIBIT E..... Ownership of Shares of Your Fund
EXHIBIT F..... Ownership of Shares of Buying Fund
APPENDIX I.... Plan of Reorganization for Aggressive Growth Fund
APPENDIX II... Plan of Reorganization of Weingarten Fund
iii
APPENDIX III.... Prospectus of Buying Fund
APPENDIX IV..... Discussion of Performance and Financial Highlights of Buying Fund
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(K), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT INC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
INTRODUCTION
During 2003 and 2004, AMVESCAP, the parent company of AIM, undertook an
integration initiative with respect to its United States mutual fund operations.
Among other things, AMVESCAP's integration initiative included the establishment
of a single distributor for all AMVESCAP U.S. mutual funds, the integration of
back office support for AMVESCAP's U.S. mutual funds, the allocation of primary
responsibility for investment advisory, administrative, accounting, and legal
and compliance services for all of AMVESCAP's U.S. mutual funds to AIM and
streamlining the various mutual funds offered by AMVESCAP's subsidiaries in the
U.S.
Since completion of the AMVESCAP integration initiative, AIM has
undertaken an extensive review of its U.S. mutual fund offerings and has
concluded that it would be appropriate to consolidate certain funds having
similar investment objectives and strategies. The Reorganizations are part of a
number of fund reorganizations AIM is proposing as a result of this review
process. AIM believes that the Selling Funds' shareholders will benefit from the
proposed Reorganizations because the combination of the funds will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale.
SUMMARY
The Board, including the independent trustees, has determined that the
Reorganizations are advisable and in the best interests of each Selling Fund and
that the interests of the shareholders of each Selling Fund will not be diluted
as a result of the Reorganizations. The Selling Funds and Buying Fund have
similar investment objectives. Each of the Selling Funds and Buying Fund utilize
similar investment strategies and are managed by the same portfolio team. The
Board believes that a larger combined fund should have greater market presence
and may achieve greater operating efficiencies because certain fixed costs, such
as legal, accounting, shareholder services and trustee expenses, will be spread
over the greater assets of the combined fund. In addition, the total annual
operating expenses of the combined fund are expected to be lower than the
current total annual operating expenses of each Selling Fund. For additional
information concerning the factors the Board of Trustees considered in approving
the Plans, see "Additional Information About the Plans -- Board Considerations."
The following summary discusses some of the key features of the
Reorganizations and highlights certain differences between each Selling Fund and
Buying Fund. This summary is not complete and does not contain all of the
information that you should consider before voting on whether to approve the
Plans. For more complete information, please read this entire Proxy
Statement/Prospectus.
THE REORGANIZATIONS
The Reorganizations will result in the combination of each Selling Fund
with Buying Fund. The Selling Funds and Buying Fund are all series of Trust, a
Delaware statutory trust.
If shareholders of each Selling Fund approve the Plans and other closing
conditions are satisfied, all of the assets of each Selling Fund will be
transferred to Buying Fund, Buying Fund will assume the liabilities of each
Selling Fund, and Trust will issue shares of each class of Buying Fund to
shareholders of the corresponding class of shares of each Selling Fund, as set
forth on Exhibit A. For a description of certain of the closing conditions that
must be satisfied, see "Additional Information About the Plans -- Other Terms."
The shares of Buying Fund issued in the Reorganizations will have an
aggregate net asset value equal to the net value of the assets of each Selling
Fund transferred to Buying Fund. The value of each Selling Fund shareholder's
account with Buying Fund immediately after the Reorganizations will be the same
as the value of that Selling Fund shareholder's account with the respective
Selling Fund prior to the Reorganizations. A copy of the Aggressive Growth Fund
Plan is attached as Appendix I to this Proxy Statement/Prospectus and a copy of
the Weingarten Fund Plan is attached as Appendix II to this Proxy
Statement/Prospectus. See "Additional Information About the Plans."
Trust will receive an opinion of Ballard Spahr Andrews & Ingersoll, LLP to
the effect that each Reorganization will constitute a tax-free reorganization
for Federal income tax purposes. Thus, shareholders will not have to pay
additional Federal income tax as a result of each Reorganization. See
"Additional Information About the Plans -- Federal Income Tax Consequences."
1
No sales charges will be imposed in connection with the Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The Selling Funds and Buying Fund have similar investment objectives.
Weingarten Fund and Buying Fund seek growth of capital, while Aggressive Growth
Fund seeks long-term growth of capital. The Selling Funds and Buying Fund also
invest in similar types of securities. Each Selling Fund and Buying Fund invest
primarily in common stocks of companies with above-average long-term growth in
earnings and excellent prospects for future growth. However, Aggressive Growth
Fund invests in small and medium-sized growth companies and Weingarten Fund
invests in seasoned, better capitalized companies, while Buying Fund may invest
without regard to capitalization. Buying Fund also has the ability to use
leverage, although its portfolio management team has no present intention to do
so.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of each Selling Fund
and Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of each Selling Fund and
Buying Fund in the Selling Fund Prospectuses and the Buying Fund Prospectus,
respectively.
AIM AGGRESSIVE GROWTH FUND AIM WEINGARTEN FUND AIM CONSTELLATION FUND
(SELLING FUND) (SELLING FUND) (BUYING FUND)
INVESTMENT OBJECTIVES
- - Long-term growth of capital - Growth of capital - Growth of capital
INVESTMENT STRATEGIES
- - Invests primarily in common stocks - Invests in common stocks of - Invests principally in common
of small and medium-sized growth seasoned and better capitalized stocks, without regard to market
companies. companies. capitalization.
- - Portfolio managers focus on companies - Portfolio managers focus on - Invests in common stocks of
that are likely to benefit from companies that have experienced companies the portfolio managers
new or innovative products, services above-average growth in earnings and believe are likely to benefit from
or processes as well as those have excellent prospects for future new or innovative products, services
that have experienced above-average, growth. or processes as well as those that
long-term growth in earnings and have have experienced above average,
excellent prospects for future growth. long-term growth in earnings and
have excellent prospects for future
growth.
- - May also invest up to 25% of its - May also invest up to 20% of its - May also invest up to 20% of
total assets in foreign securities. total assets in foreign securities. its total assets in foreign
securities.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31, for Class A shares of each Selling Fund and for Class A shares of
Buying Fund can be found at Exhibit B. Also included as part of Exhibit B is a
table showing the average annual total returns for the periods indicated for
each Selling Fund and Buying Fund. For more information regarding the total
return of each Selling Fund, see the "Financial Highlights" section of the
Selling Fund Prospectuses, which have been made a part of this Proxy
Statement/Prospectus by reference. For more information regarding the total
return of Buying Fund, see "Information About Buying Fund -- Financial
Highlights." Past performance cannot guarantee comparable future results.
2
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of each Selling Fund and Buying Fund, as of October 31, 2004,
expressed as a percentage of net assets ("Expense Ratio"), can be found at
Exhibit C. Pro forma estimated Expense Ratios, based on historical data at a
specified date and related projected data, for each class of shares of Buying
Fund after giving effect to the Reorganization are also provided as of October
31, 2004 as part of Exhibit C.
The current investment advisory fee schedule of Buying Fund is lower than
that of Weingarten Fund. By contrast, the current investment advisory fee
schedule of Aggressive Growth Fund is lower at certain asset levels than the
current investment advisory fee schedule of Buying Fund. [As a result, in
connection with the Reorganizations, the Board of Buying Fund has approved an
amendment to Buying Fund's investment advisory fee schedule such that AIM will
receive a monthly fee calculated, based on the average daily net assets of
Buying Fund, at the annual rates described below.]
If shareholders approve the Weingarten Fund Reorganization and the
Aggressive Growth Fund Reorganization is not approved, Buying Fund's investment
advisory fee schedule will be:
Annual Rate Net Assets
1.00% First $30 million
0.75% Next $120 million
0.625% Excess over $150 million
If shareholders approve both Reorganizations, Buying Fund's investment
advisory schedule will be:
Annual Rate Net Assets
0.80% First $150 million
0.625% Excess over $150 million
In addition, AIM has contractually agreed to waive its advisory fees
through December 31, 2009, for Buying Fund in connection with a settlement
agreement reached with the New York Attorney General ("NYAG"). After the
Reorganizations, until December 31, 2009, the following advisory fee rates apply
for Buying Fund after the waiver:
Annual Rate Net Assets
0.695% First $250 million
0.615% Next $4 billion
0.595% Next $750 million
0.57% Next $2.5 billion
0.545% Next $2.5 billion
0.52% Amounts over $10 billion
After giving effect to both Reorganizations, the reduced advisory fee
schedule to be applicable to Buying Fund will be the same as or lower than each
Selling Fund's current investment advisory fee schedule. In addition, the total
annual operating expenses of the combined fund after giving effect to both
Reorganizations and fee reductions are expected to be lower than those of
Selling Funds.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of each Selling Fund that are currently
available to investors and the corresponding share class of Buying Fund that
shareholders of each Selling Fund will receive in the Reorganizations can be
found at Exhibit A. For information regarding the features of each of the share
classes of each Selling Fund and Buying Fund, see the Selling Fund Prospectuses
and the Buying Fund Prospectus, respectively.
3
COMPARISON OF SALES CHARGES
No sales charges are applicable to shares of Buying Fund received by
holders of each Selling Fund's shares in connection with the Reorganizations. No
redemption of a Selling Fund's shares that could cause the imposition of a
contingent deferred sales charge ("CDSC") will result in connection with the
Reorganizations. The holding period for purposes of determining whether to
charge a CDSC upon redemptions of shares of Buying Fund received in connection
with the Reorganization will be the same as the holding period of your shares
immediately prior to the Reorganizations.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of each Selling Fund
and Buying Fund. The fee tables at Exhibit C include comparative information
about maximum initial sales charges on purchases of Class A shares of each
Selling Fund and Buying Fund and the maximum CDSC on redemptions of certain
classes of shares of each Selling Fund and Buying Fund. For more detailed
information on initial sales charges, including volume purchase breakpoints and
waivers, and reductions of CDSCs over time, see the Selling Fund Prospectuses
and the Buying Fund Prospectus and the related Statements of Additional
Information.
CLASS A CLASS B CLASS C
- - subject to an initial - not subject to an initial - not subject to an
sales charge* sales charge initial sales charge
- - may be subject to a CDSC - subject to a CDSC on - subject to a CDSC on
on redemptions made within 12 certain redemptions certain redemptions
or 18 months from the date of
certain purchases
CLASS R INSTITUTIONAL CLASS
- - not subject to an initial - not subject to an
sales charge initial sales charge
- - may be subject to a CDSC - not subject to a CDSC
on redemptions made within 12
months from the date of
certain purchases
- ----------------
* Each Selling Fund and Buying Fund waive initial sales charges on Class A
shares for certain categories of investors, including certain of their
affiliated entities and certain of their employees, officers and trustees
and those of their investment advisor.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value, net of
reinvested dividends and capital gains distributions.
COMPARISON OF DISTRIBUTION AND PURCHASE AND REDEMPTION PROCEDURES
Shares of each Selling Fund and Buying Fund are distributed by A I M
Distributors, Inc. ("AIM Distributors"), a registered broker-dealer and wholly
owned subsidiary of AIM.
Each of the Selling Funds and Buying Fund have adopted a distribution plan
that allows the payment of distribution and service fees for the sale and
distribution of the shares of each of their respective classes. Distribution
fees are payable to AIM Distributors for distribution services. The fee tables
at Exhibit C include comparative information about the distribution and service
fees payable by each class of shares of each Selling Fund and Buying Fund. Each
class of shares of Buying Fund will have the same or lower aggregate
distribution and service fees as the corresponding class of shares of each
Selling Fund.
The purchase and redemption procedures of each Selling Fund and Buying
Fund are substantially the same. For information regarding the purchase and
redemption procedures of each Selling Fund and Buying Fund, see the Selling Fund
Prospectuses and the Buying Fund Prospectus, respectively.
4
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of each Selling Fund,
unanimously recommends that you vote "FOR" this Proposal.
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with
Buying Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
This is especially true with respect to equity securities of smaller companies,
whose prices may go up and down more than equity securities of larger,
more-established companies. Also, since equity securities of smaller companies
may not be traded as often as equity securities of larger, more-established
companies, it may be difficult or impossible for the fund to sell securities at
a desirable price.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in each Selling Fund are similar
to those described above for Buying Fund because of the similarities in their
investment objectives and strategies. Set forth below is a discussion of certain
risks that differ between Buying Fund and each Selling Fund. You can find more
detailed descriptions of specific risks associated with each Selling Fund in the
Selling Fund Prospectuses.
Buying Fund invests without regard to market capitalization, but expects
to invest a significant portion of its assets in securities of mid- and
large-sized companies. Aggressive Growth Fund invests in securities of small-
and medium-sized growth companies. In this regard, an investment in Aggressive
Growth Fund may pose greater risks than an investment in Buying Fund because the
prices of securities of small capitalization companies may go up and down more
than the prices of larger, more established companies. Further, Aggressive
Growth Fund may engage in active and frequent trading of portfolio securities to
achieve its investment objective. If Aggressive Growth Fund does trade in this
way, it may incur increased transaction costs, which can lower the actual return
on the shareholder's investment. Active trading may also increase short-term
gains and losses, which may affect the taxes shareholders have to pay.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Trust in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buying Fund. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares at the end of the month which is eight years after the date on which
shares were purchased, there are no conversion rights.
5
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its semi-annual
report to shareholders for the semi-annual period ended April 30, 2005 is set
forth in Appendix IV of this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
financial highlights for Buying Fund in Appendix III attached to this Proxy
Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE PLANS
TERMS OF THE REORGANIZATIONS
The terms and conditions under which the Reorganizations may be
consummated are set forth in the respective Plans. Significant provisions of the
Plans are summarized below; however, this summary is qualified in its entirety
by reference to the Plans, copies of which are attached as Appendix I and II to
this Proxy Statement/Prospectus.
THE REORGANIZATIONS
Consummation of the Reorganizations (the "Closing") is expected to occur
on March 13, 2006, at 8:00 a.m., Eastern Time (the "Effective Time") on the
basis of values calculated as of the close of regular trading on the New York
Stock Exchange on March 10, 2006 (the "Valuation Date"). At the Effective Time,
all of the assets of each Selling Fund will be delivered to Trust's custodian
for the account of Buying Fund in exchange for the assumption by Buying Fund of
the liabilities of each Selling Fund and delivery by Trust directly to the
holders of record as of the Effective Time of the issued and outstanding shares
of each class of your Fund of a number of shares of each corresponding class of
Buying Fund (including, if applicable, fractional shares rounded to the nearest
thousandth), having an aggregate net asset value equal to the value of the net
assets of a Selling Fund so transferred, assigned and delivered, all determined
and adjusted as provided in the applicable Plan. Upon delivery of such assets,
Buying Fund will receive good and marketable title to such assets free and clear
of all liens.
In order to ensure continued qualification of each Selling Fund for
treatment as a "regulated investment company" for tax purposes and to eliminate
any tax liability of each Selling Fund arising by reason of undistributed
investment company taxable income or net capital gain, Trust will declare on or
prior to the Valuation Date to the shareholders of each Selling Fund a dividend
or dividends that, together with all previous such dividends, shall have the
effect of distributing (a) all of each Selling Fund's investment company taxable
income (determined without regard to any deductions for dividends paid) for the
taxable year ended October 31, 2005 and for the short taxable year beginning on
November 1, 2005 and ending on the Closing and (b) all of your Fund's net
capital gain recognized in its taxable year ended October 31, 2005 and in such
short taxable year (after reduction for any capital loss carryover).
Buying Fund will proceed with each of the Reorganizations if the
shareholders of the respective Selling Fund approve the applicable Plan,
provided that consummation of the Aggressive Growth Fund Reorganization is
conditioned on consummation of the Weingarten Fund Reorganization.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Trust will redeem the outstanding
shares of each Selling Fund from shareholders in accordance with the applicable
Agreement and Declaration of Trust, Bylaws and the Delaware Statutory Trust Act.
BOARD CONSIDERATIONS
AIM initially proposed that the Board consider the Reorganizations at an
in-person meeting of the Board held on October 27, 2005, at which preliminary
discussions of the Reorganizations took place. After careful consideration and
after weighing the pros and cons of each of the Reorganizations, the Board
determined that each of the Reorganizations is advisable and in the best
interests of each Selling Fund and will not dilute the interests of each Selling
Fund's shareholders, and approved the Plans and the Reorganizations, at a
telephonic meeting of the Board held on November 14, 2005.
6
Over the course of the Board meetings, the Board received from AIM written
materials that contained information concerning each Selling Fund and Buying
Fund, including comparative total return and fee and expense information, a
comparison of investment objectives and strategies of each Selling Fund and
Buying Fund and pro forma expense ratios for Buying Fund giving effect to the
Reorganizations. AIM also provided the Board with written materials concerning
the structure of the proposed Reorganizations and the Federal tax consequences
of the Reorganizations.
Following the initial Board meeting, the Board requested additional
information from AIM with respect to: the availability of suitable merger
candidates, current litigation, contingent assets and liabilities, the advantage
(if any) of structuring the Reorganizations as taxable transactions, the
calculation of pro forma expense ratios and the effect on transfer agency fees.
AIM provided such additional information to the Board prior to and at the
November 14, 2005 meeting. In addition, the Board requested a follow-up report
after the consummation of the Reorganizations that shows the actual costs and
expenses of the Reorganizations.
In evaluating each of the Reorganizations, the Board considered a number
of factors, including:
- The investment objective and principal investment strategies of each
Selling Fund and Buying Fund.
- The comparative performance of each Selling Fund and Buying Fund.
- The comparative expenses of each Selling Fund and Buying Fund and
the pro forma expenses of Buying Fund after giving effect to each
Reorganization.
- The comparative sizes of each Selling Fund and Buying Fund.
- The consequences of the Reorganizations for Federal income tax
purposes, including the treatment of any unrealized capital gains
and capital loss carryforwards available to offset future capital
gains of each Selling Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by
each Selling Fund or Buying Fund in connection with the
Reorganizations.
- The projected financial impact to AIM and its affiliates of the
Reorganizations.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of each
Selling Fund in connection with the Reorganizations.
Based on the foregoing and the information presented at the Board meetings
discussed below, the Board determined that the Reorganizations are advisable and
in the best interests of each Selling Fund and will not dilute the interests of
each Selling Fund's shareholders. Therefore, the Board recommended the approval
of the Plans by the shareholders of each Selling Fund at the Special Meetings.
Aggressive Growth Fund Reorganization
AIM proposed the Aggressive Growth Fund Reorganization, together with the
Weingarten Fund Reorganization discussed below, as part of an effort to
consolidate the AIM Funds' growth fund offerings. In considering the Aggressive
Growth Fund Reorganization, the Board noted that the funds have similar
investment objectives and are managed using similar investment strategies. In
addition, Buying Fund's long-term performance track record is better than
Aggressive Growth Fund's and the expenses of the combined fund are expected to
be lower than those of Aggressive Growth Fund.
The Board noted that since September 16, 2005, both Aggressive Growth Fund
and Buying Fund have been managed by the same lead portfolio manager and
portfolio management team using similar investment strategies. Although Buying
Fund and Aggressive Growth Fund only had approximately 20% portfolio overlap as
of July 31, 2005, the amount of portfolio overlap between the funds is expected
to increase because the same portfolio management team now manages both funds
using similar investment strategies. The Board noted that Aggressive
7
Growth Fund is currently positioned as a small- to mid-cap growth fund, whereas
Buying Fund has a multi-cap discipline focusing on mid- and large-cap stocks.
Thus, Aggressive Growth Fund shareholders may lose most of their current
small-cap exposure in Buying Fund's investment process.
The Board also noted that consummation of the Aggressive Growth Fund
Reorganization is conditioned on consummation of the Weingarten Fund
Reorganization. This is due to the fact that if the Weingarten Fund
Reorganization was not consummated, the asset retention requirements for small
cap stocks necessary to maintain the tax-free nature of the Aggressive Growth
Fund Reorganization could unduly limit the portfolio manager's flexibility in
managing the combined fund because a disproportionately large percentage of the
assets of the combined fund could be required to be held in small cap stocks.
The Board considered the relative sizes of the two funds and concluded
that Buying Fund, which has a larger asset base, should be the surviving fund in
the Aggressive Growth Fund Reorganization. As of July 31, 2005, Buying Fund had
net assets of approximately $5.8 billion, compared to net assets for Aggressive
Growth Fund of approximately $1.8 billion. The Board determined that it was
appropriate for Buying Fund to be the surviving fund in the Aggressive Growth
Fund Reorganization primarily because the investment process Buying Fund's
management team utilizes to manage Buying Fund will continue after such
Reorganization. Consequently, the Board determined that Buying Fund's
performance track record more accurately reflects the results of the investment
process that the combined fund will utilize after the Aggressive Growth Fund
Reorganization.
The Board considered the performance of Buying Fund in relation to the
performance of Aggressive Growth Fund, noting that although Aggressive Growth
Fund has recently provided better returns, Buying Fund has provided better
long-term returns to its shareholder. As of July 31, 2005, the relative
performance of Class A shares of Aggressive Growth Fund and Buying Fund (without
sales loads) was as follows:
AVERAGE ANNUAL TOTAL RETURNS
One Five Ten Since Inception
Year Years Years Inception Date
------ ------ ----- --------- ---------
Aggressive Growth Fund 19.17% -5.28% 5.67% 11.89% 05/01/84
Buying Fund 14.02% -7.60% 5.03% 14.38% 04/30/76
The performance information in Exhibit B supports the Board's
determination that Buying Fund's long-term performance generally has been better
than that of Aggressive Growth Fund. See "Exhibit B - Comparison of Performance
of Each Selling and Buying Fund."
The Board also considered the operating expenses the funds incur. As a
percentage of the daily net assets, the total annual operating expenses of
Buying Fund prior to giving pro forma effect to the Aggressive Growth Fund
Reorganization are lower than the total annual operating expenses of Aggressive
Growth Fund for Class A, Class B, Class C, and Class R shares, but slightly
higher for Institutional Shares. The Board noted that AIM has proposed to reduce
the investment advisory fee applicable to the combined fund as described above
in "SUMMARY - Comparison of Fees and Expenses."
At the November 14, 2005 meeting, the Board considered AIM's proposal to
amend the advisory agreement for Buying Fund to reflect a reduced advisory fee,
effective as of the Closing. The Board noted that the reduced advisory fee
schedule is the same as Aggressive Growth Fund's current advisory fee schedule.
In addition, AIM previously agreed to waivers of its management fees for both
funds. AIM reported to the Board that, based upon historical data at a specified
date and related projected data, on a pro forma basis, the total annual
operating expense ratios of Buying Fund, after giving effect to current fee
waivers, are expected to be approximately 0.05% lower than those of Aggressive
Growth Fund for Class A, Class B, Class C and Class R shares and approximately
0.01% lower for Institutional Class shares. In the absence of such fee waivers,
on a pro forma basis, the total annual operating expenses of Buying Fund are
also expected to be generally lower than those of Aggressive Growth Fund. The
Board considered the proposed reduction of the advisory fee schedule in
approving the Reorganization at the November 14, 2005 meeting. The Investment
Company Act of 1940 requires that changes to an investment advisory agreement be
approved at an in-person meeting. [Accordingly. the Board did not approve the
reduced advisory fee schedule until an in-person meeting on December , 2005.]
8
The total expenses to be incurred by Aggressive Growth Fund in connection
with the Aggressive Growth Fund Reorganization are expected to be approximately
$957,000. The Board noted that AIM had agreed to pay 75% of the total amount, or
approximately $717,000. Buying Fund will bear its costs and expenses incurred in
connection with the Aggressive Growth Fund Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Aggressive Growth Fund Reorganization, AIM estimated the
amount of mailing, printing, solicitation, and legal and accounting fees to be
incurred by both Buying Fund and Aggressive Growth Fund. AIM then performed a
qualitative analysis that took into account, among other things, the expected
benefits to be enjoyed by Aggressive Growth Fund's shareholders through reduced
expenses on a pro forma basis, the amount of time estimated for Aggressive
Growth Fund's shareholders to recoup expenses incurred in the Aggressive Growth
Fund Reorganization in light of such expected benefits, the effect incurring
such expenses would have on the net asset value of Aggressive Growth Fund,
whether there was a financial impact to AIM's profit and loss (positive or
negative) and the relative performance of Aggressive Growth Fund and Buying
Fund.
Weingarten Fund Reorganization
AIM similarly proposed the Weingarten Fund Reorganization as part of an
effort to consolidate the AIM Funds' growth fund offerings. In considering the
Weingarten Fund Reorganization, the Board noted that Buying Fund and Weingarten
Fund have the same investment objectives, are managed using similar investment
strategies and invest in similar securities. In addition, Buying Fund's
long-term performance track record is better than Weingarten Fund's and the
expenses of the combined fund are expected to be lower than those of Weingarten
Fund.
The Board noted that since September 16, 2005, Weingarten Fund and Buying
Fund have been managed using the same discipline by the same lead portfolio
manager and portfolio management team. The Board noted that because Weingarten
Fund and Buying Fund have the same investment objectives and similar investment
strategies, there is significant portfolio overlap between these two funds. As
of July 31, 2005, approximately 64% of Weingarten Fund's total net assets were
invested in securities Buying Fund also owns.
In addition, the Board noted that Weingarten Fund is currently positioned
as a large-cap growth fund, whereas Buying Fund has a multi-cap discipline
focusing on mid- and large-cap stocks. Thus, as a result of the Weingarten Fund
Reorganization, Weingarten Fund shareholders may lose some exposure to large-cap
stocks in Buying Fund's investment process.
The Board considered the relative sizes of the two funds and concluded
that Buying Fund, which has a larger asset base, should be the surviving fund in
the Weingarten Fund Reorganization. As of July 31, 2005, Buying Fund had net
assets of approximately $5.8 billion, compared to net assets for Weingarten Fund
of approximately $2.5 billion. The Board determined that it was appropriate for
Buying Fund to be the surviving fund in the Weingarten Fund Reorganization
primarily because the investment process Buying Fund's management team utilizes
to manage Buying Fund will continue to apply after the Weingarten Fund
Reorganization. Consequently, the Board determined that Buying Fund's
performance track record more accurately reflects the results of the investment
process that the combined fund will utilize after the Weingarten Fund
Reorganization.
The Board considered the performance of Buying Fund in relation to the
performance of Weingarten Fund, noting that although Weingarten Fund has
recently provided better returns, Buying Fund has provided better long-term
returns to its shareholders than Weingarten Fund. As of July 31, 2005, the
relative performance of Class A shares of Weingarten Fund and Buying Fund
(without sales loads) was as follows:
AVERAGE ANNUAL TOTAL RETURNS
One Five Ten Since Inception
Year Years Years Inception Date
------ ------- ----- --------- ---------
Weingarten Fund 15.47% -12.56% 3.70% 11.68% 06/17/69
Buying Fund 14.02% -7.60% 5.03% 14.38% 04/30/76
9
The performance information in Exhibit B supports the Board's
determination that Buying Fund's long-term performance has been better than that
of Weingarten Fund. See "Exhibit B - Comparison of Performance of Each Selling
Fund and Buying Fund."
The Board also considered the operating expenses the funds incur. The
total annual operating expenses of Buying Fund prior to giving pro forma effect
to the Weingarten Fund Reorganization, as a percentage of average daily net
assets, are lower than the total annual operating expenses of your Fund. The
Board noted that AIM has proposed to reduce the investment advisory fee
applicable to the combined fund as described above in "SUMMARY Comparison of
Fees and Expenses."
At the November 14, 2005 meeting, the Board was presented with a new
advisory fee waiver schedule for Buying Fund to be effective as of the Closing
of the Weingarten Fund Reorganization. AIM reported to the Board that, based
upon historical data at a specified date and related projected data, on a pro
forma basis, the total annual operating expense ratios of Buying Fund, after
giving effect to current fee waivers, are expected to be approximately 0.13%
lower than those of Weingarten Fund for Class A, Class B, Class C and Class R
shares and approximately 0.10% lower for Institutional Class shares. In the
absence of such fee waivers, on a pro forma basis, the total annual operating
expense ratios of Buying Fund are also expected to be lower than those of
Weingarten Fund after the Weingarten Fund Reorganization.
As described above, the Board considered AIM's proposal to reduce the
advisory fee schedule to be applicable to Buying Fund if both the Aggressive
Growth Fund Reorganization and the Weingarten Fund Reorganization are approved.
The Board noted that the reduced advisory fee schedule is the same as Aggressive
Growth Fund's current advisory fee schedule. The Board considered the proposed
reduction of the advisory fee schedule in approving the Weingarten Fund
Reorganization at the November 14, 2005 meeting. The Investment Company Act of
1940 requires that changes to an investment advisory agreement be approved at an
in-person meeting. [Accordingly. the Board did not approve the reduced advisory
fee schedule until an in-person meeting on December , 2005.]
The Board also considered, based upon historical data at a specified date,
the effect of the Weingarten Fund Reorganization on the anticipated tax benefits
to shareholders from the utilization of the capital loss carryforwards of
Weingarten Fund and of Buying Fund as offsets to future realized capital gains.
AIM provided the Board a model analyzing the year-to-year potential effect of
the imposition of limitations on the use of Weingarten Fund's capital loss
carryforwards based on certain assumptions, including assumptions regarding
market appreciation, sales and redemptions, portfolio turnover and tax rates.
This model estimated that as a result of the Weingarten Fund Reorganization,
certain capital loss carryforwards available to the combined fund would expire
earlier than if the Weingarten Fund Reorganization did not occur. In addition,
although approximately 80% of the capital loss carryforwards of Weingarten Fund
are estimated to be disallowed as a consequence of the Weingarten Fund
Reorganization, Buying Fund would still retain capital loss carryforwards after
such Reorganization. Such capital loss carryforwards are estimated to be
slightly greater than the net unrealized built-in gain in the assets that Buying
Fund is expected to hold immediately after consummation of the Weingarten Fund
Reorganization. The Board also noted that the treatment of these tax attributes
can be affected by a variety of different factors occurring after the date of
the data presented to the Board (both before and after the Closing). As a
result, the outcome of these matters is difficult to predict.
The total expenses to be incurred by Weingarten Fund in connection with
the Weingarten Fund Reorganization are expected to be approximately $1.5
million. The Board noted that AIM had agreed to pay 50% of the total amount, or
approximately $750,000. Buying Fund will bear its costs and expenses incurred in
connection with the Weingarten Fund Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Weingarten Fund Reorganization, AIM estimated the amount of
mailing, printing, solicitation, and legal and accounting fees to be incurred by
both Buying Fund and Weingarten Fund. AIM then performed a qualitative analysis
that took into account, among other things, the expected benefits to be enjoyed
by Weingarten Fund's shareholders through reduced expenses on a pro forma basis,
the amount of time estimated for Weingarten Fund's shareholders to recoup
expenses incurred in the Weingarten Fund Reorganization in light of such
expected benefits, the effect incurring such expenses would have on the net
asset value Weingarten Fund, whether there was a financial impact to AIM's
profit and loss (positive or negative) and the relative performance of
Weingarten Fund and Buying Fund.
OTHER TERMS
If any amendment is made to the Plans following the mailing of this Proxy
Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material
10
adverse effect on shareholders, the Plans may be amended without shareholder
approval by mutual agreement of the parties.
The obligations of Trust pursuant to the Plans are subject to various
conditions, including the following conditions:
- the assets of each Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets held
by such Selling Fund immediately prior to the Reorganization;
- Trust's Registration Statement on Form N-14 under the Securities Act
of 1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no
stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened by the SEC (and not
withdrawn or terminated);
- the shareholders of Weingarten Fund shall have approved the
Weingarten Plan;
- the shareholders of Aggressive Growth Fund shall have approved the
Aggressive Growth Plan, provided that it is also a condition to the
Aggressive Growth Reorganization that the Weingarten Fund
Reorganization be consummated; and
- Trust shall have received an opinion from Ballard Spahr Andrews &
Ingersoll, LLP that the consummation of the transactions
contemplated by the Plans will not result in the recognition of gain
or loss for Federal income tax purposes for each Selling Fund,
Buying Fund or their shareholders.
The Board of Trustees of Trust may waive without shareholder approval any
default or any failure to satisfy any of the above conditions as long as such a
waiver will not have a material adverse effect on the benefits intended under
the Plans for the shareholders of each Selling Fund. The Plans may be terminated
and the Reorganizations may be abandoned at any time if the shareholders of each
Selling Fund do not approve their respective Plan or if the Closing does not
occur on or before September 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of each Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from each Reorganization, under currently applicable law, are
as follows:
- each Reorganization will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code;
- no gain or loss will be recognized by a Selling Fund upon the
transfer of its assets to Buying Fund solely in exchange for shares
of Buying Fund and Buying Fund's assumption of the liabilities of
such Selling Fund or on the distribution of those shares to such
Selling Fund's shareholders;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of a Selling Fund in exchange for shares of Buying Fund
issued directly to such Selling Fund's shareholders;
- no gain or loss will be recognized by any shareholder of each
Selling Fund upon the exchange of shares of such Selling Fund for
shares of Buying Fund;
11
- the tax basis of the shares of Buying Fund to be received by a
shareholder of each Selling Fund will be the same as the
shareholder's tax basis of the shares of such Selling Fund
surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of each Selling Fund will include the period for which
such shareholder held the shares of such Selling Fund exchanged
therefor, provided that such shares of each Selling Fund are capital
assets in the hands of such shareholder as of the Closing; and
- Buying Fund will thereafter succeed to and take into account any
capital loss carryover and certain other tax attributes of each
Selling Fund, subject to all relevant conditions and limitations on
the use of such tax benefits.
Trust has not requested and will not request an advance ruling from the
IRS as to the Federal tax consequences of the Reorganizations. As a condition to
Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a favorable opinion
to Trust as to the foregoing Federal income tax consequences of the
Reorganizations, which opinion will be conditioned upon, among other things, the
accuracy, as of the Effective Time, of certain representations of Trust upon
which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its opinion.
The conclusions reached in that opinion could be jeopardized if the
representations of Trust are incorrect in any material respect. A copy of the
opinion will be filed with the Securities and Exchange Commission and will be
available for public inspection. See "Information Filed with the Securities and
Exchange Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATIONS IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF EACH SELLING FUND. EACH SELLING FUND'S SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM
OF THEIR REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganizations will each be accounted for on a tax-free combined
basis. Accordingly, the book cost basis to Buying Fund of the assets of each
Selling Fund will be the same as the book cost basis of such assets to such
Selling Fund.
RIGHTS OF SHAREHOLDERS
Each Selling Fund is a separate series of shares of beneficial interest of
Trust. Since both Selling Funds are part of the same legal entity, there are no
material differences in the rights of shareholders.
CAPITALIZATION
The following table sets forth, as of October 31, 2005, (i) the
capitalization of each class of shares of AIM Weingarten Fund ("Selling Fund");
(ii) the capitalization of each class of shares of AIM Constellation Fund
("Buying Fund") and (iii) the pro forma capitalization of each class of shares
of Buying Fund as adjusted to give effect to the transactions contemplated by
the Plans.
AIM AIM CONSTELLATION
WEINGARTEN AIM CONSTELLATION FUND
FUND FUND PRO FORMA
SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- ----------------- ----------- ------------------
Net Assets................... $1,723,043,673 $ 4,468,174,101 $ (588,088) $ 6,190,629,686
Shares Outstanding........... 128,335,494 189,127,212 (24,887) 262,034,464
Net Asset Value Per Share.... $ 13.43 $ 23.63 $ 23.63
12
PRO FORMA
SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS B SHARES CLASS B SHARES ADJUSTMENTS CLASS B SHARES
-------------- -------------- ----------- ---------------
Net Assets................... $ 511,424,921 $ 531,710,341 $ (133,248) $ 1,043,002,014
Shares Outstanding........... 41,794,186 24,173,495 (6,057) 47,418,684
Net Asset Value Per Share.... $ 12.24 $ 22.00 $ 22.00
PRO FORMA
SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS C SHARES CLASS C SHARES ADJUSTMENTS CLASS C SHARES
-------------- -------------- ----------- ---------------
Net Assets................... $ 119,925,188 $ 132,283,566 $ (24,458) $ 252,184,296
Shares Outstanding........... 9,792,684 6,015,953 (1,112) 11,470,065
Net Asset Value Per Share.... $ 12.25 21.99 $ 21.99
PRO FORMA
SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS R SHARES CLASS R SHARES ADJUSTMENTS CLASS R SHARES
-------------- -------------- ----------- ---------------
Net Assets................... $ 1,854,284 $ 7,576,625 $ (586) $ 9,430,323
Shares Outstanding........... 139,169 321,860 (25) 400,583
Net Asset Value Per Share.... $ 13.32 $ 23.54 $ 23.54
PRO FORMA
SELLING FUND BUYING FUND BUYING FUND
INSTITUTIONAL INSTITUTIONAL PRO FORMA INSTITUTIONAL
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
-------------- ------------- ----------- -------------
Net Assets................... $ 1,781,700 $ 192,595,792 $ (620) $ 194,376,872
Shares Outstanding........... 124,606 7,497,942 (24) 7,567,302
Net Asset Value Per Share.... $ 14.30 $ 25.69 $ 25.69
CAPITALIZATION
The following table sets forth, as of October 31, 2005, (i) the
capitalization of each class of shares of AIM Aggressive Growth Fund ("Selling
Fund") and AIM Weingarten Fund ("Selling Fund"); (ii) the capitalization of each
class of shares of AIM Constellation Fund ("Buying Fund") and (iii) the pro
forma capitalization of each class of shares of Buying Fund as adjusted to give
effect to the transactions contemplated by the Plans.
AIM
AIM CONSTELLATION
AGGRESSIVE AIM AIM CONSTELLATION FUND
GROWTH FUND WEINGARTEN FUND FUND PRO FORMA
SELLING FUND SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- --------------- ----------------- ----------- --------------
Net Assets................... $1,211,689,478 $ 1,723,043,673 $ 4,468,174,101 $ (786,489) $7,402,120,763
Shares Outstanding........... 117,075,436 128,335,494 189,127,212 (33,284) 313,312,145
Net Asset Value Per Share.... $ 10.35 $ 13.43 $ 23.63 $ 23.63
PRO FORMA
SELLING FUND SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS B SHARES CLASS B SHARES CLASS B SHARES ADJUSTMENTS CLASS B SHARES
-------------- --------------- ----------------- ----------- --------------
Net Assets................... $ 255,455,614 $ 511,424,921 $ 531,710,341 $ (164,407) $1,298,426,469
Shares Outstanding........... 26,147,301 41,794,186 24,173,495 (7,473) 59,030,566
Net Asset Value Per Share.... $ 9.77 $ 12.24 $ 22.00 $ 22.00
PRO FORMA
SELLING FUND SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS C SHARES CLASS C SHARES CLASS C SHARES ADJUSTMENTS CLASS C SHARES
-------------- --------------- ----------------- ----------- --------------
Net Assets................... $ 72,530,722 $ 119,925,188 $ 132,283,566 $ (32,985) $ 324,706,491
Shares Outstanding........... 7,424,842 9,792,684 6,015,953 (1,500) 14,768,481
Net Asset Value Per Share.... $ 9.77 $ 12.25 $ 21.99 $ 21.99
13
PRO FORMA
SELLING FUND SELLING FUND BUYING FUND PRO FORMA BUYING FUND
CLASS R SHARES CLASS R SHARES CLASS R SHARES ADJUSTMENTS CLASS R SHARES
-------------- --------------- ----------------- ----------- --------------
Net Assets................... $ 3,497,857 $ 1,854,284 $ 7,576,625 $ (986) $ 12,927,780
Shares Outstanding........... 341,108 139,169 321,860 (42) 549,095
Net Asset Value Per Share.... $ 10.25 $ 13.32 $ 23.54 $ 23.54
PRO FORMA
SELLING FUND SELLING FUND BUYING FUND BUYING FUND
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL PRO FORMA INSTITUTIONAL
CLASS SHARES CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
-------------- --------------- ----------------- ----------- --------------
Net Assets................... $ 4,010,110 $ 1,781,700 $ 192,595,792 $ (1,133) $ 198,386,469
Shares Outstanding........... 379,600 124,606 7,497,942 (44) 7,723,295
Net Asset Value Per Share.... $ 10.56 $ 14.30 $ 25.69 $ 25.69
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the
Reorganizations will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND SELLING FUNDS
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix III: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" for more information about the pricing, purchase, redemption and
repurchase of shares of Buying Fund, tax consequences to shareholders of various
transactions in shares of Buying Fund, distribution arrangements and the
multiple class structure of Buying Fund.
For more information with respect to each Selling Fund concerning the
following topics, please refer to the following sections of the Selling Fund
Prospectuses, which have been made a part of this Proxy Statement/ Prospectus by
reference: (i) see "Fund Performance" for more information about the performance
of each Selling Fund; (ii) see "Fund Management" and "Portfolio Managers" for
more information about the management of each Selling Fund; (iii) see "Share
Price" for more information about the pricing of shares of each Selling Fund;
(iv) see "Taxes" for more information about tax consequences to shareholders of
various transactions in shares of each Selling Fund; and (v) see "Dividends And
Capital Gain Distributions" for more information about each Selling Fund's
policy with respect to dividends and distributions.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which Trust has filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Trust's registration statement containing the Aggressive Growth Fund Prospectus
and related Statement of Additional Information, the Weingarten Fund Prospectus
and related Statement of Additional Information, and the Buying Fund Prospectus
and related Statement of Additional Information, is Registration No. 811-1424.
Such Prospectuses are incorporated herein by reference.
Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith file reports
and other information with the SEC. Reports, proxy material, registration
statements and other information filed by Trust (including the Registration
Statement of Buyer relating to Buying Fund on Form N-14 of which this Proxy
Statement/Prospectus is a part) may be inspected without charge and copied at
the public reference facilities maintained by the SEC at Room 1014, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following regional
office of the SEC: 500 West Madison Street, Suite 1400,
14
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Trust and other registrants that file
electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meetings
and at any adjournments of the Special Meetings. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special
Meetings. However, you do not need to attend the Special Meetings to vote your
shares. Instead, you may simply complete, sign and return the enclosed proxy
card or vote by telephone or through a website established for that purpose.
Trust intends to mail this Proxy Statement/Prospectus, the enclosed Notice
of Special Meeting of Shareholders and the enclosed proxy card on or about
January __, 2006 to all shareholders entitled to vote. Shareholders of record of
each Selling Fund as of the close of business on December 2, 2005 (the "Record
Date") are entitled to vote at the Special Meetings. The number of shares
outstanding of each class of shares of each Selling Fund on the Record Date can
be found at Exhibit D. Each share is entitled to one vote for each full share
held, and a fractional vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETINGS
We are holding both of the Special Meetings at 11 Greenway Plaza, Suite
100, Houston, Texas 77046-1173 on February 28, 2006, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meetings and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Trust at (800) 952-3502 if you
plan to attend the Special Meetings.
VOTING BY PROXY
Whether you plan to attend the Special Meetings or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meetings and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meetings, your "proxy" (the individual named on your
proxy card) will vote your shares as you have directed. If you sign your proxy
card but do not make specific choices, your proxy will vote your shares FOR the
proposal to approve the Plans, as recommended by the Board, and in accordance
with management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meetings.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Trust in writing to the address of Trust set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meetings that you
have revoked your proxy. In addition, although merely attending the Special
Meetings will not revoke your proxy, if you are present at the Special Meetings
you may withdraw your proxy and vote in person. Shareholders may also transact
any other business not currently contemplated that may properly come before the
Special Meetings in the discretion of the proxies or their substitutes.
15
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of each Selling Fund on the Record Date are present at the
Special Meetings in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meetings for purposes of establishing a quorum.
If a quorum is not present at the Special Meetings or a quorum is present
but sufficient votes to approve the Plans are not received, the persons named as
proxies may propose one or more adjournments of the Special Meetings to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the votes cast at the Special Meetings in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR the Reorganizations in favor of such an
adjournment and will vote those proxies required to be voted AGAINST the
Reorganizations against such adjournment. A shareholder vote may be taken on the
Reorganizations prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE EACH PROPOSAL
If a quorum is present with respect to the Aggressive Growth Fund Special
Meeting, the affirmative vote of the majority of shares cast is required to
approve the Aggressive Growth Fund Plan. It is a condition to consummation of
the Aggressive Growth Fund Reorganization that Weingarten Fund shareholders
approve the Weingarten Fund Plan.
If a quorum is present with respect to the Weingarten Fund Special
Meeting, the affirmative vote of the majority of shares cast is required to
approve the Weingarten Fund Plan. It is not a condition to consummation of the
Weingarten Fund Reorganization that Aggressive Growth Fund shareholders approve
the Aggressive Growth Fund Plan.
Abstentions and broker non-votes are counted as present but are not
considered votes cast at the Special Meetings.
PROXY SOLICITATION
Trust will solicit proxies for the Special Meetings. Trust expects to
solicit proxies principally by mail, but may also solicit proxies by telephone,
facsimile or personal interview. Trust's officers will not receive any
additional or special compensation for any such solicitation. With respect to
the Aggressive Growth Fund Reorganization, Aggressive Growth Fund will bear 25%
of costs and expenses incurred in connection with the reorganization, including
solicitation costs. With respect to the Weingarten Fund Reorganization,
Weingarten Fund and AIM will each bear 50% of the costs and expenses incurred in
connection with the reorganization, including solicitation costs. Solicitation
costs for Aggressive Growth are expected to be approximately $44,000.
Solicitation costs for Weingarten Fund are expected to be approximately $64,000.
OTHER MATTERS
16
Management does not know of any matters to be presented at the Special
Meetings other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meetings, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as
of December 2, 2005, to the knowledge of Trust owned 5% or more of any class of
the outstanding shares of each Selling Fund can be found at Exhibit E.
A list of the name, address and percent ownership of each person who, as
of December 2, 2005, to the knowledge of Trust owned 5% or more of any class of
the outstanding shares of Buying Fund can be found at Exhibit F.
17
EXHIBIT A
CLASSES OF SHARES OF EACH SELLING FUND AND CORRESPONDING CLASSES OF SHARES
OF BUYING FUND
CLASSES OF SHARES OF CLASSES OF SHARES OF CORRESPONDING CLASSES OF
AGGRESSIVE GROWTH FUND WEINGARTEN FUND SHARES OF BUYING FUND
- ---------------------- -------------------- ------------------------
Class A Class A Class A
Class B Class B Class B
Class C Class C Class C
Class R Class R Class R
Institutional Class Institutional Class Institutional Class
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF EACH SELLING FUND AND BUYING FUND
(Selling Fund)
AIM AGGRESSIVE GROWTH FUND
The bar chart and table shown below provide an indication of the risks of
investing in Fund. Selling Fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Selling Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 41.51%
1996 14.34%
1997 12.24%
1998 4.99%
1999 44.98%
2000 3.00%
2001 -26.00%
2002 -22.65%
2003 27.36%
2004 11.81%
During the periods shown in the bar chart, the highest quarterly return
was 31.35% (quarter ended December 31, 1999) and the lowest quarterly return was
- -24.66% (quarter ended September 30, 2001). The year-to-date return of AIM
Aggressive Growth Class A shares as of September 30, 2005 was 2.11%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-1
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, SINCE INCEPTION
2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----- ------ ------- -------- ----------- ---------
CLASS A 05/01/84
Return Before Taxes 5.69% (4.52)% 8.17% --
Return After Taxes on Distributions 5.69 (5.33) 7.15 --
Return Before Taxes on 3.70 (3.88) 6.94 --
Distributions and Sale of Fund Shares
CLASS B 03/01/99
Return Before Taxes 6.00 (4.48) -- 4.30
CLASS C 03/01/99
Return Before Taxes 10.00 (4.17) -- 4.43
CLASS R(2) 05/01/842
Return Before Taxes 11.54 (3.68) 8.51 --
S&P 500 Index(3) 10.87 (2.30) 12.07 -- --
Russell Midcap(TM) Growth Index(4) 15.48 (3.36) 11.23
Russell 2500(R) Growth Index (5) 14.59 (2.32) 9.66 -- --
Lipper Mid-Cap Growth Fund Index(6) 14.03 (6.07) 9.68 -- --
- ----------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual, after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold Selling Fund shares through tax-deferred arrangements, such
as 40I(k) plans or individual retirement accounts. After tax returns are shown
for Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than
ten calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
Selling Fund's Class R shares. The returns shown for the five year period
are the blended returns of the historical performance of Selling Fund's
Class R shares since their inception and the restated historical
performance of Selling Fund's Class A shares (for periods prior to
inception of the Class R shares) at net asset value, adjusted to reflect
the higher Rule 12b-l fees applicable to the Class R shares. The inception
date shown in the table is that of Selling Fund's Class A shares. The
inception date of Selling Fund's Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. Selling Fund has elected to use the
Standard & Poor's 500 Index as its broad-based index. Selling Fund has
also elected to use the Russell Midcap(TM) Growth Index as its style
specific index rather than the Russell 2500(R) Growth Index because
Selling Fund believes the Russell Midcap(TM) Growth Index more closely
reflects the performance of the types of securities in which Selling Fund
invests. In addition, Selling Fund has included the Lipper Mid-Cap Growth
Fund Index (which may or may not include Selling Fund) for comparison to a
peer group.
(4) The Russell Midcap(TM) Growth Index measures the performance of those
securities in the Russell Midcap(TM) Index with a higher than average
growth forecast. The Russell Midcap(TM) Index measures the performance of
the 800 smallest companies in the Russell 1000 Index. The Russell 1000
Index measures the performance of the 1,000 largest companies domiciled in
the United States.
(5) The Russell 2500(R) Growth Index measures the performance of those Russell
2500(R) Index companies with higher price-to-book ratios and higher
forecasted growth values. The Russell 2500(R) Index measures the 2,500
smallest companies, which represents approximately 16% of the market
capitalization, of the Russell 3000 Index. The Russell 30000 Index
includes a representative sample of 3,000 of the largest U.S. companies in
leading industries and represents approximately 98% of the investable U.S.
equity market.
(6) The Lipper Mid-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Mid-Cap Growth category. These
funds, by portfolio practice, invest at least 75% of their equity assets
in companies with market capitalizations (on a three-year weighted basis)
less than 300% of the dollar-weighted median market capitalization of the
middle 1,000 securities of the S&P SuperComposite 1500 Index. Mid-Cap
Growth funds typically have an above-average price-to-earnings ratio,
price-to-book ratio, and three year sales-per-share growth value, compared
to the S&P MidCap 400 Index.
B-2
(Selling Fund)
AIM WEINGARTEN FUND
The bar chart and table shown below provide an indication of the risks of
investing in Selling Fund. Selling Fund's past performance (before and after
taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Selling Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 34.76%
1996 17.67%
1997 25.96%
1998 33.06%
1999 34.90%
2000 -20.37%
2001 -34.10%
2002 -31.50%
2003 30.74%
2004 7.95%
During the periods shown in the bar chart, the highest quarterly return
was 28.03% (quarter ended December 31, 1998) and the lowest quarterly return was
- -27.65% (quarter ended March 31, 2001). The year-to-date return of AIM
Weingarten Class A shares as of September 30, 2005 was 3.91%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-3
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, SINCE INCEPTION
2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----- ------ ------- -------- ------------ ---------
CLASS A 06/17/69
Return Before Taxes 2.03% (13.67)% 5.56% --
Return After Taxes on Distributions 2.03 (14.19) 3.54 --
Return Before Taxes on 1.32 (10.98) 4.14 --
Distributions and Sale of Fund Shares
CLASS B 06/26/95
Return Before Taxes 2.17 (13.60) -- 3.63
CLASS C 08/04/97
Return Before Taxes 6.16 (13.30) -- (1.89)
CLASS R(2) 06/17/692
Return Before Taxes 7.64 (12.88) 5.95 --
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Russell 1000(R) Growth Index (4) 6.30 (9.29) 9.59 --
Lipper Large-Cap Growth Fund Index(5) 7.45 (9.72) 8.64 --
- ----------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual, after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their Selling Fund shares through tax-deferred arrangements,
such as 40I(k) plans or individual retirement accounts. After tax returns are
shown for Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than
ten calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
Selling Fund's Class R shares. The returns shown for the five year period
and ten year periods are the blended returns of the historical performance
of Selling Fund's Class R shares since their inception and the restated
historical performance of Selling Fund's Class A shares (for periods prior
to inception of the Class R shares) at net asset value, adjusted to
reflect the higher Rule 12b-l fees applicable to the Class R shares. The
inception date shown in the table is that of the Selling Fund's Class A
shares. The inception date of Selling Fund's Class R shares is June 3,
2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. Selling Fund has elected to use the
Standard & Poor's 500 Index as its broad-based index. Selling Fund has
also elected to use the Russell 1000(R) Growth Index, which Selling Fund
believes more closely reflects the performance of the types of securities
in which Selling Fund invests. In addition, Selling Fund has included the
Lipper Large-Cap Growth Fund Index (which may or may not include Selling
Fund) for comparison to a peer group.
(4) The Russell 1000(R) Growth Index measures the performance of those
securities in the Russell 1000(R) Index with a higher than average growth
forecast. The Russell 1000(R) Growth Index measures the performance of the
largest 1,000 companies domiciled in the United States.
(5) The Lipper Large-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Large Cap Growth
category. These funds, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year
weighted basis) less than 300% of the dollar-weighted median market
capitalization of the middle 1,000 securities of the S&P SuperComposite
1500 Index. Large-Cap Growth funds typically have an above-average
price-to-earnings ratio, price-to-book ratio, and three year
sales-per-share growth value, compared to the S&P 500 Index.
B-4
(Buying Fund)
AIM CONSTELLATION FUND
The bar chart and table shown below provide an indication of the risks of
investing in Fund. Buying Fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Buying Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 35.45%
1996 16.27%
1997 12.92%
1998 18.89%
1999 44.38%
2000 -10.37%
2001 -23.61%
2002 -24.75%
2003 29.34%
2004 6.18%
During the periods shown in the bar chart, the highest quarterly return
was 36.59% (quarter ended December 31, 1999) and the lowest quarterly return was
- -23.34% (quarter ended September 30, 2001). The year-to-date return of AIM
Constellation Fund Class A shares as of September 30, 2005 was 5.34%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, SINCE INCEPTION
2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----- ------ ------- -------- ----------- ---------
CLASS A 04/30/76
Return Before Taxes 0.35% (7.73)% 7.40% --
Return After Taxes on Distributions 0.35 (8.50) 6.32 --
Return After Taxes on Distributions 0.23 (6.46) 6.24 --
and Sale of Fund Shares
CLASS B 11/03/97
Return Before Taxes 0.47 (7.64) -- 1.23%
CLASS C 08/04/97
Return Before Taxes 4.47 (7.35) -- 1.06
CLASS R(2) 04/30/762
Return Before Taxes 5.95 (6.81) 7.83 --
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Russell 1000 Growth Index(4) 6.30 (9.29) 9.59 --
Lipper Multi-Cap Growth Fund Index(5) 11.26 (7.00) 9.43 --
- ----------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold Buying Fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than
ten calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
Buying Fund's Class R shares. The returns shown for the five year period
and ten year period are the blended returns of the historical performance
of Buying Fund's Class R shares since their inception and the restated
historical performance of Buying Fund's Class A shares (for periods prior
to inception of the Class R shares) at net asset value, adjusted to
reflect the higher Rule 12b-1 fees applicable to the Class R shares. The
inception date shown in the table is that of Buying Fund's Class A shares.
The inception date of Buying Fund's Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. Buying Fund has elected to use the Standard
& Poor's 500 Index as its broad-based index. Buying Fund has also included
the Russell 1000(R) Index, which Buying Fund believes more closely
reflects the performance of the types of securities in which Buying Fund
invests. In addition, Buying Fund has included the Lipper Multi-Cap Growth
Fund Index (which may or may not include Buying Fund) for comparison to a
peer group.
(4) The Russell 1000(R) Growth Index measures the performance of those
securities in the Russell 1000(R) Index with a higher than average growth
forecast. The Russell 1000(R) Index measures the performance of the
largest 1,000 companies domiciled in the United States.
(5) The Lipper Multi-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Multi-Cap Growth
category. These funds typically have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P 500 Index.
B-6
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class R, and Institutional Class shares of AIM Weingarten Fund
("Selling Fund") and Class A, Class B, Class C, Class R, and Institutional Class
shares of AIM Constellation Fund ("Buying Fund"). Pro Forma Combined Expense
Ratios of Buying Fund giving effect to the Reorganization are also provided.
There is no guarantee that actual expenses will be the same as those shown in
this table.
AIM WEINGARTEN FUND AIM CONSTELLATION FUND
SELLING FUND BUYING FUND
(AS OF 10/31/04) (AS OF 10/31/04)
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES SHARES SHARES SHARES SHARES CLASS SHARES
---------- ------- ------- ------- ------------- ---------- ------- ------- ------- -------------
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales Charge
(Load) Imposed on
Purchase (as a
percentage of
offering price) 5.50% None None None None 5.50% None None None None
Maximum Deferred
Sales Charge (as a
percentage of
original purchase
price or redemption
proceeds, as applicable) None(1, 2) 5.00% 1.00% None(3) None None(1, 2) 5.00% 1.00% None(3) None
ANNUAL FUND
OPERATING EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees 0.64% 0.64% 0.64% 0.64% 0.64% 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and/or
Service (12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% - 0.25% 1.00% 1.00% 0.50% -
Other Expenses 0.46% 0.46% 0.46% 0.46% 0.21% 0.36% 0.36% 0.36% 0.36% 0.11%
Total Annual Fund
Operating Expenses(6) 1.35% 2.10% 2.10% 1.60% 0.85% 1.24% 1.99% 1.99% 1.49% 0.74%
Fee Waiver(7, 8) - - - - - 0.03% 0.03% 0.03% 0.03% 0.03%
Net Annual Fund
Expenses(9, 10) 1.35% 2.10% 2.10% 1.60% 0.85% 1.21% 1.96% 1.96% 1.46% 0.71%
AIM CONSTELLATION FUND
BUYING FUND
PRO FORMA COMBINED
(AS OF 10/31/04)
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
---------- ------- ------- ------- -------------
SHAREHOLDER
TRANSACTION EXPENSES
Maximum Sales Charge
(Load) Imposed on
Purchase (as a
percentage of
offering price) 5.50% None None None None
Maximum Deferred
Sales Charge (as a
percentage of
original purchase
price or redemption
proceeds, as applicable) None(1, 2) 5.00% 1.00% None(3) None
ANNUAL FUND
OPERATING EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and/or
Service (12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% -
Other Expenses 0.36% 0.36% 0.36% 0.36% 0.11%
Total Annual Fund
Operating Expenses 1.24% 1.99% 1.99% 1.49% 0.74%
Fee Waiver(6, 7, 8) 0.04% 0.04% 0.04% 0.04% 0.04%
Net Annual Fund Expenses(9, 10) 1.20% 1.95% 1.95% 1.45% 0.70%
- ----------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
C-1
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Effective July 1, 2005, the Board of Trustees has approved a permanent
reduction of the Rule 12b-1 fees applicable to Class A shares to 0.25%.
Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Weingarten Fund has contractually agreed to waive a portion of its
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 0.695% of the first $250 million, plus 0.67% of the next
$250 million, plus 0.645% of the next $500 million, plus 0.62% of the next
$1.5 billion, plus 0.595% of the next $2.5 billion, plus 0.57% of the next
$2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the
Fund's daily net assets in excess of $10 billion. The Fee Waiver reflects
this agreement.
(7) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Constellation Fund has contractually agreed to waive a portion of its
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 0.75% of the first $150 million, plus 0.615% of the next
$4.85 billion, plus 0.57% of the next $2.5 billion, plus 0.545% of the
next $2.5 billion, plus 0.52% of the Fund's daily net assets in excess of
$10 billion. The Fee Waiver reflects this agreement.
(8) Effective upon the closing of the Reorganization, the advisor for AIM
Constellation Fund has contractually agreed to waive a portion of its
advisory fees for the period January 1, 2005 through December 31, 2009, 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
0.695% of the first $250 million, plus 0.615% of the next $4 billion, plus
0.595% of the next $750 million, plus 0.57% of the next $2.5 billion, plus
0.545% of the next $2.5 billion, plus 0.52% of the Fund's daily net assets
in excess of $10 billion. The Fee Waiver reflects this agreement.
(9) At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse AIM Weingarten Fund and AIM Constellation Fund for
expenses related to market timing matters.
(10) AIM Weingarten Fund will incur additional expenses in connection with the
Reorganization.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Selling Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Selling Fund into Buying
Fund are also provided. All costs are based upon the information set forth in
the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
----- ----- ------- -------
AIM WEINGARTEN FUND (SELLING FUND)
Class A....................................................... $ 680 $ 954 $ 1,249 $ 2,085
Class B....................................................... 713 958 1,329 2,240
Class C....................................................... 313 658 1,129 2,431
Class R....................................................... 163 505 871 1,900
Institutional Class........................................... 87 271 471 1,049
AIM CONSTELLATION FUND (BUYING FUND)
Class A....................................................... $ 667 $ 913 $ 1,178 $ 1,953
Class B....................................................... 699 915 1,257 2,109
Class C....................................................... 299 615 1,057 2,303
Class R....................................................... 149 462 797 1,765
Institutional Class........................................... 73 227 395 903
AIM CONSTELLATION FUND (BUYING FUND) - PRO FORMA COMBINED
Class A....................................................... $ 666 $ 910 $ 1,173 $ 1,949
Class B....................................................... 698 912 1,252 2,105
Class C....................................................... 298 612 1,052 2,299
Class R....................................................... 148 459 792 1,760
Institutional Class........................................... 72 224 390 898
C-3
You would pay the following expenses if you did not redeem your shares:
One Three Five Ten
Year Years Years Years
----- ----- ------ -------
AIM WEINGARTEN FUND (SELLING FUND)
Class A....................................................... $ 680 $ 954 $1,249 $ 2,085
Class B....................................................... 213 658 1,129 2,240
Class C....................................................... 213 658 1,129 2,431
Class R....................................................... 163 505 871 1,900
Institutional Class........................................... 87 271 471 1,049
AIM CONSTELLATION FUND (BUYING FUND)
Class A....................................................... $ 667 $ 913 $1,178 $ 1,953
Class B....................................................... 199 615 1,057 2,109
Class C....................................................... 199 615 1,057 2,303
Class R....................................................... 149 462 797 1,765
Institutional Class........................................... 73 227 395 903
AIM CONSTELLATION FUND (BUYING FUND) - PRO FORMA COMBINED
Class A....................................................... $ 666 $ 910 $1,173 $ 1,949
Class B....................................................... 198 612 1,052 2,105
Class C....................................................... 198 612 1,052 2,299
Class R....................................................... 148 459 792 1,760
Institutional Class........................................... 72 224 390 898
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class R, and Institutional Class shares of AIM Aggressive Growth Fund
("Selling Fund") and AIM Weingarten Fund ("Selling Fund") and Class A, Class B,
Class C, Class R, and Institutional Class shares of AIM Constellation Fund
("Buying Fund"). Pro Forma Combined Expense Ratios of Buying Fund giving effect
to the Reorganizations are also provided. There is no guarantee that actual
expenses will be the same as those shown in this table.
AIM AGGRESSIVE GROWTH FUND AIM WEINGARTEN FUND
SELLING FUND SELLING FUND
(AS OF 10/31/04) (AS OF 10/31/04)
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES SHARES SHARES SHARES SHARES CLASS SHARES
---------- ------- ------- ------- ------------- --------- ------- ------- ------- -------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
(Load)
Imposed on Purchase
(as a percentage of
offering price) 5.50% None None None None 5.50% None None None None
Maximum Deferred Sales
Charge (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None(1, 2) 5.00% 1.00% None(3) None None(1, 2 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING
EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees(5) 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Distribution and/or
Service (12b-1) Fees(6) 0.25% 1.00% 1.00% 0.50% - 0.25% 1.00% 1.00% 0.50% -
Other Expenses 0.41% 0.41% 0.41% 0.41% 0.09% 0.46% 0.46% 0.46% 0.46% 0.21%
Total Annual Fund
Operating Expenses(7) 1.30% 2.05% 2.05% 1.55% 0.73% 1.35% 2.10% 2.10% 1.60% 0.85%
Fee Waiver(8, 9) - - - - - - - - - -
Net Annual Fund
Expenses(10, 11) 1.30% 2.05% 2.05% 1.55% 0.73% 1.35% 2.10% 2.10% 1.60% 0.85%
AIM CONSTELLATION FUND
AIM CONSTELLATION FUND BUYING FUND
BUYING FUND PRO FORMA COMBINED
(AS OF 10/31/04) (AS OF 10/31/04)
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES SHARES SHARES SHARES SHARES CLASS SHARES
-------- ------- ------- ------- ------------- --------- ------- ------- ------- -------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
(Load)
Imposed on Purchase
(as a percentage of
offering price) .50% None None None None 5.50% None None None None
Maximum Deferred Sales
Charge (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None(1, 2) 5.00% 1.00% None(3) None None(1, 2) 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING
EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees(5) 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and/or
Service (12b-1) Fees(6) 0.25% 1.00% 1.00% 0.50% - 0.25% 1.00% 1.00% 0.50% -
Other Expenses 0.36% 0.36% 0.36% 0.36% 0.11% 0.36% 0.36% 0.36% 0.36% 0.11%
Total Annual Fund
Operating Expenses(7) 1.24% 1.99% 1.99% 1.49% 0.74% 1.24% 1.99% 1.99% 1.99% 0.74%
Fee Waiver(8, 9) 0.03% 0.03% 0.03% 0.03% 0.03% 0.05% 0.05% 0.05% 0.05% 0.05%
Net Annual Fund
Expenses(10, 11) 1.21% 1.96% 1.96% 1.46% 0.71% 1.19% 1.94% 1.94% 1.44% 0.69%
- ----------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
C-5
(5) Effective upon the closing of the Reorganization, the Board approved a
permanent reduction of the advisory fees of the AIM Constellation Fund to
0.80% of the first $150 million, plus 0.625% of the Fund's average daily
net assets in excess of $150 million.
(6) Effective July 1, 2005, the Board of Trustees has approved a permanent
reduction of the Rule 12b-1 fees applicable to Class A shares of AIM
Weingarten Fund and AIM Constellation Fund to 0.25%. Distribution and/or
Service (12b-1) Fees reflect this agreement.
(7) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Weingarten Fund has contractually agreed to waive a portion of its
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 uniform fee schedule rate of 0.695% of the first $250 million, plus
0.67% of the next $250 million, plus 0.645% of the next $500 million, plus
0.62% of the next $1.5 billion, plus 0.595% of the next $2.5 billion, plus
0.57% of the next $2.5 billion, plus 0.545% of the next $2.5 billion, plus
0.52% of the Fund's daily net assets in excess of $10 billion. The Fee
Waiver reflects this agreement.
(8) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Constellation Fund has contractually agreed to waive a portion of its
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 uniform fee schedule rate of 0.75% of the first $150 million, plus
0.615% of the next $4.85 billion, plus 0.57% of the next $2.5 billion,
plus 0.545% of the next $2.5 billion, plus 0.52% of the Fund's daily net
assets in excess of $10 billion. The Fee Waiver reflects this agreement.
(9) Effective upon the closing of the Reorganization, the advisor for AIM
Constellation Fund has contractually agreed to waive a portion of its
advisory fees for the period January 1, 2005 through December 31, 2009, 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 uniform
fee schedule rate of 0.695% of the first $250 million, plus 0.615% of the
next $4 billion, plus 0.595% of the next $750 million, plus 0.57% of the
next $2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the
Fund's daily net assets in excess of $10 billion. The Fee Waiver reflects
this agreement.
(10) At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse AIM Aggressive Growth Fund, AIM Weingarten Fund and
AIM Constellation Fund for expenses related to market timing matters.
(11) AIM Aggressive Growth Fund and AIM Weingarten Fund may incur additional
expenses related to the Reorganization.
C-6
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of each Selling Fund and Buying Fund with the cost of
investing in other mutual funds. Pro Forma Combined costs of investing in
different classes of Buying Fund giving effect to the reorganizations of the
Selling Funds into Buying Fund are also provided. All costs are based upon the
information set forth in the Fee Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
C-7
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM AGGRESSIVE GROWTH FUND (SELLING FUND)
Class A ................................................. $ 675 $ 939 $1,224 $2,032
Class B ................................................. 708 943 1,303 2,187
Class C ................................................. 308 643 1,103 2,379
Class R ................................................. 158 490 845 1,845
Institutional Class ..................................... 75 233 406 906
AIM WEINGARTEN FUND (SELLING FUND)
Class A ................................................. $ 680 $ 954 $1,249 $2,085
Class B ................................................. 713 958 1,329 2,240
Class C ................................................. 313 658 1,129 2,431
Class R ................................................. 163 505 871 1,900
Institutional Class ..................................... 87 271 471 1,049
AIM CONSTELLATION FUND (BUYING FUND)
Class A ................................................. $ 667 $ 913 $1,178 $1,953
Class B ................................................. 699 915 1,257 2,109
Class C ................................................. 299 615 1,057 2,303
Class R ................................................. 149 462 797 1,765
Institutional Class ..................................... 73 227 395 903
AIM CONSTELLATION FUND (BUYING FUND) - PRO FORMA COMBINED
Class A ................................................. $ 665 $ 907 $1,168 $1,944
Class B ................................................. 697 909 1,247 2,100
Class C ................................................. 297 609 1,047 2,294
Class R ................................................. 147 456 787 1,756
Institutional Class ..................................... 70 221 384 892
C-8
You would pay the following expenses if you did not redeem your shares:
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM AGGRESSIVE GROWTH FUND (SELLING FUND)
Class A ................................................. $ 675 $ 939 $1,224 $2,032
Class B ................................................. 208 643 1,103 2,187
Class C ................................................. 208 643 1,103 2,379
Class R ................................................. 158 490 845 1,845
Institutional Class ..................................... 75 233 406 906
AIM WEINGARTEN FUND (SELLING FUND)
Class A ................................................. $ 680 $ 954 $1,249 $2,085
Class B ................................................. 213 658 1,129 2,240
Class C ................................................. 213 658 1,129 2,431
Class R ................................................. 163 505 871 1,900
Institutional Class ..................................... 87 271 471 1,049
AIM CONSTELLATION FUND (BUYING FUND)
Class A ................................................. $ 667 $ 913 $1,178 $1,953
Class B ................................................. 199 615 1,057 2,109
Class C ................................................. 199 615 1,057 2,303
Class R ................................................. 149 462 797 1,765
Institutional Class ..................................... 73 227 395 903
AIM CONSTELLATION FUND (BUYING FUND) - PRO FORMA COMBINED
Class A ................................................. $ 665 $ 907 $1,168 $1,944
Class B ................................................. 197 609 1,047 2,100
Class C ................................................. 197 609 1,047 2,294
Class R ................................................. 147 456 787 1,756
Institutional Class ..................................... 70 221 384 892
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. SELLING
FUNDS' AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT SELLING FUNDS' OR BUYING FUND'S PROJECTED OR ACTUAL
PERFORMANCE.
C-9
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-10
EXHIBIT D
SHARES OUTSTANDING OF EACH CLASS OF EACH SELLING FUND ON RECORD DATE
As of December 2, 2005, there were the following number of shares
outstanding of each class of each Selling Fund:
AGGRESSIVE GROWTH FUND
Class A Shares:
Class B Shares:
Class C Shares:
Class R Shares:
Institutional Class Shares:
WEINGARTEN FUND
Class A Shares:
Class B Shares:
Class C Shares:
Class R Shares:
Institutional Class Shares:
D-1
EXHIBIT E
OWNERSHIP OF SHARES OF EACH SELLING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of each Selling Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of each Selling Fund is
presumed to "control" that Selling Fund as defined in the 1940 Act. Such control
may affect the voting rights of other shareholders.
AIM AGGRESSIVE GROWTH FUND
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- ------------ ----------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned
of record are also owned beneficially.
AIM WEINGARTEN FUND
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- ------------ ----------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned
of record are also owned beneficially.
E-1
EXHIBIT F
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
CLASS OF NUMBER OF PERCENT OWNED
NAME AND ADDRESS SHARES SHARES OWNED OF RECORD*
- ---------------- ------ ------------ -------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned
of record are also owned beneficially.
F-1
APPENDIX I
PLAN OF REORGANIZATION
FOR
AIM AGGRESSIVE GROWTH FUND,
A SEPARATE PORTFOLIO OF
AIM EQUITY FUNDS
NOVEMBER 14, 2005
TABLE OF CONTENTS
Page
----
Article 1 DEFINITIONS................................................................................ 1
SECTION 1.1. Definitions............................................................... 1
Article 2 TRANSFER OF ASSETS......................................................................... 5
SECTION 2.1. Reorganization of Selling Fund............................................ 5
SECTION 2.2. Computation of Net Asset Value............................................ 5
SECTION 2.3. Valuation Date............................................................ 5
SECTION 2.4. Delivery.................................................................. 6
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares............... 6
SECTION 2.6. Issuance of Buying Fund Shares............................................ 6
SECTION 2.7. Investment Securities..................................................... 6
SECTION 2.8. Liabilities............................................................... 7
Article 3 REPRESENTATIONS AND WARRANTIES OF SELLING FUND............................................. 7
SECTION 3.1. Registration and Regulation of Selling Fund............................... 7
SECTION 3.2. Selling Fund Financial Statements......................................... 7
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities....................... 7
SECTION 3.4. Selling Fund Shares; Business Operations.................................. 8
SECTION 3.5. Accountants............................................................... 8
SECTION 3.6. Binding Obligation........................................................ 9
SECTION 3.7. No Breaches or Defaults................................................... 9
SECTION 3.8. Permits 9
SECTION 3.9. No Actions, Suits or Proceedings.......................................... 9
SECTION 3.10. Contracts................................................................. 10
SECTION 3.11. Properties and Assets..................................................... 10
SECTION 3.12. Taxes..................................................................... 10
SECTION 3.13. Benefit and Employment Obligations........................................ 11
SECTION 3.14. Voting Requirements....................................................... 11
SECTION 3.15. State Takeover Statutes................................................... 11
SECTION 3.16. Books and Records......................................................... 11
SECTION 3.17. Prospectus and Statement of Additional Information........................ 11
SECTION 3.18. No Distribution........................................................... 12
SECTION 3.19. Liabilities of Selling Fund............................................... 12
SECTION 3.20. Shareholder Expenses...................................................... 12
Article 4 REPRESENTATIONS AND WARRANTIES OF BUYING FUND.............................................. 12
SECTION 4.1. Registration and Regulation of Buying Fund................................ 12
SECTION 4.2. Buying Fund Financial Statements.......................................... 12
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities....................... 12
SECTION 4.4. Registration of Buying Fund Shares........................................ 13
SECTION 4.5. Accountants............................................................... 14
SECTION 4.6. Binding Obligation........................................................ 14
SECTION 4.7. No Breaches or Defaults................................................... 14
SECTION 4.8. Permits................................................................... 14
i
SECTION 4.9. No Actions, Suits or Proceedings.......................................... 15
SECTION 4.10. Taxes.................................................................... 15
SECTION 4.11. Representations Concerning the Reorganization............................ 15
SECTION 4.12. Prospectus and Statement of Additional Information....................... 16
ARTICLE 4A CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND............................................ 16
SECTION 4A.1 No Governmental Actions................................................... 16
SECTION 4A.2 No Brokers................................................................ 16
SECTION 4A.3 Value of Shares........................................................... 17
SECTION 4A.4 Intercompany Indebtedness; Consideration.................................. 17
SECTION 4A.5 Authorizations or Consents................................................ 17
SECTION 4A.6 No Bankruptcy Proceedings................................................. 17
Article 5 COVENANTS.................................................................................. 17
SECTION 5.1. Conduct of Business....................................................... 17
SECTION 5.2. Expenses.................................................................. 18
SECTION 5.3. Further Assurances........................................................ 18
SECTION 5.4. Consents, Approvals and Filings........................................... 18
SECTION 5.5. Submission of Plan to Shareholders........................................ 19
Article 6 FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION......................................... 19
SECTION 6.1. Further Conditions Precedent with respect to Both Funds................... 19
Article 7 TERMINATION OF PLAN........................................................................ 21
SECTION 7.1. Termination............................................................... 21
SECTION 7.2. Survival After Termination................................................ 21
Article 8 MISCELLANEOUS.............................................................................. 21
SECTION 8.1. Survival of Representations, Warranties and Covenants..................... 21
SECTION 8.2. Governing Law............................................................. 21
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment......................... 21
SECTION 8.4. Obligations of Trust...................................................... 22
SECTION 8.5. Amendments................................................................ 22
SECTION 8.6. Entire Plan; Exhibits and Schedules....................................... 22
SECTION 8.7. Successors and Assigns; Assignment........................................ 22
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes
of Shares of Buying Fund
SCHEDULE 3.4 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.4 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.5(a) Classes of Shares of Buying Fund
SCHEDULE 4.14(b) Permitted Reorganizations of Funds
SCHEDULE 6.1(k) Tax Opinions
ii
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION, dated as of November , 2005 (this "Plan"), is
adopted by AIM Equity Funds, a Delaware statutory trust ("Trust"), acting on
behalf of AIM Aggressive Growth Fund ("Selling Fund"), and AIM Constellation
Fund ("Buying Fund"), each a separate series of Trust.
WITNESSETH
WHEREAS, Trust is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund and Buying Fund, for sale to the public; and
WHEREAS, Investment Adviser (as defined below) provides investment
advisory services to the Trust; and
WHEREAS, the Trust desires to provide for the reorganization of Selling
Fund through the transfer of all of its assets to Buying Fund in exchange for
the assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Trust of shares of Buying Fund in the manner
set forth in this Plan; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund; and
WHEREAS, this Plan is intended to be and is adopted by Trust as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Code (as defined below); and
WHEREAS, Trust is duly organized, validly existing and in good standing
under Applicable Law (as defined below), with all requisite power and authority
to adopt this Plan and perform its obligations hereunder.
NOW, THEREFORE, Trust hereby adopts the following:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Plan, the following
terms shall have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
1
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Trust on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Trust.
"Buying Fund" means AIM Constellation Fund, a separate series of Trust.
"Buying Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2004, and the Buying Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Plan.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Plan.
"Closing Date" means March 13, 2006, or such other date as the parties may
mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
2
"Governing Documents" means the organic documents which govern the
business and operations of Trust and shall include, as applicable, Amended and
Restated Agreement and Declaration of Trust, Amended and Restated Bylaws and
Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.8 of this Plan.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Plan" means this Plan of Reorganization, together with all exhibits and
schedules attached hereto and all amendments hereto and thereof.
"Registration Statement" means the registration statement on Form N-1A of
Trust, as amended, 1940 Act Registration No. 811-1424.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Trust of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Plan, and the
termination of Selling Fund's status as a designated series of shares of Trust.
"Required Shareholder Vote" means, if a quorum is present, the affirmative
vote of a majority of the shares cast at the Shareholders Meeting.
3
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Selling Fund" means AIM Aggressive Growth Fund, a separate series of
Trust.
"Selling Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended October 31, 2004 and the Selling Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Trust
to consider and vote upon the approval of this Plan.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means September 30, 2006, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trust" means AIM Equity Funds, a Delaware statutory trust.
"Trust Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for the
Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for Eligible
Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds Retirement
Plan for Independent Directors and the Deferred Retirement Plan Account
Agreement.
4
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Plan.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all of
the assets of Selling Fund shall be delivered to Custodian for the account of
Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Trust directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Registration Statement.
(c) The value of the assets and the amount of the Liabilities of
Selling Fund to be transferred to Buying Fund pursuant to this Plan shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of
value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Plan shall be made by Trust.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund will
be permanently closed as of the close of business on the Valuation Date and only
requests for the redemption of shares of Selling Fund received in proper form
prior to the close of regular trading on the NYSE on the Valuation Date shall be
accepted by Selling Fund. Redemption requests thereafter received by Selling
Fund shall be deemed to be redemption requests for Buying Fund Shares of the
corresponding class (assuming that the transactions contemplated by this Plan
have been consummated), to be distributed to Selling Fund Shareholders under
this Plan.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing
Date, Trust shall instruct Custodian to transfer all assets held by Selling Fund
to the account of Buying Fund
5
maintained at Custodian. Such assets shall be delivered by Trust to Custodian on
the Closing Date. The assets so delivered shall be duly endorsed in proper form
for transfer in such condition as to constitute a good delivery thereof, in
accordance with the custom of brokers, and shall be accompanied by all necessary
state stock transfer stamps, if any, or a check for the appropriate purchase
price thereof. Cash held by Selling Fund shall be delivered on the Closing Date
and shall be in the form of currency or wire transfer in Federal funds, payable
to the order of the account of Buying Fund at Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery
in the manner contemplated by Section 2.4(a) of securities held by Selling Fund
for the reason that any of such securities purchased prior to the Closing Date
have not yet been delivered to Selling Fund or its broker, then Trust shall
waive the delivery requirements of Section 2.4(a) with respect to said
undelivered securities if Selling Fund has delivered to Custodian by or on the
Closing Date, and with respect to said undelivered securities, executed copies
of an agreement of assignment and escrow and due bills executed on behalf of
said broker or brokers, together with such other documents as may be required by
Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares.
Following receipt of the Required Shareholder Vote and as soon as reasonably
practicable after the Closing, the status of Selling Fund as a designated series
of Trust shall be terminated and Trust shall redeem the outstanding shares of
Selling Fund from Selling Fund Shareholders in accordance with its Governing
Documents and all issued and outstanding shares of Selling Fund shall thereupon
be canceled on the books of Trust.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Trust shall provide instructions
to the transfer agent of Trust with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Trust shall record on its
books the ownership of the shares of each class of Buying Fund by Selling Fund
Shareholders and shall forward a confirmation of such ownership to Selling Fund
Shareholders. No redemption or repurchase of such shares credited to former
Selling Fund Shareholders in respect of Selling Fund Shares represented by
unsurrendered share certificates shall be permitted until such certificates have
been surrendered to Trust for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Trust.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Trust shall prepare a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Such records shall be prepared in accordance with the
requirements for specific identification tax lot accounting and clearly reflect
the bases used for determination of gain and loss realized on the sale of any
security transferred to Buying Fund hereunder. Such records shall be made
available by Trust prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
6
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLING FUND
Trust, on behalf of Selling Fund, represents and warrants as follows:
SECTION 3.1. Registration and Regulation of Selling Fund. All Selling Fund
shares which have been or are being offered for sale have been duly registered
under the Securities Act and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification. Selling Fund is in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Selling Fund is in compliance in all material respects
with the investment policies and restrictions applicable to it set forth in the
Registration Statement. The value of the net assets of Selling Fund is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Selling Fund and all purchases and redemptions of Selling Fund Shares have been
effected at the net asset value per share calculated in such manner.
SECTION 3.2. Selling Fund Financial Statements. The books of account and
related records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Selling Fund Financial Statements
present fairly in all material respects the financial position of Selling Fund
as of the dates indicated and the results of operations and changes in net
assets for the periods then ended in accordance with generally accepted
accounting principles applied on a consistent basis for the periods then ended.
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund. Except as set forth on Schedule 3.4, there are no
contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the Selling Fund Financial Statements.
SECTION 3.4. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
7
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing
Date, Selling Fund will have conducted its historic business within the meaning
of Section 1.368-1(d)(2) of the Treasury Regulations in a substantially
unchanged manner. In anticipation of its Reorganization, Selling Fund will not
dispose of assets that, in the aggregate, will result in less than fifty percent
(50%) of its historic business assets (within the meaning of Section
1.368-1(d)(3) of the Treasury Regulations) being transferred to Buying Fund.
(e) Except for the Senior Officer Trust is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Trust does not have, and has not had during the six (6) months prior to
the date of this Plan, any employees, and shall not hire any employees from and
after the date of this Plan through the Closing Date.
SECTION 3.5. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 3.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Selling Fund and, assuming this Plan has been
duly approved by the shareholders of Selling Fund, constitutes the legal, valid
and binding obligation of Trust enforceable against Trust in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.7. No Breaches or Defaults. The adoption and delivery of this
Plan by Trust on behalf of Selling Fund and performance by Trust of its
obligations hereunder has been
8
duly authorized by all necessary trust action on the part of Trust, other than
approval by the shareholders of Selling Fund, and (i) do not, and on the Closing
Date will not, result in any violation of the Governing Documents of Trust and
(ii) do not, and on the Closing Date will not, result in a breach of any of the
terms or provisions of, or constitute (with or without the giving of notice or
the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Trust is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Trust or
any property of Selling Fund.
SECTION 3.8. Permits. Trust has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust affecting any property, asset, interest or
right of Selling Fund, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to Selling Fund.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Selling Fund affecting in any significant respect the conduct of
such business. Trust is not, and has not been, to the knowledge of Trust, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Selling Fund, other than as has
been disclosed to Trust's Board of Trustees.
SECTION 3.10. Contracts. Trust is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Trust there has not occurred any event that, with the lapse of time
or the giving of notice or both, would constitute such a default.
9
SECTION 3.11. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.12. Taxes.
(a) Selling Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Selling Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will have satisfied the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date. Selling Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of the
Code did not apply to it. In order to (i) ensure continued qualification of
Selling Fund for treatment as a "regulated investment company" for tax purposes
and (ii) eliminate any tax liability of Selling Fund arising by reason of
undistributed investment company taxable income or net capital gain, Trust will
declare on or prior to the Valuation Date to the shareholders of Selling Fund a
dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (A) all of Selling Fund's investment company
taxable income (determined without regard to any deductions for dividends paid)
for the taxable year ended October 31, 2005 and for the short taxable year
beginning on November 1, 2005 and ending on the Closing Date and (B) all of
Selling Fund's net capital gain recognized in its taxable year ended October 31,
2005 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Selling Fund has timely filed all Returns required to be filed
by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 3.13. Benefit and Employment Obligations. Except for the Trustee
Benefit Plan, Selling Fund has no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to, under any
Benefit Plan, and has no obligation to provide unfunded deferred compensation or
other unfunded or self-funded benefits to any Person.
SECTION 3.14. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Plan.
10
SECTION 3.15. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Plan or any
of the transactions contemplated by this Plan.
SECTION 3.16. Books and Records. The books and records of Trust relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.17. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.18. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Plan.
SECTION 3.19. Liabilities of Selling Fund. The Liabilities of Selling Fund
that are to be assumed by Buying Fund in connection with the Reorganization, or
to which the assets of Selling Fund to be transferred in the Reorganization are
subject, were incurred by Selling Fund in the ordinary course of its business.
The fair market value of the assets of Selling Fund to be transferred to Buying
Fund in the Reorganization will equal or exceed the sum of the Liabilities to be
assumed by Buying Fund, plus the amount of Liabilities, if any, to which such
transferred assets will be subject.
SECTION 3.20. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYING FUND
Trust, on behalf of Buying Fund, represents and warrants as follows:
SECTION 4.1. Registration and Regulation of Buying Fund. Buying Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Buying Fund is in compliance in all material respects with the applicable
investment policies and restrictions set forth in the Registration Statement.
The value of the net assets of Buying Fund is determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Buying Fund and all purchases and
redemptions of Buying Fund Shares have been effected at the net asset value per
share calculated in such manner.
11
SECTION 4.2. Buying Fund Financial Statements. The books of account and
related records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements present fairly in all material respects the financial position of
Buying Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Trust. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the Buying Fund Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
SECTION 4.4. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are set
forth on Schedule 4.5(a). Under its Governing Documents, Trust is authorized to
issue an unlimited number of shares of each such class.
(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Trust then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of the Registration Statement on Form
N-14, shall be furnished to the shareholders of Selling Fund entitled to vote at
the Shareholders Meeting in accordance with normal market practice for such
transactions. The Combined Proxy Statement/Prospectus and related Statement of
Additional Information of Buying Fund, when they become effective, shall conform
in all material respects to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement
12
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being offered
for sale (other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification.
SECTION 4.5. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Buying Fund and, assuming this Plan has been
duly authorized and delivered by Trust on behalf of Selling Fund, constitutes
the legal, valid and binding obligation of Trust, enforceable against Trust in
accordance with its terms from and with respect to the revenues and assets of
Buying Fund, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting creditors'
rights generally, or by general equity principles (whether applied in a court of
law or a court of equity and including limitations on the availability of
specific performance or other equitable remedies).
SECTION 4.7. No Breaches or Defaults. The execution and delivery of this
Plan by Trust on behalf of Buying Fund and performance by Trust of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of Trust and (i) do not, and on the Closing Date will not, result in
any violation of the Governing Documents and (ii) do not, and on the Closing
Date will not, result in a breach of any of the terms or provisions of, or
constitute (with or without the giving of notice or the lapse of time or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Buying Fund (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which Trust is a party or by which it may be
bound and which relates to the assets of Buying Fund or to which any properties
of Buying Fund may be subject; (B) any Permit; or (C) any existing applicable
law, rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over Trust or any property of Buying Fund.
SECTION 4.8. Permits(a). Trust has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such
13
that would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
SECTION 4.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust, affecting any property, asset, interest or
right of Buying Fund, that could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect with respect to Buying Fund. There
are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Buying Fund affecting in any significant respect the conduct of such
business. Trust is not, and has not been, to the knowledge of Trust, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Buying Fund, other than as has been
disclosed to Trust's Board of Trustees.
SECTION 4.10. Taxes.
(a) Buying Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Buying Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will satisfy the requirements of
Part I of Subchapter M of the Code to maintain such qualification for its
current taxable year. Buying Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not apply
to it.
(b) Buying Fund has timely filed all Returns required to be filed by
it and all Taxes with respect thereto have been paid, except where the failure
so to file or so to pay, would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Adequate provision has been
made in the Buying Fund Financial Statements for all Taxes in respect of all
periods ending on or before the date of such financial statements, except where
the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Buying
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 4.11. Representations Concerning the Reorganization.
(a) There is no plan or intention by Trust or any person related to
Trust to acquire or redeem any of the Buying Fund Shares issues in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
14
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code;
provided, however, that this Section 4.11(b) shall not preclude any of the
reorganizations of funds set forth on Schedule 4.11(b).
(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations; provided, however, that this Section 4.11(c) shall not preclude any
of the reorganizations of funds set forth on Schedule 4.14 (b).
(d) Prior to or in the Reorganization, neither Buying Fund nor any
person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
SECTION 4.12. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
ARTICLE 4A
CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND
Trust's obligations to implement this Plan on each Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Trust may waive:
SECTION 4A.1 No Governmental Actions. There is no pending action, suit or
proceeding, nor, to the knowledge of Trust, has any litigation been overtly
threatened in writing or, if probable of assertion, orally, against Trust before
any Governmental Authority which questions the validity or legality of this Plan
or of the transactions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
SECTION 4A.2 No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Trust in connection with this Plan or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Trust or any action taken by it.
15
SECTION 4A.3 Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal, as of the Effective Time, to the fair market value
of the shares of each corresponding class of Selling Fund to be constructively
surrendered in exchange therefor. The fair market value of the assets of Buying
Fund will exceed the amount of its liabilities immediately after the exchange.
SECTION 4A.4 Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between the Funds that was issued or acquired, or will
be settled, at a discount. No consideration other than Buying Fund Shares (and
Buying Fund's assumption of Selling Fund's Liabilities, including for this
purpose any liabilities to which the assets of Selling Fund are subject) will be
given in exchange for the assets of Selling Fund acquired by Buying Fund in
connection with the Reorganization. The fair market value of the assets of
Selling Fund transferred to Buying Fund in the Reorganization will equal or
exceed the sum of the Liabilities assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets are subject.
SECTION 4A.5 Authorizations or Consents. Other than those which shall have
been obtained or made on or prior to the Closing Date and any that must be made
after the Closing Date to comply with Section 2.5 of this Plan, no authorization
or approval or other action by, and no notice to or filing with, any
Governmental Authority will be required to be obtained or made by Trust in
connection with the due adoption by Trust of this Plan and the consummation by
Trust of the transactions contemplated hereby.
SECTION 4A.6 No Bankruptcy Proceedings. Trust is not, with respect to
either Fund, under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Selling Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
(b) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Buying Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
16
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
SECTION 5.2. Expenses. Buying Fund shall bear all of its costs and
expenses incurred in connection with this Plan and the Reorganization without
any reimbursement therefor. Prior to the submission of the Plan to the Boards of
Trustees of Trust for approval, the Investment Adviser, in the ordinary course
of its business as a registered investment advisor operating under the Advisors
Act, agreed to bear 75% of the costs and expenses of Selling Fund incurred in
connection with this Plan and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by Selling Fund
shall not be reimbursed or paid for by the Investment Advisor or any other
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.3. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Consents, Approvals and Filings. Trust shall make all
necessary filings, as soon as reasonably practicable, including, without
limitation, those required under the Securities Act, the Exchange Act, the
Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Plan. In addition, Trust shall use its reasonable best efforts (i) to
comply as promptly as reasonably practicable with all requirements of
Governmental Authorities applicable to the Reorganization and the other
transactions contemplated herein and (ii) to obtain as promptly as reasonably
practicable all necessary permits, orders or other consents of Governmental
Authorities and consents of all third parties necessary for the consummation of
the Reorganization and the other transactions contemplated herein. Trust shall
use reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
SECTION 5.5. Submission of Plan to Shareholders. Trust shall take all
action necessary in accordance with applicable law and its Governing Documents
to convene the Shareholders Meeting. Trust shall, through its Board of Trustees,
recommend to the shareholders of Selling Fund approval of this Plan. Trust shall
use its reasonable best efforts to hold a Shareholders Meeting as soon as
practicable after the date hereof.
17
ARTICLE 6
FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Further Conditions Precedent with respect to Both Funds. The
obligation of Trust to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by Trust.
(a) The representations and warranties of Trust on behalf of Selling
Fund and Buying Fund set forth in this Plan shall be true and correct in all
material respects as of the date of this Plan and as of the Closing Date with
the same effect as though all such representations and warranties had been made
as of the Closing Date.
(b) Trust shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund and Buying Fund
set forth herein to be performed or satisfied at or prior to the Closing Date.
(c) There shall be delivered at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of Trust, in such individual's
capacity as an officer of Trust and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary (in such capacity) of Trust certifying as to the accuracy and
completeness of the attached Governing Documents of Trust, and resolutions,
consents and authorizations of or regarding Trust with respect to the execution
and delivery of this Plan and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of
Section 3.12(a) shall have been declared.
(e) To the extent applicable, the Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by the
Investment Adviser pursuant to voluntary and contractual fee waiver or expense
limitation commitments between the Investment Adviser and Selling Fund.
(f) All filings required to be made prior to the Closing Date with,
and all consents, approvals, permits and authorizations required to be obtained
on or prior to the Closing Date from, Governmental Authorities in connection
with the execution and delivery of this Plan and the consummation of the
transactions contemplated herein by Trust shall have been made or obtained, as
the case may be; provided, however, that such consents, approvals, permits and
authorizations may be subject to conditions that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(g) This Plan, the Reorganization of Selling Fund and related
matters shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
18
(h) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.1(h),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Plan and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Plan shall be included as assets of Selling Fund
held immediately prior to the Reorganization.
(i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(j) The Registration Statement on Form N-14 filed by Trust with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.1(k) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(k) Trust shall have received on or before the Closing Date an
opinion of Trust Counsel in form and substance reasonably acceptable to Trust,
as to the matters set forth on Schedule 6.1(k). In rendering such opinion, Trust
Counsel may request and rely upon representations contained in certificates of
officers of Trust and others, and the officers of Trust shall use their best
efforts to make available such truthful certificates.
(l) The reorganization of AIM Weingarten Fund into Buying Fund shall
have been approved by the shareholders of AIM Weingarten Fund and shall have
been consummated in accordance with the Plan of Reorganization, dated as of
November 14, 2005, adopted by Trust on behalf of AIM Weingarten Fund and Buying
Fund.
ARTICLE 7
TERMINATION OF PLAN
SECTION 7.1. Termination. This Plan may be terminated by Trust on or prior
to the Closing Date as follows:
(a) if circumstances develop that, in its judgment, make proceeding
with the Reorganization inadvisable for either Fund;
19
(b) if the Closing Date shall not be on or before the Termination
Date;
(c) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been obtained
as contemplated by Section 5.5; or
(d) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Plan is terminated in
accordance with Section 7.1 hereof and the Reorganization of Selling Fund is not
consummated, this Plan shall become void and of no further force and effect with
respect to the Reorganization and Selling Fund, except for the provisions of
Section 5.2.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Plan, and the covenants in this Plan that
are required to be performed at or prior to the Closing Date, shall terminate
upon the consummation of the transactions contemplated hereunder. The covenants
in this Plan that are required to be performed in whole or in part subsequent to
the Closing Date shall survive the consummation of the transactions contemplated
hereunder for a period of one (1) year following the Closing Date.
SECTION 8.2. Governing Law. This Plan shall be construed and interpreted
according to the laws of the State of Delaware applicable to contracts made and
to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This Plan
shall inure to the benefit of and be binding upon the parties hereto and the
respective successors and assigns of the parties and such Persons. Nothing in
this Plan is intended or shall be construed to confer upon any entity or Person
other than the parties hereto and their respective successors and permitted
assigns any right, remedy or claim under or by reason of this Plan or any part
hereof. Without the prior written consent of the parties hereto, this Plan may
not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Trust. Trust hereby acknowledges and agrees
that each of Buying Fund and Selling Fund is a separate investment portfolio of
Trust, that Trust is executing this Plan on behalf of each Buying Fund and
Selling Fund, and that any amounts payable by Trust under or in connection with
this Plan shall be payable solely from the revenues and assets of Buying Fund or
Selling Fund, as applicable. Trust further acknowledges and agrees that this
Plan has been executed by a duly authorized officer of Trust in his or her
capacity as an officer of Trust intending to bind Trust as provided herein, and
that no officer, trustee or shareholder of Trust shall be personally liable for
the liabilities or obligation of Trust incurred hereunder. Finally, Trust
acknowledges and agrees that the liabilities and obligations of Selling
20
Fund pursuant to this Plan shall be enforceable against the assets of Buying
Fund or Selling Fund, as applicable, only and not against the assets of Trust
generally or assets belonging to any other series of Trust.
SECTION 8.5. Amendments. This Plan may not be amended, altered or modified
except with the approval of Trust's Board of Trustees.
SECTION 8.6. Entire Plan; Exhibits and Schedules. This Plan, including the
Exhibits, Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 8.7. Successors and Assigns; Assignment. This Plan shall be
binding upon and inure to the benefit of Trust, on behalf of Selling Fund, and
Trust, on behalf of Buying Fund, and their respective successors and permitted
assigns.
21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
A-1
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES
OF SHARES OF BUYING FUND
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
- --------------------------------- ------------------------
AIM Aggressive Growth Fund AIM Constellation Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class C Shares Class C Shares
Class R Shares Class R Shares
Institutional Class Shares Institutional Class Shares
1
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
1
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
1
SCHEDULE 4.5(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
Class A Shares
Class B Shares
Class C Shares
Class R Shares
Institutional Shares
1
SCHEDULE 4.11(b)
PERMITTED REORGANIZATIONS OF FUNDS
AIM Weingarten Fund into AIM Constellation Fund
AIM Blue Chip Fund into AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund into AIM Dynamics Fund
AIM Small Company Growth Fund into AIM Small Cap Growth Fund
AIM Premier Equity Fund into AIM Charter Fund
AIM V.I. Aggressive Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Blue Chip Fund into AIM V.I. Large Cap Growth Fund
AIM V.I. Premier Equity Fund into AIM V.I. Core Equity Fund
1
SCHEDULE 6.1(k)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Plan, will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and Selling Fund and Buying Fund will be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(ii)In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders.
(iii)In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv)In accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized by Selling Fund Shareholders on the receipt of Buying Fund Shares
in exchange for Selling Fund Shares.
(v)In accordance with Section 362(b) of the Code, the basis to Buying Fund
of the assets of Selling Fund will be the same as the basis of such assets in
the hands of Selling Fund immediately prior to the Reorganization.
(vi)In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii)In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii)In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix)In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
1
APPENDIX II
PLAN OF REORGANIZATION
FOR
AIM WEINGARTEN FUND,
A SEPARATE PORTFOLIO OF
AIM EQUITY FUNDS
NOVEMBER 14, 2005
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS............................................................................................ 1
SECTION 1.1. Definitions............................................................................. 1
ARTICLE 2 TRANSFER OF ASSETS..................................................................................... 5
SECTION 2.1. Reorganization of Selling Fund.......................................................... 5
SECTION 2.2. Computation of Net Asset Value.......................................................... 5
SECTION 2.3. Valuation Date.......................................................................... 5
SECTION 2.4. Delivery................................................................................ 5
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares............................. 6
SECTION 2.6. Issuance of Buying Fund Shares.......................................................... 6
SECTION 2.7. Investment Securities................................................................... 6
SECTION 2.8. Liabilities............................................................................. 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLING FUND......................................................... 7
SECTION 3.1. Registration and Regulation of Selling Fund............................................. 7
SECTION 3.2. Selling Fund Financial Statements....................................................... 7
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities..................................... 7
SECTION 3.4. Selling Fund Shares; Business Operations................................................ 7
SECTION 3.5. Accountants............................................................................. 8
SECTION 3.6. Binding Obligation...................................................................... 8
SECTION 3.7. No Breaches or Defaults................................................................. 8
SECTION 3.8. Permits................................................................................. 9
SECTION 3.9. No Actions, Suits or Proceedings........................................................ 9
SECTION 3.10. Contracts.............................................................................. 9
SECTION 3.11. Properties and Assets.................................................................. 10
SECTION 3.12. Taxes.................................................................................. 10
SECTION 3.13. Benefit and Employment Obligations..................................................... 10
SECTION 3.14. Voting Requirements.................................................................... 10
SECTION 3.15. State Takeover Statutes................................................................ 11
SECTION 3.16. Books and Records...................................................................... 11
SECTION 3.17. Prospectus and Statement of Additional Information..................................... 11
SECTION 3.18. No Distribution........................................................................ 11
SECTION 3.19. Liabilities of Selling Fund............................................................ 11
SECTION 3.20. Shareholder Expenses................................................................... 11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYING FUND.......................................................... 11
SECTION 4.1. Registration and Regulation of Buying Fund.............................................. 11
SECTION 4.2. Buying Fund Financial Statements........................................................ 12
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities..................................... 12
SECTION 4.4. Registration of Buying Fund Shares...................................................... 12
SECTION 4.5. Accountants............................................................................. 13
SECTION 4.6. Binding Obligation...................................................................... 13
SECTION 4.7. No Breaches or Defaults................................................................. 13
SECTION 4.8. Permits................................................................................. 13
i
SECTION 4.9. No Actions, Suits or Proceedings........................................................ 14
SECTION 4.10. Taxes.................................................................................. 14
SECTION 4.11. Representations Concerning the Reorganization.......................................... 14
SECTION 4.12. Prospectus and Statement of Additional Information..................................... 15
ARTICLE 4A CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND........................................................ 15
SECTION 4A.1 No Governmental Actions................................................................. 15
SECTION 4A.2 No Brokers.............................................................................. 15
SECTION 4A.3 Value of Shares......................................................................... 16
SECTION 4A.4 Intercompany Indebtedness; Consideration................................................ 16
SECTION 4A.5 Authorizations or Consents.............................................................. 16
SECTION 4A.6 No Bankruptcy Proceedings............................................................... 16
ARTICLE 5 COVENANTS.............................................................................................. 16
SECTION 5.1. Conduct of Business..................................................................... 16
SECTION 5.2. Expenses................................................................................ 17
SECTION 5.3. Further Assurances...................................................................... 17
SECTION 5.4. Consents, Approvals and Filings......................................................... 17
SECTION 5.5. Submission of Plan to Shareholders...................................................... 17
ARTICLE 6 FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION..................................................... 18
SECTION 6.1. Further Conditions Precedent with respect to Both Funds................................. 18
ARTICLE 7 TERMINATION OF PLAN.................................................................................... 19
SECTION 7.1. Termination............................................................................. 19
SECTION 7.2. Survival After Termination.............................................................. 20
ARTICLE 8 MISCELLANEOUS.......................................................................................... 20
SECTION 8.1. Survival of Representations, Warranties and Covenants................................... 20
SECTION 8.2. Governing Law........................................................................... 20
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment....................................... 20
SECTION 8.4. Obligations of Trust.................................................................... 21
SECTION 8.5. Amendments.............................................................................. 21
SECTION 8.6. Entire Plan; Exhibits and Schedules..................................................... 21
SECTION 8.7. Successors and Assigns; Assignment...................................................... 21
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes of Shares of Buying Fund
SCHEDULE 3.4 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.4 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.5(a) Classes of Shares of Buying Fund
SCHEDULE 4.14(b) Permitted Reorganizations of Funds
SCHEDULE 6.1(k) Tax Opinions
ii
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION, dated as of November_________, 2005 (this "Plan"),
is adopted by AIM Equity Funds, a Delaware statutory trust ("Trust"), acting on
behalf of AIM Weingarten Fund ("Selling Fund"), and AIM Constellation Fund
("Buying Fund"), each a separate series of Trust.
WITNESSETH
WHEREAS, Trust is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund and Buying Fund, for sale to the public; and
WHEREAS, Investment Adviser (as defined below) provides investment
advisory services to the Trust; and
WHEREAS, the Trust desires to provide for the reorganization of Selling
Fund through the transfer of all of its assets to Buying Fund in exchange for
the assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Trust of shares of Buying Fund in the manner
set forth in this Plan; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund; and
WHEREAS, this Plan is intended to be and is adopted by Trust as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Code (as defined below); and
WHEREAS, Trust is duly organized, validly existing and in good standing
under Applicable Law (as defined below), with all requisite power and authority
to adopt this Plan and perform its obligations hereunder.
NOW, THEREFORE, Trust hereby adopts the following:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Plan, the following
terms shall have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Trust on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Trust.
"Buying Fund" means AIM Constellation Fund, a separate series of Trust.
"Buying Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2004, and the Buying Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Plan.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Plan.
"Closing Date" means March 13, 2006, or such other date as the parties may
mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Governing Documents" means the organic documents which govern the
business and operations of Trust and shall include, as applicable, Amended and
Restated Agreement and Declaration of Trust, Amended and Restated Bylaws and
Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.8 of this Plan.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Plan" means this Plan of Reorganization, together with all exhibits and
schedules attached hereto and all amendments hereto and thereof.
"Registration Statement" means the registration statement on Form N-1A of
Trust, as amended, 1940 Act Registration No. 811-1424.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Trust of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Plan, and the
termination of Selling Fund's status as a designated series of shares of Trust.
"Required Shareholder Vote" means, if a quorum is present, the affirmative
vote of a majority of the shares cast at the Shareholders Meeting.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Selling Fund" means AIM Weingarten Fund, a separate series of Trust.
"Selling Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended October 31, 2004 and the Selling Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Trust
to consider and vote upon the approval of this Plan.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means September 30, 2006, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trust" means AIM Equity Funds, a Delaware statutory trust.
"Trust Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for the
Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for Eligible
Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds Retirement
Plan for Independent Directors and the Deferred Retirement Plan Account
Agreement.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Plan.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all of
the assets of Selling Fund shall be delivered to Custodian for the account of
Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Trust directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Registration Statement.
(c) The value of the assets and the amount of the Liabilities of
Selling Fund to be transferred to Buying Fund pursuant to this Plan shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of
value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Plan shall be made by Trust.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund will
be permanently closed as of the close of business on the Valuation Date and only
requests for the redemption of shares of Selling Fund received in proper form
prior to the close of regular trading on the NYSE on the Valuation Date shall be
accepted by Selling Fund. Redemption requests thereafter received by Selling
Fund shall be deemed to be redemption requests for Buying Fund Shares of the
corresponding class (assuming that the transactions contemplated by this Plan
have been consummated), to be distributed to Selling Fund Shareholders under
this Plan.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing
Date, Trust shall instruct Custodian to transfer all assets held by Selling Fund
to the account of Buying Fund
maintained at Custodian. Such assets shall be delivered by Trust to Custodian on
the Closing Date. The assets so delivered shall be duly endorsed in proper form
for transfer in such condition as to constitute a good delivery thereof, in
accordance with the custom of brokers, and shall be accompanied by all necessary
state stock transfer stamps, if any, or a check for the appropriate purchase
price thereof. Cash held by Selling Fund shall be delivered on the Closing Date
and shall be in the form of currency or wire transfer in Federal funds, payable
to the order of the account of Buying Fund at Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery
in the manner contemplated by Section 2.4(a) of securities held by Selling Fund
for the reason that any of such securities purchased prior to the Closing Date
have not yet been delivered to Selling Fund or its broker, then Trust shall
waive the delivery requirements of Section 2.4(a) with respect to said
undelivered securities if Selling Fund has delivered to Custodian by or on the
Closing Date, and with respect to said undelivered securities, executed copies
of an agreement of assignment and escrow and due bills executed on behalf of
said broker or brokers, together with such other documents as may be required by
Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares.
Following receipt of the Required Shareholder Vote and as soon as reasonably
practicable after the Closing, the status of Selling Fund as a designated series
of Trust shall be terminated and Trust shall redeem the outstanding shares of
Selling Fund from Selling Fund Shareholders in accordance with its Governing
Documents and all issued and outstanding shares of Selling Fund shall thereupon
be canceled on the books of Trust.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Trust shall provide instructions
to the transfer agent of Trust with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Trust shall record on its
books the ownership of the shares of each class of Buying Fund by Selling Fund
Shareholders and shall forward a confirmation of such ownership to Selling Fund
Shareholders. No redemption or repurchase of such shares credited to former
Selling Fund Shareholders in respect of Selling Fund Shares represented by
unsurrendered share certificates shall be permitted until such certificates have
been surrendered to Trust for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Trust.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Trust shall prepare a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Such records shall be prepared in accordance with the
requirements for specific identification tax lot accounting and clearly reflect
the bases used for determination of gain and loss realized on the sale of any
security transferred to Buying Fund hereunder. Such records shall be made
available by Trust prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLING FUND
Trust, on behalf of Selling Fund, represents and warrants as follows:
SECTION 3.1. Registration and Regulation of Selling Fund. All Selling Fund
shares which have been or are being offered for sale have been duly registered
under the Securities Act and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification. Selling Fund is in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Selling Fund is in compliance in all material respects
with the investment policies and restrictions applicable to it set forth in the
Registration Statement. The value of the net assets of Selling Fund is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Selling Fund and all purchases and redemptions of Selling Fund Shares have been
effected at the net asset value per share calculated in such manner.
SECTION 3.2. Selling Fund Financial Statements. The books of account and
related records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Selling Fund Financial Statements
present fairly in all material respects the financial position of Selling Fund
as of the dates indicated and the results of operations and changes in net
assets for the periods then ended in accordance with generally accepted
accounting principles applied on a consistent basis for the periods then ended.
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund. Except as set forth on Schedule 3.4, there are no
contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the Selling Fund Financial Statements.
SECTION 3.4. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing
Date, Selling Fund will have conducted its historic business within the meaning
of Section 1.368-1(d)(2) of the Treasury Regulations in a substantially
unchanged manner. In anticipation of its Reorganization, Selling Fund will not
dispose of assets that, in the aggregate, will result in less than fifty percent
(50%) of its historic business assets (within the meaning of Section
1.368-1(d)(3) of the Treasury Regulations) being transferred to Buying Fund.
(e) Except for the Senior Officer Trust is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Trust does not have, and has not had during the six (6) months prior to
the date of this Plan, any employees, and shall not hire any employees from and
after the date of this Plan through the Closing Date.
SECTION 3.5. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 3.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Selling Fund and, assuming this Plan has been
duly approved by the shareholders of Selling Fund, constitutes the legal, valid
and binding obligation of Trust enforceable against Trust in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.7. No Breaches or Defaults. The adoption and delivery of this
Plan by Trust on behalf of Selling Fund and performance by Trust of its
obligations hereunder has been
duly authorized by all necessary trust action on the part of Trust, other than
approval by the shareholders of Selling Fund, and (i) do not, and on the Closing
Date will not, result in any violation of the Governing Documents of Trust and
(ii) do not, and on the Closing Date will not, result in a breach of any of the
terms or provisions of, or constitute (with or without the giving of notice or
the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Trust is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Trust or
any property of Selling Fund.
SECTION 3.8. Permits. Trust has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust affecting any property, asset, interest or
right of Selling Fund, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to Selling Fund.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Selling Fund affecting in any significant respect the conduct of
such business. Trust is not, and has not been, to the knowledge of Trust, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Selling Fund, other than as has
been disclosed to Trust's Board of Trustees.
SECTION 3.10. Contracts. Trust is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Trust there has not occurred any event that, with the lapse of time
or the giving of notice or both, would constitute such a default.
SECTION 3.11. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.12. Taxes.
(a) Selling Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Selling Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will have satisfied the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date. Selling Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of the
Code did not apply to it. In order to (i) ensure continued qualification of
Selling Fund for treatment as a "regulated investment company" for tax purposes
and (ii) eliminate any tax liability of Selling Fund arising by reason of
undistributed investment company taxable income or net capital gain, Trust will
declare on or prior to the Valuation Date to the shareholders of Selling Fund a
dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (A) all of Selling Fund's investment company
taxable income (determined without regard to any deductions for dividends paid)
for the taxable year ended October 31, 2005 and for the short taxable year
beginning on November 1, 2005 and ending on the Closing Date and (B) all of
Selling Fund's net capital gain recognized in its taxable year ended October 31,
2005 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Selling Fund has timely filed all Returns required to be filed
by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 3.13. Benefit and Employment Obligations. Except for the Trustee
Benefit Plans, Selling Fund has no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to, under any
Benefit Plan, and has no obligation to provide unfunded deferred compensation or
other unfunded or self-funded benefits to any Person.
SECTION 3.14. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Plan.
SECTION 3.15. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Plan or any
of the transactions contemplated by this Plan.
SECTION 3.16. Books and Records. The books and records of Trust relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.17. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.18. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Plan.
SECTION 3.19. Liabilities of Selling Fund. The Liabilities of Selling Fund
that are to be assumed by Buying Fund in connection with the Reorganization, or
to which the assets of Selling Fund to be transferred in the Reorganization are
subject, were incurred by Selling Fund in the ordinary course of its business.
The fair market value of the assets of Selling Fund to be transferred to Buying
Fund in the Reorganization will equal or exceed the sum of the Liabilities to be
assumed by Buying Fund, plus the amount of Liabilities, if any, to which such
transferred assets will be subject.
SECTION 3.20. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYING FUND
Trust, on behalf of Buying Fund, represents and warrants as follows:
SECTION 4.1. Registration and Regulation of Buying Fund. Buying Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Buying Fund is in compliance in all material respects with the applicable
investment policies and restrictions set forth in the Registration Statement.
The value of the net assets of Buying Fund is determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Buying Fund and all purchases and
redemptions of Buying Fund Shares have been effected at the net asset value per
share calculated in such manner.
SECTION 4.2. Buying Fund Financial Statements. The books of account and
related records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements present fairly in all material respects the financial position of
Buying Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Trust. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the Buying Fund Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
SECTION 4.4. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are set
forth on Schedule 4.5(a). Under its Governing Documents, Trust is authorized to
issue an unlimited number of shares of each such class.
(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Trust then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of the Registration Statement on Form
N-14, shall be furnished to the shareholders of Selling Fund entitled to vote at
the Shareholders Meeting in accordance with normal market practice for such
transactions. The Combined Proxy Statement/Prospectus and related Statement of
Additional Information of Buying Fund, when they become effective, shall conform
in all material respects to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being offered
for sale (other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification.
SECTION 4.5. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Buying Fund and, assuming this Plan has been
duly authorized and delivered by Trust on behalf of Selling Fund, constitutes
the legal, valid and binding obligation of Trust, enforceable against Trust in
accordance with its terms from and with respect to the revenues and assets of
Buying Fund, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting creditors'
rights generally, or by general equity principles (whether applied in a court of
law or a court of equity and including limitations on the availability of
specific performance or other equitable remedies).
SECTION 4.7. No Breaches or Defaults. The execution and delivery of this
Plan by Trust on behalf of Buying Fund and performance by Trust of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of Trust and (i) do not, and on the Closing Date will not, result in
any violation of the Governing Documents and (ii) do not, and on the Closing
Date will not, result in a breach of any of the terms or provisions of, or
constitute (with or without the giving of notice or the lapse of time or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Buying Fund (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which Trust is a party or by which it may be
bound and which relates to the assets of Buying Fund or to which any properties
of Buying Fund may be subject; (B) any Permit; or (C) any existing applicable
law, rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over Trust or any property of Buying Fund.
SECTION 4.8. Permits(a) . Trust has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such
that would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
SECTION 4.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust, affecting any property, asset, interest or
right of Buying Fund, that could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect with respect to Buying Fund. There
are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Buying Fund affecting in any significant respect the conduct of such
business. Trust is not, and has not been, to the knowledge of Trust, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Buying Fund, other than as has been
disclosed to Trust's Board of Trustees.
SECTION 4.10. Taxes.
(a) Buying Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Buying Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will satisfy the requirements of
Part I of Subchapter M of the Code to maintain such qualification for its
current taxable year. Buying Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not apply
to it.
(b) Buying Fund has timely filed all Returns required to be filed by
it and all Taxes with respect thereto have been paid, except where the failure
so to file or so to pay, would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Adequate provision has been
made in the Buying Fund Financial Statements for all Taxes in respect of all
periods ending on or before the date of such financial statements, except where
the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Buying
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 4.11. Representations Concerning the Reorganization.
(a) There is no plan or intention by Trust or any person related to
Trust to acquire or redeem any of the Buying Fund Shares issues in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code;
provided, however, that this Section 4.11(b) shall not preclude any of the
reorganizations of funds set forth on Schedule 4.14(b).
(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations; provided, however, that this Section 4.11(c) shall not preclude any
of the reorganizations of funds set forth on Schedule 4.11(b).
(d) Prior to or in the Reorganization, neither Buying Fund nor any
person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
SECTION 4.12. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
ARTICLE 4A
CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND
Trust's obligations to implement this Plan on each Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Trust may waive:
SECTION 4A.1 No Governmental Actions. There is no pending action, suit or
proceeding, nor, to the knowledge of Trust, has any litigation been overtly
threatened in writing or, if probable of assertion, orally, against Trust before
any Governmental Authority which questions the validity or legality of this Plan
or of the transactions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
SECTION 4A.2 No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Trust in connection with this Plan or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Trust or any action taken by it.
SECTION 4A.3 Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal, as of the Effective Time, to the fair market value
of the shares of each corresponding class of Selling Fund to be constructively
surrendered in exchange therefor. The fair market value of the assets of Buying
Fund will exceed the amount of its liabilities immediately after the exchange.
SECTION 4A.4 Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between the Funds that was issued or acquired, or will
be settled, at a discount. No consideration other than Buying Fund Shares (and
Buying Fund's assumption of Selling Fund's Liabilities, including for this
purpose any liabilities to which the assets of Selling Fund are subject) will be
given in exchange for the assets of Selling Fund acquired by Buying Fund in
connection with the Reorganization. The fair market value of the assets of
Selling Fund transferred to Buying Fund in the Reorganization will equal or
exceed the sum of the Liabilities assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets are subject.
SECTION 4A.5 Authorizations or Consents. Other than those which shall have
been obtained or made on or prior to the Closing Date and any that must be made
after the Closing Date to comply with Section 2.5 of this Plan, no authorization
or approval or other action by, and no notice to or filing with, any
Governmental Authority will be required to be obtained or made by Trust in
connection with the due adoption by Trust of this Plan and the consummation by
Trust of the transactions contemplated hereby.
SECTION 4A.6 No Bankruptcy Proceedings. Trust is not, with respect to
either Fund, under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Selling Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
(b) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Buying Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
SECTION 5.2. Expenses. Buying Fund shall bear all of its costs and
expenses incurred in connection with this Plan and the Reorganization without
any reimbursement therefor. Prior to the submission of the Plan to the Boards of
Trustees of Trust for approval, the Investment Adviser, in the ordinary course
of its business as a registered investment advisor operating under the Advisors
Act, agreed to bear 50% of the costs and expenses of Selling Fund incurred in
connection with this Plan and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by Selling Fund
shall not be reimbursed or paid for by the Investment Advisor or any other
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.3. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Consents, Approvals and Filings. Trust shall make all
necessary filings, as soon as reasonably practicable, including, without
limitation, those required under the Securities Act, the Exchange Act, the
Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Plan. In addition, Trust shall use its reasonable best efforts (i) to
comply as promptly as reasonably practicable with all requirements of
Governmental Authorities applicable to the Reorganization and the other
transactions contemplated herein and (ii) to obtain as promptly as reasonably
practicable all necessary permits, orders or other consents of Governmental
Authorities and consents of all third parties necessary for the consummation of
the Reorganization and the other transactions contemplated herein. Trust shall
use reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
SECTION 5.5. Submission of Plan to Shareholders. Trust shall take all
action necessary in accordance with applicable law and its Governing Documents
to convene the Shareholders Meeting. Trust shall, through its Board of Trustees,
recommend to the shareholders of Selling Fund approval of this Plan. Trust shall
use its reasonable best efforts to hold a Shareholders Meeting as soon as
practicable after the date hereof.
ARTICLE 6
FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Further Conditions Precedent with respect to Both Funds. The
obligation of Trust to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by Trust.
(a) The representations and warranties of Trust on behalf of Selling
Fund and Buying Fund set forth in this Plan shall be true and correct in all
material respects as of the date of this Plan and as of the Closing Date with
the same effect as though all such representations and warranties had been made
as of the Closing Date.
(b) Trust shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund and Buying Fund
set forth herein to be performed or satisfied at or prior to the Closing Date.
(c) There shall be delivered at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of Trust, in such individual's
capacity as an officer of Trust and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary (in such capacity) of Trust certifying as to the accuracy and
completeness of the attached Governing Documents of Trust, and resolutions,
consents and authorizations of or regarding Trust with respect to the execution
and delivery of this Plan and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of
Section 3.12(a) shall have been declared.
(e) To the extent applicable, the Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by the
Investment Adviser pursuant to voluntary and contractual fee waiver or expense
limitation commitments between the Investment Adviser and Selling Fund.
(f) All filings required to be made prior to the Closing Date with,
and all consents, approvals, permits and authorizations required to be obtained
on or prior to the Closing Date from, Governmental Authorities in connection
with the execution and delivery of this Plan and the consummation of the
transactions contemplated herein by Trust shall have been made or obtained, as
the case may be; provided, however, that such consents, approvals, permits and
authorizations may be subject to conditions that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(g) This Plan, the Reorganization of Selling Fund and related
matters shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(h) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.1(h),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Plan and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Plan shall be included as assets of Selling Fund
held immediately prior to the Reorganization.
(i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(j) The Registration Statement on Form N-14 filed by Trust with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.1(k) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(k) Trust shall have received on or before the Closing Date an
opinion of Trust Counsel in form and substance reasonably acceptable to Trust,
as to the matters set forth on Schedule 6.1(k). In rendering such opinion, Trust
Counsel may request and rely upon representations contained in certificates of
officers of Trust and others, and the officers of Trust shall use their best
efforts to make available such truthful certificates.
ARTICLE 7
TERMINATION OF PLAN
SECTION 7.1. Termination. This Plan may be terminated by Trust on or prior
to the Closing Date as follows:
(a) if circumstances develop that, in its judgment, make proceeding
with the Reorganization inadvisable for either Fund;
(b) if the Closing Date shall not be on or before the Termination
Date;
(c) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been obtained
as contemplated by Section 5.5; or
(d) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Plan is terminated in
accordance with Section 7.1 hereof and the Reorganization of Selling Fund is not
consummated, this Plan shall become void and of no further force and effect with
respect to the Reorganization and Selling Fund, except for the provisions of
Section 5.2.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Plan, and the covenants in this Plan that
are required to be performed at or prior to the Closing Date, shall terminate
upon the consummation of the transactions contemplated hereunder. The covenants
in this Plan that are required to be performed in whole or in part subsequent to
the Closing Date shall survive the consummation of the transactions contemplated
hereunder for a period of one (1) year following the Closing Date.
SECTION 8.2. Governing Law. This Plan shall be construed and interpreted
according to the laws of the State of Delaware applicable to contracts made and
to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This Plan
shall inure to the benefit of and be binding upon the parties hereto and the
respective successors and assigns of the parties and such Persons. Nothing in
this Plan is intended or shall be construed to confer upon any entity or Person
other than the parties hereto and their respective successors and permitted
assigns any right, remedy or claim under or by reason of this Plan or any part
hereof. Without the prior written consent of the parties hereto, this Plan may
not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Trust. Trust hereby acknowledges and agrees
that each of Buying Fund and Selling Fund is a separate investment portfolio of
Trust, that Trust is executing this Plan on behalf of each Buying Fund and
Selling Fund, and that any amounts payable by Trust under or in connection with
this Plan shall be payable solely from the revenues and assets of Buying Fund or
Selling Fund, as applicable. Trust further acknowledges and agrees that this
Plan has been executed by a duly authorized officer of Trust in his or her
capacity as an officer of Trust intending to bind Trust as provided herein, and
that no officer, trustee or shareholder of Trust shall be personally liable for
the liabilities or obligation of Trust incurred hereunder. Finally, Trust
acknowledges and agrees that the liabilities and obligations of Selling Fund
pursuant to this Plan shall be enforceable against the assets of Buying Fund or
Selling Fund, as applicable, only and not against the assets of Trust generally
or assets belonging to any other series of Trust.
SECTION 8.5. Amendments. This Plan may not be amended, altered or modified
except with the approval of Trust's Board of Trustees.
SECTION 8.6. Entire Plan; Exhibits and Schedules. This Plan, including the
Exhibits, Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 8.7. Successors and Assigns; Assignment. This Plan shall be
binding upon and inure to the benefit of Trust, on behalf of Selling Fund, and
Trust, on behalf of Buying Fund, and their respective successors and permitted
assigns.
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
- --------------------------------- ---------------------
AIM Weingarten Fund AIM Constellation Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class C Shares Class C Shares
Class R Shares Class R Shares
Institutional Class Shares Institutional Class Shares
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
Class A Shares
Class B Shares
Class C Shares
Class R Shares
Institutional Shares
SCHEDULE 4.11(b)
PERMITTED REORGANIZATIONS OF FUNDS
AIM Aggressive Growth Fund into AIM Constellation Fund
AIM Blue Chip Fund into AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund into AIM Dynamics Fund
AIM Small Company Growth Fund into AIM Small Cap Growth Fund
AIM Premier Equity Fund into AIM Charter Fund
AIM V.I. Aggressive Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Blue Chip Fund into AIM V.I. Large Cap Growth Fund
AIM V.I. Premier Equity Fund into AIM V.I. Core Equity Fund
1
SCHEDULE 6.1(k)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Plan, will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and Selling Fund and Buying Fund will be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Selling Fund Shareholders on the receipt of Buying Fund
Shares in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying
Fund of the assets of Selling Fund will be the same as the basis of such assets
in the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX III
AIM CONSTELLATION FUND -- CLASS A, B, C AND R SHARES
Supplement dated October 31, 2005
to the Prospectus dated February 28, 2005, as supplemented
July 1, 2005 and September 16, 2005
This supplement supersedes and replaces in its entirety the information
appearing in the supplements dated July 1, 2005 and September 16, 2005.
The following information replaces in its entirety the information appearing
under the heading "FEE TABLE AND EXPENSE EXAMPLE" in the prospectus:
"FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) 5.50% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of
original purchase price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3)
- -----------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- -----------------------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service (12b-1) Fees(5) 0.25 1.00 1.00 0.50
Other Expenses 0.36 0.36 0.36 0.36
Total Annual Fund Operating Expenses 1.24 1.99 1.99 1.49
Fee Waiver(6) 0.03 0.03 0.03 0.03
Net Annual Fund Operating Expenses(7) 1.21 1.96 1.96 1.46
- -----------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) The Board of Trustees has approved a permanent reduction of the Rule 12b-1
fees applicable to Class A shares to 0.25% effective July 1, 2005.
Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective January 1, 2005 through December 31, 2009, the advisor has
contractually agreed to waive a portion of its advisory fees. The Fee
Waiver reflects this agreement. (See "Fund Management--Advisor
Compensation" following.)
(7) At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse the fund for expenses related to market timing
matters. Net Annual Fund Operating Expenses restated for the items in Note
5 and Note 6 above and net of this arrangement were 1.20%, 1.95%, 1.95%
and 1.45% for Class A, Class B, Class C and Class R shares respectively,
for the year ended October 31, 2004.
If a financial institution is managing your account, you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the fund's operating expenses remain the same and includes the effect
of contractual fee waivers and/or expense reimbursement, if any. To the extent
fees are waived and/or expenses are reimbursed voluntarily, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
Class A $ 667 $ 913 $ 1,178 $ 1,953
Class B 699 915 1,257 2,109
Class C 299 615 1,057 2,303
Class R 149 462 797 1,765
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------- ---------- ----------
Class A $ 667 $ 913 $ 1,178 $ 1,953
Class B 199 615 1,057 2,109
Class C 199 615 1,057 2,303
Class R 149 462 797 1,765
</Table>
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information in a different format from the preceding Fee Table and
Expense Example about the effect of a fund's expenses, including investment
advisory fees and other fund costs, on the fund's return over a 10-year period.
Because a fund's annual return when quoted is already reduced by the fund's fees
and expenses for that year, this hypothetical expense information is intended to
help you understand the annual and cumulative impact of a fund's fees and
expenses on your investment. Assuming a hypothetical investment of $10,000 in
each class of shares of the fund and a 5% return before expenses each year, the
chart shows the cumulative return before expenses, the cumulative return after
expenses, the ending balance and the estimated annual expenses for each year one
through ten. The chart also assumes that the current annual expense ratio stays
the same throughout the 10-year period. The current annual expense ratio for
each class, which is the same as stated in the Fee Table above, is reflected in
the chart and is net of any contractual fee waiver or expense reimbursement.
There is no assurance that the annual expense ratio will be the expense ratio
for the fund class. To the extent that the advisor makes any waivers or
reimbursements pursuant to a voluntary arrangement, your actual expenses may
2
be less. The chart does not take into account initial or contingent deferred
sales charges, if any. You should understand that this is only a hypothetical
presentation made to illustrate what expenses and returns would be under the
above scenarios; your actual returns and expenses are likely to differ (higher
or lower) from those shown below.
<Table>
<Caption>
CLASS A--
ANNUAL
EXPENSE
RATIO
1.21% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.79% 7.72% 11.81% 16.04% 20.44% 25.01% 29.74% 34.66% 39.77% 45.06%
End of
Year
Balance $10,379.00 $10,772.36 $11,180.64 $11,604.38 $12,044.19 $12,500.66 $12,974.44 $13,466.17 $13,976.54 $14,506.25
Estimated
Annual
Expenses $ 123.29 $ 127.97 $ 132.82 $ 137.85 $ 143.07 $ 148.50 $ 154.12 $ 159.97 $ 166.03 $ 172.32
</Table>
<Table>
<Caption>
CLASS B--
ANNUAL
EXPENSE
RATIO
1.96% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.04% 6.17% 9.40% 12.73% 16.15% 19.68% 23.32% 27.07% 31.89% 36.89%
End of
Year
Balance $10,304.00 $10,617.24 $10,940.01 $11,272.58 $11,615.27 $11,968.37 $12,332.21 $12,707.11 $13,188.71 $13,688.56
Estimated
Annual
Expenses $ 198.98 $ 205.03 $ 211.26 $ 217.68 $ 224.30 $ 231.12 $ 238.15 $ 245.39 $ 156.67 $ 162.61
</Table>
<Table>
<Caption>
CLASS C--
ANNUAL
EXPENSE
RATIO
1.96% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.04% 6.17% 9.40% 12.73% 16.15% 19.68% 23.32% 27.07% 30.93% 34.91%
End of
Year
Balance $10,304.00 $10,617.24 $10,940.01 $11,272.58 $11,615.27 $11,968.37 $12,332.21 $12,707.11 $13,093.41 $13,491.45
Estimated
Annual
Expenses $ 198.98 $ 205.03 $ 211.26 $ 217.68 $ 224.30 $ 231.12 $ 238.15 $ 245.39 $ 252.85 $ 260.53
</Table>
3
<Table>
<Caption>
CLASS R--
ANNUAL
EXPENSE
RATIO
1.46% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.54% 7.21% 11.00% 14.93% 19.00% 23.21% 27.57% 32.09% 36.76% 41.61%
End of
Year
Balance $10,354.00 $10,720.53 $11,100.04 $11,492.98 $11,899.83 $12,321.09 $12,757.25 $13,208.86 $13,676.45 $14,160.60
Estimated
Annual
Expenses $ 148.58 $ 153.84 $ 159.29 $ 164.93 $ 170.77 $ 176.81 $ 183.07 $ 189.55 $ 196.26 $ 203.21
</Table>
The following replaces in its entirety the heading and the first two paragraphs
appearing under the heading "FUND MANAGEMENT -- THE ADVISORS" on page 5 of the
prospectus:
"FUND MANAGEMENT -- THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The
advisor supervises all aspects of the fund's operations and provides
investment advisory services to the fund, including obtaining and
evaluating economic, statistical and financial information to formulate
and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or
manages over 200 investment portfolios, including the fund, encompassing a
broad range of investment objectives."
The following replaces in its entirety the information appearing under the
heading "FUND MANAGEMENT - PORTFOLIO MANAGERS" on page 6 of the prospectus:
"The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
o Lanny H. Sachnowitz (lead manager), Senior Portfolio Manager, who
has been responsible for the fund since 2005 and has been associated
with the advisor and/or its affiliates since 1987. As the lead
manager, Mr. Sachnowitz generally has final authority over all
aspects of the fund's investment portfolio, including but not
limited to, purchases and sales of individual securities, portfolio
construction techniques, portfolio risk assessment, and the
management of daily cash flows in accordance with portfolio
holdings. The degree to which Mr. Sachnowitz may perform these
functions, and the nature of these functions, may change from time
to time.
o Kirk L. Anderson, Portfolio Manager, who has been responsible for
the fund since 2005 and has been associated with the advisor and/or
its affiliates since 1994.
o James G. Birdsall, Portfolio Manager, who has been responsible for
the fund since 2005 and has been associated with the advisor and/or
its affiliates since 1995.
o Robert J. Lloyd, Portfolio Manager, who has been responsible for the
fund since 2003 and has been associated with the advisor and/or its
affiliates since 2000. From 1997 to 2000, he was employed by
American Electric Power.
4
They are assisted by the advisor's Large/Multi-Cap Growth Team, which may
be comprised of portfolio managers, research analysts and other investment
professionals of the advisor. Team members provide research support and
make securities recommendations with respect to the fund's portfolio, but
do not have day-to-day management responsibilities with respect to the
fund's portfolio. Members of the team may change from time to time. More
information on these portfolio managers and the team, including
biographies of other members of the team, may be found on the advisor's
website (http://www.aiminvestments.com). The website is not part of this
prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a
description of their compensation structure, and information regarding
other accounts they manage."
The following sentence replaces in its entirety the first sentence appearing
after the table under the heading "SHAREHOLDER INFORMATION -- CHOOSING A SHARE
CLASS" on page A-1 of the prospectus:
"Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional
Information for the Institutional Class shares for details."
The following paragraph replaces in its entirety the first paragraph appearing
under the heading "SHAREHOLDER INFORMATION -- PURCHASING SHARES -- GRANDFATHERED
INVESTORS" on page A-8 of the prospectus:
"Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in
Investor Class shares of any of the funds currently distributed by ADI
(the Grandfathered Funds) and have continuously maintained such account in
Investor Class shares since April 1, 2002; (2) any person or entity listed
in the account registration for any Grandfathered Funds, which account was
established prior to April 1, 2002 and continuously maintained since April
1, 2002, such as joint owners, trustees, custodians and designated
beneficiaries; (3) customers of certain financial institutions, wrap
accounts or other fee-based advisory programs, or insurance company
separate accounts, which have had relationships with ADI and/or any
Grandfathered Funds prior to April 1, 2002 and continuously maintained
such relationships since April 1, 2002; (4) defined benefit, defined
contribution and deferred compensation plans; and (5) fund trustees,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and
their immediate families."
The following information is added as Item (5) under the heading "SHAREHOLDER
INFORMATION -- EXCHANGING SHARES -- PERMITTED EXCHANGES -- EXCHANGES NOT SUBJECT
TO A SALES CHARGE" on page A-13 of the prospectus:
"(5) Investor Class shares for Class A or Class A3 shares of any fund
which does not offer Investor Class shares."
5
AIM CONSTELLATION FUND
PROSPECTUS
February 28, 2005
AIM Constellation Fund seeks to provide growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Class A, B, C and R
shares of the fund. Please read it before investing and keep it for future
reference.
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
----------------------
AIM CONSTELLATION FUND
----------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisors 5
Advisor Compensation 6
Portfolio Managers 6
OTHER INFORMATION 7
- ------------------------------------------------------
Sales Charges 7
Dividends and Distributions 7
FINANCIAL HIGHLIGHTS 8
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Excessive Short-Term Trading Activity
Disclosures A-5
Purchasing Shares A-7
Redeeming Shares A-9
Exchanging Shares A-11
Pricing of Shares A-14
Taxes A-16
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions.
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design and myaim.com are service marks
of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management
Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
----------------------
AIM CONSTELLATION FUND
----------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is growth of capital. The investment objective
of the fund may be changed by the Board of Trustees without shareholder
approval.
The fund seeks to meet this objective by investing principally in common
stocks of companies the portfolio managers believe are likely to benefit from
new or innovative products, services or processes as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth. The portfolio managers consider whether to sell a
particular security when it no longer meets these criteria. The fund will invest
without regard to market capitalization. The fund may also invest up to 20% of
its total assets in foreign securities. For cash management purposes, the fund
may also hold a portion of its assets in cash or cash equivalents, including
shares of affiliated money market funds. Any percentage limitations with respect
to assets of the fund are applied at the time of purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity. This is
especially true with respect to equity securities of smaller companies, whose
prices may go up and down more than equity securities of larger, more-
established companies. Also, since equity securities of smaller companies may
not be traded as often as equity securities of larger, more-established
companies, it may be difficult or impossible for the fund to sell securities at
a desirable price.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information.
1
----------------------
AIM CONSTELLATION FUND
----------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1995................................................................... 35.45%
1996................................................................... 16.27%
1997................................................................... 12.92%
1998................................................................... 18.89%
1999................................................................... 44.38%
2000................................................................... -10.37%
2001................................................................... -23.61%
2002................................................................... -24.75%
2003................................................................... 29.34%
2004................................................................... 6.18%
</Table>
During the periods shown in the bar chart, the highest quarterly return was
36.59% (quarter ended December 31, 1999) and the lowest quarterly return was
- -23.34% (quarter ended September 30, 2001).
2
----------------------
AIM CONSTELLATION FUND
----------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------------
(for the periods ended SINCE INCEPTION
December 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- -------------------------------------------------------------------------------------
Class A 4/30/76
Return Before Taxes 0.35% (7.73)% 7.40% --
Return After Taxes on
Distributions 0.35 (8.50) 6.32 --
Return After Taxes on
Distributions and Sale
of Fund Shares 0.23 (6.46) 6.24 --
Class B 11/03/97
Return Before Taxes 0.47 (7.64) -- 1.23%
Class C 08/04/97
Return Before Taxes 4.47 (7.35) -- 1.06%
Class R(2) 04/30/76(2)
Return Before Taxes 5.95 (6.81) 7.83 --
- -------------------------------------------------------------------------------------
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Russell 1000--Registered
Trademark-- Growth
Index(4) 6.30 (9.29) 9.59 --
Lipper Multi-Cap Growth Fund
Index(5) 11.26 (7.00) 9.43 --
- -------------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for the one year period are the historical returns of the
fund's Class R shares. The returns shown for the five year period and ten
year period are the blended returns of the historical performance of the
fund's Class R shares since their inception and the restated historical
performance of the fund's Class A shares (for periods prior to inception of
the Class R shares) at net asset value, adjusted to reflect the higher Rule
12b-1 fees applicable to the Class R shares. The inception date shown in
the table is that of the fund's Class A shares. The inception date of the
fund's Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. The fund has elected to use the Standard &
Poor's 500 Index as its broad-based index. The fund has also included the
Russell 1000--Registered Trademark-- Growth Index, which the fund believes
more closely reflects the performance of the types of securities in which
the fund invests. In addition, the fund has included the Lipper Multi-Cap
Growth Fund Index (which may or may not include the fund) for comparison to
a peer group.
(4) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those securities in the Russell 1000--Registered Trademark--
Index with a higher than average growth forecast. The Russell
1000--Registered Trademark-- Index measures the performance of the largest
1,000 companies domiciled in the United States.
(5) The Lipper Multi-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Multi-Cap Growth
category. These funds typically have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P SuperComposite 1500 Index.
3
----------------------
AIM CONSTELLATION FUND
----------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- --------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) 5.50% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of
original purchase price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3)
- --------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service (12b-1) Fees 0.30 1.00 1.00 0.50
Other Expenses 0.36 0.36 0.36 0.36
Total Annual Fund Operating Expenses 1.29 1.99 1.99 1.49
Fee Waiver(5) 0.03 0.03 0.03 0.03
Net Annual Fund Operating Expenses(6,7) 1.26 1.96 1.96 1.46
- --------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Effective January 1, 2005 through December 31, 2009, the advisor has
contractually agreed to waive a portion of its advisory fees. The Fee Waiver
reflects this agreement. (See "Fund Management--Advisor Compensation"
following.)
(6) At the request of the Trustees of AIM Equity Funds, AMVESCAP (as defined
herein) has agreed to reimburse the Trust for fund expenses related to
market timing matters. Net Annual Fund Operating Expenses net of this
arrangement were 1.25%, 1.95%, 1.95% and 1.45% for Class A, Class B, Class C
and Class R shares respectively, for the year ended October 31, 2004.
(7) The fund's investment advisor voluntarily agreed to waive a portion of the
management fee on assets in excess of $5 billion. Termination of this
agreement requires approval by the Board of Trustees.
If a financial institution is managing your account you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year, that the
fund's operating expenses remain the same and includes the effect of any
contractual fee waivers and/or expense reimbursement. To the extent fees are
waived and/or expenses are reimbursed voluntarily, your expenses will be lower.
Although your actual returns and costs may be higher or lower, based on these
assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $671 $928 $1,204 $2,007
Class B 699 915 1,257 2,122
Class C 299 615 1,057 2,303
Class R 149 462 797 1,765
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $671 $928 $1,204 $2,007
Class B 199 615 1,057 2,122
Class C 199 615 1,057 2,303
Class R 149 462 797 1,765
- --------------------------------------------------------------------------------
</Table>
4
----------------------
AIM CONSTELLATION FUND
----------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor. A I M Capital Management, Inc. (the subadvisor), a wholly owned
subsidiary of the advisor, is the fund's subadvisor and is responsible for its
day-to-day management. Both the advisor and the subadvisor are located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisors supervise all
aspects of the fund's operations and provide investment advisory services to the
fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976, and the subadvisor has acted as an investment advisor since 1986. Today,
the advisor, together with its subsidiaries, advises or manages over 200
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds) and AIM reached final settlements with certain
regulators, including without limitation the Securities and Exchange Commission
(SEC), the New York Attorney General (NYAG) and the Colorado Attorney General
(COAG), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM funds that they advised
and to the independent directors/trustees of such funds that they had entered
into certain arrangements permitting market timing of such funds, thereby
breaching their fiduciary duties to such funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. (ADI) (the distributor of the retail AIM funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the settlements, $325 million will be made available for distribution
to the shareholders of those AIM funds that IFG formerly advised that were
harmed by market timing activity, and $50 million will be made available for
distribution to the shareholders of those AIM funds advised by AIM that were
harmed by market timing activity. These settlement funds will be distributed in
accordance with a methodology to be determined by an independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and the COAG, AIM has also agreed to reduce management fees on certain AIM
equity and balanced funds by $15 million per year for the next five years, based
upon effective fee rates and assets under management as of July 1, 2004, and not
to increase certain management fees during this period. In addition, as required
by the settlements, AIM is in the process of making certain governance and
compliance reforms and reviewing its policies and procedures.
The independent trustees of the AIM funds have been assisted by their own
independent counsel and financial expert in their own investigation of market
timing activity in the AIM funds. A special committee, consisting of four
independent trustees, was formed to oversee this investigation. None of the
costs of this investigation will be borne by the AIM funds or by fund
shareholders.
At the request of the trustees of the AIM funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
funds related to market timing matters.
IFG, AIM, certain related entities, certain of their current and former
officers and/or certain of the AIM funds have received regulatory inquiries in
the form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including but not limited
to revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders. Additional regulatory inquiries related to these or other
issues may be received by the AIM funds, IFG, AIM and/or related entities and
individuals in the future.
A number of civil lawsuits related to market timing, late trading and
related issues have been filed against (depending on the lawsuit) certain of the
AIM funds, IFG, AIM, AMVESCAP, certain related entities, certain of their
current and former officers and/or certain unrelated third parties. All such
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 for consolidated or coordinated pre-trial proceedings. Other civil
lawsuits have been filed against (depending on the lawsuit) IFG, AIM, ADI,
certain related entities, certain of their current and former officers and/or
certain of the AIM funds and their trustees alleging the improper use of fair
value pricing, excessive advisory and/or distribution fees, improper charging of
distribution fees on limited offering funds or share classes and improper mutual
fund sales practices and directed-brokerage arrangements and participation in
Class action settlements. Additional civil lawsuits related to the above or
other issues may be filed against the AIM funds, IFG, AIM and/or related
entities and individuals in the future.
You can find more detailed information concerning all of the above matters,
including the parties to the civil lawsuits and summaries of the various
allegations and remedies sought in such lawsuits, in the fund's Statement of
Additional Information and on AIM's Internet website under the heading "Settled
Enforcement Actions and Investigations Related to Market Timing, Regulatory
Inquiries and Pending Litigation" (http://www.aiminvestments.com/regulatory).
5
----------------------
AIM CONSTELLATION FUND
----------------------
As a result of the matters discussed above, investors in the AIM funds might
react by redeeming their investments. This might require the funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the funds.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2004, the advisor received compensation
of 0.62% of average daily net assets. The annual management fee payable to the
advisor pursuant to the investment advisory agreement ranges from 1.00% to
0.625% of average daily net assets, based on net asset levels. The advisor has
contractually agreed to advisory fee waivers for the period January 1, 2005 to
December 31, 2009 as part of its settlement with the Attorney General of New
York ("NYAG"). The advisor will waive advisory fees to the extent necessary so
that the advisory fee payable does not exceed the Advisory Fee Rates After
January 1, 2005. Following are the advisory fee rates before and after January
1, 2005.
<Table>
<Caption>
ADVISORY FEE RATES BEFORE ADVISORY FEE RATES AFTER
JANUARY 1, 2005 WAIVER JANUARY 1, 2005 WAIVER
- --------------------------------------------------------------------------
1.00% of the first $30 million 0.75% of the first $150 million
0.75% of the next $120 million 0.615% of the next $4.85 billion
0.625% of the next $4.85 billion 0.57% of the next $2.5 billion
0.60% of the next $5 billion* 0.545% of the next $2.5 billion
0.575% of amount over $10 billion* 0.52% of amount over $10 billion
</Table>
* After fee waiver. This rate includes AIM's voluntary agreement to waive an
amount equal to 0.025% for each $5 billion increment in net assets over $5
billion, up to a maximum of 0.175% on net assets over $35 billion.
PORTFOLIO MANAGERS
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Kenneth A. Zschappel (lead manager), Senior Portfolio Manager, who has been
responsible for the fund since 1996 and has been associated with the advisor
and/or its affiliates since 1990. As the lead manager, Mr. Zschappel generally
has final authority over all aspects of the fund's investment portfolio,
including but not limited to, purchases and sales of individual securities,
portfolio construction techniques, portfolio risk assessment, and the
management of daily cash flows in accordance with portfolio holdings. The
degree to which Mr. Zschappel may perform these functions, and the nature of
these functions, may change from time to time.
- - Christian A. Costanzo, Portfolio Manager, who has been responsible for the
fund since 2003 and has been associated with the advisor and/or its affiliates
since 1995.
- - Robert J. Lloyd, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 2000. From 1997 to 2000, he was employed by American Electric Power.
- - Bryan A. Unterhalter, Portfolio Manager, who has been responsible for the fund
since 2003 and has been associated with the advisor and/or its affiliates
since 1997.
They are assisted by the advisor's Multi-Cap Growth Team, which may be
comprised of portfolio managers, research analysts and other investment
professionals of the advisor. Team members provide research support and make
securities recommendations with respect to the fund's portfolio, but do not have
day-to-day management responsibilities with respect to the fund's portfolio.
Members of the team may change from time to time. More information on these
portfolio managers and the team, including biographies of other members of the
team, may be found on the advisor's website (http://www.aiminvestments.com). The
website is not a part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a description
of their compensation structure, and information regarding other accounts they
manage.
6
----------------------
AIM CONSTELLATION FUND
----------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Constellation Fund are subject to the maximum
5.50% initial sales charge as listed under the heading "CATEGORY I Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Certain purchases of Class A shares at net asset value may be
subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section. Certain purchases of Class R shares may be
subject to the contingent deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
7
----------------------
AIM CONSTELLATION FUND
----------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal years 2004, 2003, 2002 and 2001 has been
audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information prior to fiscal year 2001 was audited by other public
accountants.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- -----------
Net asset value, beginning of period $ 20.61 $ 17.20 $ 19.72 $ 43.50 $ 34.65
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.12)(a) (0.15)(a) (0.12) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.79 3.53 (2.37) (16.24) 12.39
=================================================================================================================================
Total from investment operations 0.66 3.41 (2.52) (16.36) 12.13
=================================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 3.20% 19.83% (12.78)% (43.10)% 36.56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,616,072 $6,825,023 $6,780,055 $9,703,277 $19,268,977
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.27%(c) 1.29% 1.26% 1.14% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(c) 1.30% 1.27% 1.17% 1.11%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.59)(c) (0.67)% (0.74)% (0.46)% (0.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $6,338,680,161.
8
----------------------
AIM CONSTELLATION FUND
----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- ----------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.89 $ 42.28 $ 34.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.28) (0.58)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 3.33 (2.26) (15.69) 12.14
=============================================================================================================================
Total from investment operations 0.49 3.10 (2.53) (15.97) 11.56
=============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=============================================================================================================================
Net asset value, end of period $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 2.52% 18.95% (13.39)% (43.49)% 35.51%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,005 $688,587 $625,294 $818,343 $1,315,524
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
=============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $670,218,131.
9
----------------------
AIM CONSTELLATION FUND
----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.88 $ 42.27 $ 33.99
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.29) (0.59)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.74 3.33 (2.25) (15.68) 12.15
==============================================================================================================================
Total from investment operations 0.48 3.10 (2.52) (15.97) 11.56
==============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
==============================================================================================================================
Net asset value, end of period $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 2.47% 18.95% (13.35)% (43.51)% 35.52%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $162,707 $193,585 $184,393 $258,786 $434,544
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
==============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $184,507,218.
10
----------------------
AIM CONSTELLATION FUND
----------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
-------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
------ ------ -------------
Net asset value, beginning of period $20.63 $17.26 $19.82
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.16)(a) (0.07)(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.78 3.53 (2.49)
=========================================================================================================
Total from investment operations 0.61 3.37 (2.56)
=========================================================================================================
Net asset value, end of period $21.24 $20.63 $17.26
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 2.96% 19.52% (12.92)%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,202 $2,857 $ 226
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(c) 1.49% 1.53%(d)
- ---------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%(c) 1.50% 1.54%(d)
=========================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)(c) (0.87)% (1.01)(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 50% 47% 57%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $4,982,137.
(d) Annualized.
(e) Not annualized for periods less than one year.
11
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, AIM serves as investment advisor to many other mutual
funds (the funds). The following information is about all the funds.
CHOOSING A SHARE CLASS
Most of the funds have multiple classes of shares, each class representing an
interest in the same portfolio of investments. Certain classes have higher
expenses than other classes which may lower the return on your investment
relative to a less expensive class. In deciding which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your shares, (ii) the provisions of the distribution plan, if
any, applicable to the class (iii) the eligibility requirements that apply to
purchases of a particular class, and (iv) any services you may receive in making
your investment determination. In addition, you should consider the other
factors described below. Please contact your financial advisor to assist you in
making your decision.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B(3) CLASS C CLASS K CLASS R INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial - No initial - No initial - No initial - No initial - No initial
charge sales charge sales charge sales charge sales charge sales charge sales charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent contingent deferred sales
charge for charge charge on charge on deferred sales deferred sales charge
certain redemptions redemptions charge(2) charge(2)
purchases(2) within six within one
years year(6)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.45% 0.50% 0.25%(9)
service (12b-1)
fee than Class B,
Class C, Class K
or Class R shares
(See "Fee Table
and Expense
Example")
- Does not - Converts to - Does not - Does not - Does not - Does not
convert to Class A shares convert to Class convert to convert to convert to
Class A shares at the end of A shares Class A shares Class A shares Class A shares
the month
which is eight
years after
the date on
which shares
were purchased
along with a
pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Available only - Purchase - Generally more - Generally, - Generally, - Closed to new
appropriate for for a limited orders limited appropriate only available only available investors,
long-term number of to amount less for short- to retirement to employee except as
investors funds than term investors plans, benefit described in
$100,000(5) educational plans(8) the
- Purchase savings "Purchasing
orders limited programs and Shares --
to amount less wrap programs Grandfathered
than Investors"
$1,000,000(7) section of
your
prospectus
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code. These plans
include 401(k) plans (including AIM Solo 401(k) plans), money purchase
pension plans and profit sharing plans. Plans that have existing accounts
invested in Class B shares will continue to be allowed to make additional
purchases.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Equity Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another fund, the shares into which you exchanged will not convert to Class
A shares until the end of the month which is eight years after the date on
which you purchased your original shares.
(5) Any purchase order for Class B shares in an amount equal to or in excess of
$100,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another fund that are subject to a CDSC into AIM Short Term Bond
Fund.
(7) Any purchase order for Class C shares in an amount equal to or in excess of
$1,000,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
MCF--02/05
A-1
-------------
THE AIM FUNDS
-------------
(8) Generally, Class R shares are only available to employee benefit plans.
These may include, for example, retirement and deferred compensation plans
maintained pursuant to Sections 401, 403, 457 of the Internal Revenue Code;
nonqualified deferred compensation plans; health savings accounts maintained
pursuant to Section 223 of the Internal Revenue Code, respectively; and
voluntary employees' beneficiary arrangements maintained pursuant to Section
501(c)(9) of the Internal Revenue Code. Retirement plans maintained pursuant
to Section 401 generally include 401(k) plans, profit sharing plans, money
purchase pension plans, and defined benefit plans. Retirement plans
maintained pursuant to Section 403 must be established and maintained by
non-profit organizations operating pursuant to Section 501(c)(3) of the
Internal Revenue Code in order to purchase Class R shares. Class R shares
are generally not available for individual retirement accounts such as
traditional, Roth, SEP, SAR-SEP and SIMPLE IRAs.
(9) Investor Class shares of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares and AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio with
respect to their Investor Class shares) has adopted 12b-1 plans that allow the
fund to pay distribution fees to A I M Distributors, Inc. (ADI) for the sale and
distribution of its shares and fees for services provided to shareholders, all
or a substantial portion of which are paid to the dealer of record. Because the
fund pays these fees out of its assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES
Sales charges on the funds and classes of those funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
Certain categories of persons are permitted to purchase Class A shares of
the funds without paying an initial sales charge because their transactions
involve little expense, such as persons who have a relationship with the funds
or with AIM and certain programs for purchase. For more detailed information
regarding eligibility to purchase or redeem shares at reduced or without sales
charges, please consult the fund's website at www.aiminvestments.com and click
on the links "My Account", Service Center, or consult the fund's Statement of
Additional Information, which is available upon request free of charge.
INITIAL SALES CHARGES
The funds (except AIM Short Term Bond Fund) are grouped into three categories
with respect to initial sales charges. The "Other Information" section of your
prospectus will tell you in what category your particular fund is classified.
CATEGORY I INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY II INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY III INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
AIM SHORT TERM BOND FUND INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares
of any fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
MCF--02/05
A-2
-------------
THE AIM FUNDS
-------------
If you currently own Class A shares of a Category I or II fund or AIM Short
Term Bond Fund and make additional purchases at net asset value that result in
account balances of $1,000,000 or more, the additional shares purchased will be
subject to an 18-month, 1% CDSC.
Some retirement plans can purchase Class A shares at their net asset value
per share. If ADI paid a concession to the dealer of record in connection with a
Large Purchase of Class A shares by a retirement plan, the Class A shares may be
subject to a 1% CDSC at the time of redemption if all retirement plan assets are
redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
ADI may pay a dealer concession and/or a service fee for Large Purchases and
purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS K AND CLASS R SHARES
You can purchase Class K and Class R shares at their net asset value per share.
If ADI pays a concession to the dealer of record, however, the Class K shares
are subject to a 0.70% CDSC and the Class R shares are subject to a 0.75% CDSC
at the time of redemption if all retirement plan assets are redeemed within 12
months from the date of the retirement plan's initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you are redeeming shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial advisor must notify
the transfer agent at the time of purchase that your purchase qualifies for such
treatment. Certain individuals and employer-sponsored retirement plans may link
accounts for the purpose of qualifying for lower initial sales charges. You or
your financial consultant must provide other account numbers to be considered
for Rights of Accumulation, or mark the Letter of Intent section on the account
application, or provide other relevant documentation, so that the transfer agent
can verify your eligibility for the reduction or exception. Consult the fund's
Statement of Additional Information for details.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM
Floating Rate Fund and Investor Class shares of any fund will not be taken into
account in determining whether a purchase qualifies for a reduction in initial
sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of a fund with fund shares
currently owned (Class A, B, C, K or R) and investments in the AIM College
Savings Plan(SM) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
public offering price of all other shares you own. The transfer agent may
automatically link certain accounts registered in the same name, with the same
taxpayer identification number, for the purpose of qualifying you for lower
initial sales charge rates.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of the funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain funds; and
- - when a merger, consolidation, or acquisition of assets of a fund occurs.
MCF--02/05
A-3
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of a fund other than AIM Short Term Bond Fund and
you received such Class C shares by exchanging Class C shares of AIM Short
Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class A, C, K or Class R shares held through such
plan that would otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class A, C, K or Class R shares held through such plan
that would otherwise be subject to a CDSC;
- - if you are a participant in a qualified retirement plan and redeem Class A,
Class C, Class K or Class R shares in order to fund a distribution;
- - if you participate in the Systematic Redemption Plan and withdraw up to 12% of
the value of your shares that are subject to a CDSC in any twelve-month
period;
- - if you redeem shares to pay account fees;
- - for redemptions following the death or post-purchase disability of a
shareholder or beneficial owner;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
ADDITIONAL PAYMENTS TO FINANCIAL ADVISORS
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed above.
In addition to those payments, ADI or one or more of its corporate affiliates
(collectively, ADI Affiliates) may make additional cash payments to financial
advisors in connection with the promotion and sale of shares of AIM funds. These
additional cash payments may include cash revenue sharing payments and other
payments for certain administrative services, transaction processing services
and certain other marketing support services. ADI Affiliates make these payments
from their own resources, from ADI's retention of underwriting concessions and
from payments to ADI under Rule 12b-1 plans. In this context, "financial
advisors" include any broker, dealer, bank (including bank trust departments),
registered investment advisor, financial planner, retirement plan administrator
and any other financial intermediary having a selling, administration or similar
agreement with ADI Affiliates.
ADI Affiliates make revenue sharing payments as incentives to certain
financial advisors to promote and sell shares of AIM funds. The benefits ADI
Affiliates receive when they make these payments include, among other things,
placing AIM funds on the financial advisor's funds sales system, placing AIM
funds on the financial advisor's preferred or recommended fund list, and access
(in some cases on a preferential basis over other competitors) to individual
members of the financial advisor's sales force or to the financial advisor's
management. Revenue sharing payments are sometimes referred to as "shelf space"
payments because the payments compensate the financial advisor for including AIM
funds in its fund sales system (on its "sales shelf"). ADI Affiliates compensate
financial advisors differently depending typically on the level and/or type of
considerations provided by the financial advisor. The revenue sharing payments
ADI Affiliates make may be calculated on sales of shares of AIM funds
(Sales-Based Payments), in which case the total amount of such payments shall
not exceed 0.25% of the public offering price of all shares sold by the
financial advisor during the particular period. Such payments also may be
calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor (Asset-Based Payments), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of AIM funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of AIM
funds in investor accounts. ADI Affiliates may pay a financial advisor either or
both Sales-Based Payments and Asset-Based Payments.
ADI Affiliates also may make other payments to certain financial advisors
for processing certain transactions or account maintenance activities (such as
processing purchases, redemptions or exchanges or producing customer account
statements) or for providing certain other marketing support services (such as
financial assistance for conferences, seminars or sales or training programs at
which ADI Affiliates personnel may make presentations on AIM funds to the
financial advisor's sales force). Financial advisors may earn profits on these
payments for these services, since the amount of the payment may exceed the cost
of providing the service. Certain of these payments are subject to limitations
under applicable law.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of AIM fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more shares
of AIM funds or retain shares of AIM funds in their clients' accounts, ADI
Affiliates benefit from the incremental management and other fees paid to ADI
Affiliates by the AIM funds with respect to those assets.
You can find further details in the fund's Statement of Additional
Information about these payments and the services provided by financial
advisors. In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you
MCF--02/05
A-4
-------------
THE AIM FUNDS
-------------
additional fees or commissions other than those disclosed in this prospectus.
You can ask your financial advisor about any payments it receives from ADI
Affiliates or the AIM funds, as well as about fees and/or commissions it
charges.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
While the funds provide their shareholders with daily liquidity, their
investment programs are designed to serve long-term investors. Excessive
short-term trading activity in the funds' shares (i.e., a purchase of fund
shares followed shortly thereafter by a redemption of such shares, or vice
versa) may hurt the long-term performance of certain funds by requiring them to
maintain an excessive amount of cash or to liquidate portfolio holdings at a
disadvantageous time, thus interfering with the efficient management of such
funds by causing them to incur increased brokerage and administrative costs.
Where excessive short-term trading activity seeks to take advantage of arbitrage
opportunities from stale prices for portfolio securities, the value of fund
shares held by long-term investors may be diluted. The Boards of Trustees have
adopted policies and procedures designed to discourage excessive or short-term
trading of fund shares for all funds except the money market funds. However,
there is the risk that these funds' policies and procedures will prove
ineffective in whole or in part to detect or prevent excessive or short-term
trading. These funds may alter their policies at any time without prior notice
to shareholders if the advisor believes the change would be in the best
interests of long-term shareholders.
AIM and its affiliates (collectively, AIM Affiliates) currently use the
following tools designed to discourage excessive short-term trading in the
retail funds:
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) use of fair value pricing consistent with procedures approved by the Boards
of Trustees of the funds.
Each of these tools is described in more detail below. Although these tools are
designed to discourage excessive short-term trading, you should understand that
none of these tools alone nor all of them taken together eliminate the
possibility that excessive short-term trading activity in the funds will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with long-term shareholder
interests.
The Boards of Trustees of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio (the money market funds) have not adopted any policies and
procedures that would limit frequent purchases and redemptions of such funds'
shares. The Boards do not believe that it is appropriate to adopt any such
policies and procedures for the money market funds for the following reasons:
- - The money market funds are offered to investors as cash management vehicles.
Investors must perceive an investment in such funds as an alternative to cash,
and must be able to purchase and redeem shares regularly and frequently.
- - One of the advantages of a money market fund as compared to other investment
options is liquidity. Any policy that diminishes the liquidity of the money
market funds will be detrimental to the continuing operations of such funds.
- - The money market funds' portfolio securities are valued on the basis of
amortized cost, and such funds seeks to maintain a constant net asset value.
As a result, there are no price arbitrage opportunities.
- - Because the money market funds seek to maintain a constant net asset value,
investors expect to receive upon redemption the amount they originally
invested in such funds. Imposition of redemption fees would run contrary to
investor expectations.
The Boards considered the risks of not having a specific policy that limits
frequent purchases and redemptions, and it determined that those risks are
minimal, especially in light of the reasons for not having such a policy as
described above. Nonetheless, to the extent that the fund must maintain
additional cash and/or securities with short-term durations than may otherwise
be required, the fund's yield could be negatively impacted.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to
detect excessive short-term trading activities. If, as a result of this
monitoring, the AIM Affiliates believe that a shareholder has engaged in
excessive short-term trading, they may, in their discretion, ask the shareholder
to stop such activities or refuse to process purchases or exchanges in the
shareholder's accounts other than exchanges into a money market fund. In making
such judgments, the AIM Affiliates seek to act in a manner that they believe is
consistent with the best interests of long-term shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts. This is one reason why this tool cannot eliminate the possibility of
excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund,
AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio) per
calendar year, or a fund or an AIM Affiliate determines, in its sole discretion,
that your short-term trading activity is excessive (regardless of whether or not
MCF--02/05
A-5
-------------
THE AIM FUNDS
-------------
you exceed such guidelines), it may, in its discretion, reject any additional
purchase and exchange orders. Each fund and the AIM Affiliates reserve the
discretion to accept exchanges in excess of these guidelines on a case-by-case
basis if they believe that granting such exceptions would be consistent with the
best interests of shareholders. An exchange is the purchase of shares in one
fund which is paid for with the proceeds from a redemption of shares of another
fund effectuated on the same day. The movement out of one fund (redemption) and
into one or more other funds (purchase) on the same day shall be counted as one
exchange. Exchanges effected as part of programs that have been determined by an
AIM Affiliate to be non-discretionary, such as dollar cost averaging, portfolio
rebalancing, or other automatic non-discretionary programs that involve
exchanges, generally will not be counted toward the trading guidelines
limitation of four exchanges out of a fund per calendar year.
The ability of the AIM Affiliates to monitor exchanges made by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to implement these trading guidelines and
may be further limited by systems limitations applicable to those types of
accounts. Additionally, the AIM Affiliates maintain certain retirement plan
accounts on a record keeping system that is currently incapable of effecting or
monitoring the trading guidelines.
Some investments in the funds are made indirectly through vehicles such as
qualified tuition plans, variable annuity and insurance contracts, and funds of
funds which use the funds as underlying investments (each a conduit investment
vehicle). If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to impose exchange
limitations on individual transactions initiated by investors who have invested
in the funds through the conduit investment vehicle.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by
exchange, shares of certain funds within 30 days of purchase. See "Redeeming
Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan accounts
and approved fee-based program accounts is severely limited or non-existent in
those instances in which the broker, retirement plan administrator or fee-based
program sponsor maintains the underlying shareholder accounts and is unwilling
or unable to assess such fees and may be further limited by systems limitations
applicable to these types of accounts. Additionally, the AIM Affiliates maintain
certain retirement plan accounts on a record keeping system that is currently
incapable of processing the redemption fee. The provider of this system is
working to enhance the system to facilitate the processing of this fee.
For additional discussion of the applicability of redemption fees on shares
of the fund held through omnibus accounts, retirement plan accounts, approved
fee-based program accounts and conduit investment vehicles, see "Redeeming
Shares -- Redemption Fee".
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of Trustees of
the fund. Fair value pricing may reduce the ability of frequent traders to take
advantage of arbitrage opportunities resulting from potentially "stale" prices
of portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares -- Determination of Net Asset Value" for more
information.
MCF--02/05
A-6
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
If you hold your shares through a broker/dealer or other financial institution,
your eligibility to purchase those shares, the conditions for purchase and sale,
and the minimum and maximum amounts allowed may differ depending on that
institution's policies.
MINIMUM INVESTMENTS PER FUND ACCOUNT
There are no minimum investments with respect to Class K or Class R shares for
fund accounts. The minimum investments with respect to Class A, A3, B and C
shares and Investor Class shares for fund accounts are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per fund investment for $25
403 and salary deferrals from
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Employer-Sponsored Retirement
Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 25
All other accounts 1,000 50
ADI has the discretion to accept orders for lesser amounts.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed. Additionally, Federal law requires that
the fund verify and record your identifying information.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in retirement accounts on the
internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-7
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by ADI (the Grandfathered
Funds) and have continuously maintained such account in Investor Class shares
since April 1, 2002; (2) any person or entity listed in the account registration
for any Grandfathered Funds, which account was established prior to April 1,
2002 and continuously maintained since April 1, 2002, such as joint owners,
trustees, custodians and designated beneficiaries; (3) customers of certain
financial institutions, wrap accounts or other fee-based advisory programs, or
insurance company separate accounts, which have had relationships with ADI
and/or any of the Grandfathered Funds prior to April 1, 2002 and continuously
maintained such relationships since April 1, 2002; and (4) fund trustees,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the funds by authorizing the
transfer agent to withdraw the amount of your investment from your bank account
on a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one fund account to one or more other fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the day of the month you specify, in the
amount you specify. Dollar Cost Averaging cannot be set up for the 29th through
the 31st of the month. The minimum amount you can exchange to another fund is
$50. You may participate in a dollar cost averaging program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Dollar Cost Averaging program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same fund. You may invest
your dividends and distributions per the rules listed in the "Permitted
Exchanges" section.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another fund:
(1) Your account balance (a) in the fund paying the dividend must be at least
$5,000; and (b) in the fund receiving the dividend must be at least $500;
and
(2) Both accounts must have identical registration information.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your fund holdings should be rebalanced, on a percentage basis,
between two and ten of your funds on a quarterly, semiannual or annual basis.
Your portfolio will be rebalanced through the exchange of shares in one or more
of your funds for shares of the same class of one or more other funds in your
portfolio. Rebalancing will NOT occur if your portfolio is within 2% of your
stated allocation. If you wish to participate in the Program, make changes or
cancel the Program, the transfer agent must receive your request to participate,
changes, or cancellation in good order at least five business days prior to the
next rebalancing date, which is normally the 28th day of the last month of the
period you choose. You may realize taxable gains from these exchanges. We may
modify, suspend or terminate the Program at any time on 60 days prior written
notice. You may participate in a portfolio rebalancing program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Portfolio Rebalancing Program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
RETIREMENT PLANS
Shares of most of the funds can be purchased through tax-sheltered retirement
plans made available to corporations, individuals and employees of non-profit
organizations and public schools. A plan document must be adopted to establish a
retirement plan. You may use AIM sponsored retirement plans, which include IRAs,
Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans, Solo 401(k) plans
and Money Purchase/Profit Sharing plans, or another sponsor's retirement plan.
AIM Investment Services, Inc. assesses certain fees associated with the
maintenance of certain types of retirement plan accounts and the provision of
specialized recordkeeping services for those plan accounts. ADI assesses certain
fees associated with the maintenance of retirement plan documents for which it
acts as the prototype sponsor. Contact your financial advisor for details.
MCF--02/05
A-8
-------------
THE AIM FUNDS
-------------
REDEEMING SHARES
REDEMPTION FEE
You may be charged a 2% redemption fee (on redemption proceeds) if you redeem,
including redeeming by exchange, shares of the following funds within 30 days of
their purchase:
<Table>
AIM Asia Pacific Growth Fund AIM Global Value Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM European Growth Fund AIM International Core Equity Fund
AIM European Small Company AIM International Growth Fund
Fund AIM International Small Company Fund
AIM Global Aggressive Growth AIM S&P 500 Index Fund
Fund AIM Trimark Fund
AIM Global Equity Fund
AIM Global Growth Fund
</Table>
Currently, the redemption fee may be applied on Class A and Investor Class
shares (and Institutional Class shares of AIM S&P 500 Index Fund). The AIM
Affiliates expect the above funds to charge the redemption fee on all shares for
all of the above funds effective April 1, 2005.
The redemption fee will be retained by the fund from which you are redeeming
shares (including redemptions by exchange), and is intended to offset the
trading costs, market impact and other costs associated with short-term money
movements in and out of the fund. The redemption fee is imposed to the extent
that the number of fund shares you redeem exceeds the number of fund shares that
you have held for more than 30 days. In determining whether the minimum 30 day
holding period has been met, only the period during which you have held shares
of the fund from which you are redeeming is counted. For this purpose, shares
held longest will be treated as being redeemed first and shares held shortest as
being redeemed last.
The 2% redemption fee generally will not be charged on transactions
involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by
brokers that do not have the systematic capability to process the redemption
fee;
(2) total or partial redemptions of shares by approved fee-based programs that
do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans
maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal
Revenue Code (the Code) where the systematic capability to process the
redemption fee does not exist;
(4) total or partial redemptions effectuated by funds of funds, qualified
tuition plans maintained pursuant to Section 529 of the Code, and insurance
company separate accounts which use the funds as underlying investments;
(5) total or partial redemptions effectuated pursuant to an automatic
non-discretionary rebalancing program or a systematic withdrawal plan
established with the funds or a financial intermediary;
(6) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(7) total or partial redemption of shares acquired through investment of
dividends and other distributions; or
(8) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of
shares of the above funds regardless of the type of account in which such shares
are held. This goal is not immediately achievable because of systems limitations
and marketplace resistance. Brokers that maintain omnibus accounts, sponsors of
fee-based program accounts and retirement plan administrators for accounts that
are exempt from the redemption fee pursuant to (1) through (8) above may impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than those set forth above. Lastly, the provider of AIM's
retirement plan record keeping system is working to enhance the system to
facilitate the processing of the redemption fee. Until such computer programs
are modified or alternate processes are developed, the fund's ability to assess
a redemption fee on these types of share classes and accounts is severely
limited.
Some investments in the funds are made indirectly through conduit investment
vehicles. If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to assess redemption fees on
individual transactions initiated by investors who have invested in the funds
through the conduit investment vehicle. In these cases, the applicability of
redemption fees will be determined based on the aggregate holdings and
redemptions of the conduit investment vehicle in a fund.
The funds have the discretion to waive the 2% redemption fee if a fund is in
jeopardy of losing its registered investment company qualification for tax
purposes.
Your broker or financial advisor may charge service fees for handling
redemption transactions. Your shares also may be subject to a contingent
deferred sales charge (CDSC) in addition to the redemption fee.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
If you purchase $1,000,000 or more of Class A shares of any fund, or if you make
additional purchases of Class A shares on and after
MCF--02/05
A-9
-------------
THE AIM FUNDS
-------------
October 31, 2002 at net asset value, your shares may be subject to a CDSC upon
redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Advisor Contact your financial advisor, including
your retirement plan or program sponsor.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered
owners/trustees; (2) the name of the fund
and your account number; (3) if the transfer
agent does not hold your shares, endorsed
share certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent at 1-800-959-4246 or
our AIM 24-hour Automated Investor Line at
1-800-246-5463. You will be allowed to
redeem by telephone if (1) the proceeds are
to be mailed to the address on record (if
there has been no change communicated to us
within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
retirement accounts and 403(b) plans, may
not be redeemed by telephone. For funds
other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, the transfer
agent must receive your call during the
hours of the customary trading session of
the New York Stock Exchange (NYSE) in order
to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must receive your call before
the last net asset value determination on a
business day in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts may be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. For funds other
than Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money
Portfolio, the transfer agent must confirm
your transaction during the hours of the
customary trading session of the NYSE in
order to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must confirm your transaction
before the last net asset value
determination on a business day in order to
effect the redemption at that day's closing
price.
</Table>
- --------------------------------------------------------------------------------
MCF--02/05
A-10
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared. Payment may be
postponed in cases where the SEC declares an emergency or normal trading is
halted.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine, but we are
not liable for telephone instructions that are reasonably believed to be
genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine, but we are
not liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND, AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND AND INVESTOR CLASS SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND, PREMIER PORTFOLIO, PREMIER TAX-EXEMPT PORTFOLIO AND
PREMIER U.S. GOVERNMENT MONEY PORTFOLIO ONLY)
You may redeem shares of these funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REDEMPTIONS IN KIND
Although the funds generally intend to pay redemption proceeds solely in cash,
the funds reserve the right to satisfy redemption requests by making payment in
securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the
funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If the fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, or the fund is not able to
verify your identity as required by law, the fund may, at its discretion, redeem
the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one fund for those of
another fund. An exchange is the purchase of shares in one fund which is paid
for with the proceeds from a redemption of shares of another fund effectuated on
the same day. Before requesting an exchange, review the prospectus of the fund
you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
You may be charged a redemption fee on certain redemptions, including
exchanges. See "Redeeming Shares -- Redemption Fee."
MCF--02/05
A-11
-------------
THE AIM FUNDS
-------------
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another fund.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Class A Shares of AIM Limited
Maturity Treasury Fund, AIM X
Tax-Exempt Cash Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class
A3 Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B, C, K, R, Institutional
Class Shares or Shares of the X
AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class X
A Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class B, C, K, R, Institutional
Class Shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class B. Exceptions are:
- Class B Shares of other funds
cannot be exchanged for Class X
B Shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class A, A3, C, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class Shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class C. Exceptions are:
- Class C shares of other funds
cannot be exchanged for Class X
C shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class A, A3, B, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class K X
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class A, A3, B, C, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class R X
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, K, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class A, A3, B, C, R, or
Investor Class shares.
Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Shares to be exchanged for X
Class B, C or R shares must
not have been acquired by
exchange from Class A shares
of any fund.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class K, Institutional Class
shares, or shares of AIM Summit X
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-12
-------------
THE AIM FUNDS
-------------
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, K, R, AIM
Cash Reserve Shares, Investor
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class A, A3, or Investor Class.
Exceptions are:
- Investor Class shares cannot
be exchanged for Class A
shares of any fund which
offers Investor Class shares. X
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class Class B, C, K, R, AIM Cash
Reserve Shares, Institutional
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class A, A3, or AIM Cash Reserve
Shares. Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM X
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class B, C, K, R, Institutional
or Investor Class shares. X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
You may be required to pay an initial sales charge when exchanging from a
fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of a fund subject to an initial sales charge (excluding
Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class K shares for other Class K shares;
(5) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III funds purchased at net asset value for Class
A shares of a Category I or II fund, Class A shares of AIM Short Term Bond
Fund;
(3) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
MCF--02/05
A-13
-------------
THE AIM FUNDS
-------------
(1) Class A shares of Category I or II fund, Class A shares of AIM Short Term
Bond Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash
Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
fund (i) subject to an initial sales charge or (ii) purchased at net asset
value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money
Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any fund or for Class A shares of any fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I or
II fund or AIM Short Term Bond Fund, and exchanged those shares for AIM Cash
Reserve Shares of AIM Money Market Fund, you may further exchange the AIM
Cash Reserve Shares for Class A shares of a Category I or II fund or AIM
Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - Shares of the fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange with the
exception of dividends that are reinvested; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, a fund may delay the purchase of shares being
acquired in an exchange for up to five business days if it determines that it
would be materially disadvantaged by the immediate transfer of exchange
proceeds. The exchange privilege is not an option or right to purchase shares.
Any of the participating funds or the distributor may modify or terminate this
privilege at any time. The fund or the distributor will provide you with notice
of such modification or termination whenever it is required to do so by
applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the funds from which and into which the exchange is
to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each fund's shares is the fund's net asset value per share. The
funds value portfolio securities for which market quotations are readily
available at market value. The funds value all other securities and assets for
which market quotations are not readily available at their fair value in good
faith using procedures approved by the Boards of Trustees of the funds.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific events
occurred after the security ceased trading or because of the passage of time
between the close of the market on which the security trades and the close of
the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last
MCF--02/05
A-14
-------------
THE AIM FUNDS
-------------
market quotation to be unreliable. Such events may include a merger or
insolvency, events which affect a geographical area or an industry segment, such
as political events or natural disasters, or market events, such as a
significant movement in the U.S. market. Where market quotations are not readily
available, including where AIM determines that the closing price of the security
is unreliable, AIM will value the security at fair value in good faith using
procedures approved by the Boards of Trustees. Fair value pricing may reduce the
ability of frequent traders to take advantage of arbitrage opportunities
resulting from potentially "stale" prices of portfolio holdings. However, it
cannot eliminate the possibility of frequent trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
AIM may use indications of fair value from pricing services approved by the
Boards of Trustees. In other circumstances, the AIM valuation committee may fair
value securities in good faith using procedures approved by the Boards of
Trustees. As a means of evaluating its fair value process, AIM routinely
compares closing market prices, the next day's opening prices for the security
in its primary market if available, and indications of fair value from other
sources. Fair value pricing methods and pricing services can change from time to
time as approved by the Boards of Trustees.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, AIM will value the security at
fair value in good faith using procedures approved by the Boards of Trustees.
Foreign Securities: 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 an
issuer specific event has occurred that AIM determines, in its judgment, is
likely to have affected the closing price of a foreign security, it will price
the security at fair value. AIM also relies on a screening process from a
pricing vendor to indicate the degree of certainty, based on historical data,
that the closing price in the principal market where a foreign security trades
is not the current market value as of the close of the NYSE. For foreign
securities where AIM believes, at the approved degree of certainty, that the
price is not reflective of current market value, AIM will use the indication of
fair value from the pricing service to determine the fair value of the security.
The pricing vendor, pricing methodology or degree of certainty may change from
time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, are valued
on the basis of prices provided by independent pricing services. Prices provided
by the pricing services 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 special securities,
dividend rate, maturity and other market data. Prices received from pricing
services are fair value prices. In addition, if the price provided by the
pricing service is unreliable, the AIM valuation committee may fair value the
security using procedures approved by the Boards of Trustees.
Short-term Securities: The funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio value all their securities
at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and
AIM Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent a fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
The funds disclose portfolio holdings at different times and with different
lag times on www.aiminvestments.com and in annual, semi-annual and quarterly
shareholder reports. Refer to such reports or the website to determine the types
of securities in which a fund has invested. You may also refer to the Statement
of Additional Information to determine what types of securities in which a fund
may invest. You may obtain copies of these reports or of the Statement of
Additional Information from AIM as described on the back cover of this
prospectus.
Each fund determines the net asset value of its shares on each day the NYSE
is open for business (a business day), as of the close of the customary trading
session, or earlier NYSE closing time that day. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each business
day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio determine the net asset value of their shares every fifteen
minutes on each business day, beginning at 8:00 a.m. Eastern Time. The last net
asset value determination on any business day for Premier Portfolio and Premier
U.S. Government Money Portfolio will generally occur at 5:30 p.m. Eastern Time,
and the last net asset
MCF--02/05
A-15
-------------
THE AIM FUNDS
-------------
value determination on any business day for Premier Tax-Exempt Portfolio will
generally occur at 4:30 p.m. Eastern Time. Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio are authorized not to open
for trading on a day that is otherwise a business day if the Bond Market
Association recommends that government securities dealers not open for trading
and any such day will not be considered a business day. Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio also
may close early on a business day if the Bond Market Association recommends that
government securities dealers close early. If Premier Portfolio, Premier
Tax-Exempt Portfolio or Premier U.S. Government Money Portfolio uses its
discretion to close early on a business day, the last net asset value
calculation will occur as of the time of such closing.
TIMING OF ORDERS
For funds other than Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, you can purchase or redeem shares on each
business day prior to the close of the customary trading session or any earlier
NYSE closing time that day. For funds other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio, purchase
orders that are received and accepted before the close of the customary trading
session or any earlier NYSE closing time on a business day generally are
processed that day and settled on the next business day.
For Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, you can purchase or redeem shares on each business
day, prior to the last net asset value determination on such business day;
however, if your order is received and accepted after the close of the customary
trading session or any earlier NYSE closing time that day, your order generally
will be processed on the next business day and settled on the second business
day following the receipt and acceptance of your order.
For all funds, you can exchange shares on each business day, prior to the
close of the customary trading session or any earlier NYSE closing time that
day. Shareholders of Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio therefore cannot exchange their shares after the
close of the customary trading session or any earlier NYSE closing time on a
particular day, even though these funds remain open after such closing time.
The funds price purchase, exchange and redemption orders at the net asset
value calculated after the transfer agent receives an order in good order. Any
applicable sales charges are applied at the time an order is processed. A fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions. Every year, you will be sent information showing the amount
of dividends and distributions you received from each fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax. Exchanges of shares for shares of
another fund are treated as a sale, and any gain realized on the transaction
will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in fund shares
may differ materially from the federal income tax consequences described above.
In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of fund shares is
inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401, 403, 408, 408A
and 457 of the Internal Revenue Code, individual retirement accounts (IRAs) and
Roth IRAs. You should consult your tax advisor before investing.
MCF--02/05
A-16
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of the
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. Beginning with
fiscal periods ending after July 9, 2004, the fund also files its complete
schedule of portfolio holdings with the SEC for the 1st and 3rd quarters of each
fiscal year on Form N-Q.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us by
mail at AIM Investment Services, Inc., P.O. Box 4739, Houston, TX 77210-4739 or
<Table>
BY TELEPHONE: (800) 959-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, SAIs, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
THE FUND'S MOST RECENT PORTFOLIO HOLDINGS, AS FILED
ON FORM N-Q, ARE ALSO AVAILABLE AT
WWW.AIMINVESTMENTS.COM.
</Table>
You can also review and obtain copies of the fund's SAI, financial reports and,
the fund's Forms N-Q other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter to
the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- ----------------------------------------
AIM Constellation Fund
SEC 1940 Act file number: 811-1424
- ----------------------------------------
AIMinvestments.com CST-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
APPENDIX IV
AIM CONSTELLATION FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE ======================================== We endeavor to adjust the balance
between core-growth holdings and
PERFORMANCE SUMMARY FUND VS. INDEXES accelerating-growth stocks in the
portfolio based on an ongoing analysis
Stocks, as measured by the performance Total returns, 10/31/04-4/30/05, of economic and market conditions. We
of the S&P 500 Index and other market excluding applicable sales charges. If consider selling a stock:
benchmarks, generally posted lackluster sales charges were included, returns
returns over the period, amid investor would be lower. o if a company experiences decelerating
concerns about higher oil prices and or disappointing earnings;
rising interest rates. These trends also Class A Shares -0.14%
adversely affected the Fund's o the stock's price reaches our
performance. Class B Shares -0.50 valuation target;
The Fund underperformed the S&P 500 Class C Shares -0.45 o or we find a more attractive
Index because that benchmark includes investment option.
value stocks, which generally Class R Shares -0.24
outperformed growth stocks over the MARKET CONDITIONS AND YOUR FUND
period. The portfolio's holdings in S&P 500 Index (Broad Market Index) 3.28
health care and consumer discretionary, The S&P 500 Index recorded most of its
two of its larger sector weightings, Russell 1000 Growth Index gains in the first two months of the
generally underperformed those of the (Style-specific Index) 1.14 reporting period, as oil prices declined
Russell 1000 Growth Index, causing the and the uncertainty surrounding the U.S.
Fund to lag that benchmark. We believe Lipper Multi-Cap Growth Fund Index presidential race was resolved. The S&P
the Fund underperformed its Lipper index (Peer Group Index) 0.56 500 Index declined later in the
because it had less exposure to mid-cap reporting period, as oil prices again
growth stocks, which outperformed SOURCE: LIPPER,INC. increased and the Federal Reserve
large-cap growth stocks, than some of continued raising interest rates to slow
its peers. ======================================== economic growth and curb potential
inflation.
HOW WE INVEST well as those that have experienced
positive earnings revisions. As we were generally optimistic about
We use a bottom-up approach to the economy, we continued to favor
investing, selecting stocks based on an The Fund generally consists of defensive accelerating-growth stocks over
analysis of individual companies. We core-growth holdings and more aggressive core-growth holdings in the portfolio.
believe that earnings are the primary accelerating-growth stocks. Core-growth At the close of the reporting period,
factor driving stock prices. We seek to holdings--the stocks of companies with accelerating-growth stocks composed
own the stocks of companies with consistent long-term earnings growth about 65% of the portfolio while
long-term records of earnings growth as records--may provide some protection in core-growth holdings made up about 35%.
a declining market, but they may not
appreciate as much when stocks are This strategy proved more beneficial
rising. Accelerating-growth stocks, to the fund during the first two months
which are representative of more of the reporting period, when more
economically sensitive companies, tend economically sensitive sectors such as
to perform better than core-growth consumer discretionary and information
holdings in an improving economic technology
environment. However, they tend to be
more volatile during market downturns.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sectors
1. Health Care Equipment 6.9% 1. Dell Inc. 2.3%
[PIE CHART]
Telecommunication Services 0.7% 2. Semiconductors 4.4 2. Microsoft Corp. 2.2
Information Technology 25.4%
Health Care 19.5% 3. Pharmaceuticals 4.1 3. Johnson & Johnson 2.0
Consumer Discretionary 12.7%
Industrials 11.1% 4. Industrial Machinery 4.1 4. Yahoo! Inc. 2.0
Energy 10.0%
Materials 8.4% 5. Systems Software 4.0 5. Caremark Rx, Inc. 1.7
Financials 5.3%
Consumer Staples 5.0% TOTAL NET ASSETS $5.7 BILLION 6. Biomet, Inc. 1.5
Money Market Funds Plus
Other Assets Less Liabilities 1.9% TOTAL NUMBER OF HOLDINGS* 146 7. Exxon Mobil Corp. 1.5
8. Microchip Technology Inc. 1.5
9. Ingersoll-Rand Co. Ltd.-Class A
(Bermuda) 1.5
10. Apple Computer, Inc. 1.3
The Fund's holdings are subject to
change, and there is no assurance that
the Fund will continue to hold any
particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
</Table>
2
<Table>
performed well. However, they generally o JOHNSON & JOHNSON, one of the fund's KENNETH A. ZSCHAPPEL
detracted from performance for the largest holdings, is a large diversified [ZSCHAPPEL Senior Portfolio
remainder of the reporting period as health care product company. It is one PHOTO] Manager, is lead manager
investors favored more defensive sectors of the few firms that makes drug-eluting of AIM Constellation
such as utilities, energy and health stents. We found the company attractive Fund. He joined AIM in
care. because of its diverse product line and 1990 and in 1992 became a portfolio
its solid earnings. analyst for equity securities,
The Fund had no exposure to utilities, specializing in technology and health
the best-performing sector for the Stocks that detracted from performance care. A native of Austin, Texas, he
period, as this generally is not included: received a B.A. in political science
considered a growth sector. Over the from Baylor University.
reporting period, we increased the o eBAY is the world's largest Internet
portfolio's exposure to energy, and it auctioneering company. In January of CHRISTIAN A. COSTANZO is
was the best-performing sector for the this year, the company failed to meet [COSTANZO a manager of AIM
Fund. Energy companies benefited from profit estimates and witnessed a slowing PHOTO] Constellation Fund. Mr.
rising oil prices, and, in our opinion, of its growth in the U.S. market. We Costanzo, Chartered
this could encourage oil and gas sold the stock prior to the close of the Financial Analyst,
companies to increase production. reporting period. joined AIM in 1995 as an analyst and
However, the performance of the assumed his current duties in 1997.
portfolio's energy stocks could not o DORAL FINANCIAL is the largest Prior to joining AIM, he worked as a
offset the weaker performance of its residential mortgage lender in Puerto business analyst from 1991 to 1993 and
consumer discretionary and health care Rico. Its stock plummeted after the as a B-52 Navigator in the United States
holdings relative to the Russell 1000 company raised concerns about its 2004 Air Force from 1987 to 1990. He holds a
Growth Index. earnings because of the methodology used B.A. in biology and economics from the
in calculating the value of certain of University of Virginia and an M.B.A.
its financial instruments. We also sold from The University of Texas at Austin.
... WE INCREASED THE this stock.
PORTFOLIO'S EXPOSURE TO ROBERT J. LLOYD is a
ENERGY, AND IT WAS THE IN CLOSING [LLOYD manager of AIM
BEST-PERFORMING SECTOR PHOTO] Constellation Fund. Mr.
FOR THE FUND. Over the reporting period, the market Lloyd, Chartered
for growth stocks, particularly Financial Analyst,
Still, health care was the second-best large-cap issues, was particularly joined AIM in 2000 as a senior analyst
performing sector for the Fund. Other difficult. Unfortunately, this trend for the technology funds. He was
sectors posting gains for the portfolio adversely affected the Fund's promoted to portfolio manager in 2001.
included consumer staples, industrials performance. Regardless of market He served eight years in the U.S. Navy
and materials. While industrials and conditions, we are always striving to as a Naval Flight Officer flying the
materials are not traditionally regarded improve performance. It is important to S-3B Viking. He received a B.B.A. from
as growth sectors, we found companies remember that market segments and the University of Notre Dame and an
with attractive earnings in these investment styles go in and out of M.B.A. from the University of Chicago.
sectors. Moreover, we believe favor. We remain confident in our
industrials and materials companies investment process, and we encourage BRYAN A. UNTERHALTER is
could benefit from the development of investors to maintain a long-term [UNTERHALTER a manager of AIM
China and to a lesser extent, India. perspective. We thank you for your PHOTO] Constellation Fund. He
continued participation in AIM began his investment
Stocks that enhanced performance Constellation Fund. career in 1995 as an
included: equity trader. In 1997, he joined AIM as
The views and opinions expressed in a domestic equity trader and later
o VALERO ENERGY, an independent refining management's discussion of Fund became an analyst on AIM's International
and marketing company, owns and operates performance are those of A I M Advisors, (Europe/Canada) investment management
15 refineries and also operates gas Inc. These views and opinions are team in 1998. He was promoted to his
stations under the various brand names. subject to change at any time based on current position in 2003. A native of
The company purchased refineries in 2003 factors such as market and economic Johannesburg, South Africa, he received
and 2004, allowing it to increase output conditions. These views and opinions may a B.A. from The University of Texas at
and improve service to its brand-name not be relied upon as investment advice Austin and an M.B.A. from the University
gas stations cost-effectively. or recommendations, or as an offer for a of St. Thomas.
particular security. The information is
not a complete analysis of every aspect Assisted by the Multi-Cap Growth Team.
of any market, country, industry,
security or the Fund. Statements of fact
are from sources considered reliable, [RIGHT ARROW GRAPHIC]
but A I M Advisors, Inc. makes no
representation or warranty as to their FOR A PRESENTATION OF YOUR FUND'S
completeness or accuracy. Although LONG-TERM PERFORMANCE RECORD, PLEASE
historical performance is no guarantee TURN TO PAGE 5.
of future results, these insights may
help you understand our investment
management philosophy.
See important Fund and index
disclosures inside front cover.
</Table>
3
(AIM LOGO)
AIM BLUE CHIP FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
January __, 2006
Dear Shareholder:
We are seeking your approval of a Plan of Reorganization (the "Plan") that
provides for the sale of the assets of AIM Blue Chip Fund (the "Fund") to AIM
Large Cap Growth Fund ("Buying Fund"). This transaction will result in the
combination of the two funds. You will receive shares of Buying Fund in
connection with the transaction if shareholders approve it.
AIM Advisors, Inc. ("AIM"), the investment advisor to the AIM Funds,
conducted a review of the funds and concluded that it would be appropriate to
consolidate certain funds having similar investment objectives and strategies.
Your Fund is one of the funds that AIM recommended, and your Board of Trustees
approved, for consolidation. The attached Proxy Statement and Prospectus seeks
your approval of the consolidation of your Fund with Buying Fund.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Equity Funds has
approved the Plan and proposed combination. They recommend that you vote FOR the
proposal.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote in person. If you expect to
attend the meeting in person, or have questions, please notify us by calling
(800) 952-3502. You may also vote by telephone or through a website established
for that purpose by following the instructions that appear on the enclosed proxy
card. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, [ ], reminding you to vote.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
President
AIM BLUE CHIP FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve a Plan of Reorganization (the "Plan") under which all of the
assets of AIM Blue Chip Fund (the "Fund"), an investment portfolio of AIM Equity
Funds, will be transferred to AIM Large Cap Growth Fund ("Buying Fund"), which
is also an investment portfolio of AIM Equity Funds ("Trust"). Buying Fund will
assume the liabilities of the Fund and Trust will issue shares of each class of
Buying Fund to shareholders of the corresponding class of shares of the Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on December 2, 2005 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES
OF TRUST. YOU MAY ALSO VOTE BY TELEPHONE OR THROUGH A WEBSITE ESTABLISHED FOR
THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY MATERIALS. YOUR
VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY EXECUTING AND
SUBMITTING A REVISED PROXY CARD, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF TRUST OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
/s/ Kevin M. Carome
Kevin M. Carome
Secretary
January , 2006
AIM BLUE CHIP FUND, AIM LARGE CAP GROWTH FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM EQUITY FUNDS AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 347-4246 (800) 347-4246
COMBINED PROXY STATEMENT AND PROSPECTUS
JANUARY ___, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
AIM Blue Chip Fund. The Special Meeting will be held on February 28, 2006 at
3:00 p.m., Central Time. We intend to mail this Proxy Statement/Prospectus, the
enclosed Notice of Special Meeting of Shareholders and the enclosed proxy card
on or about January __, 2006 to all shareholders entitled to vote at the Special
Meeting.
At the Special Meeting, we are asking shareholders of AIM Blue Chip Fund
(your "Fund") to consider and approve a Plan of Reorganization (the "Plan") that
provides for the reorganization of your Fund, an investment portfolio of AIM
Equity Funds, with AIM Large Cap Growth Fund ("Buying Fund"), which is also an
investment portfolio of AIM Equity Funds ("Trust") (the "Reorganization").
Under the Plan, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Trust will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Trustees of Trust (the "Board") has approved the Plan and the
Reorganization as being advisable and in the best interests of your Fund.
Trust is a registered open-end management investment company that issues
its shares in separate series. Your Fund and Buying Fund are both series of
Trust. A I M Advisors, Inc. ("AIM") serves as the investment advisor to both
your Fund and Buying Fund. AIM is a wholly owned subsidiary of AMVESCAP PLC
("AMVESCAP"), an independent global investment management company.
Your Fund and Buying Fund have identical investment objectives and invest
in similar types of securities. Your Fund and Buying Fund both seek long-term
growth of capital. See "Comparison of Investment Objectives and Principal
Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Plan. It is both the Proxy Statement of your Fund and
the Prospectus of Buying Fund. You should read and retain this Proxy
Statement/Prospectus for future reference.
The Prospectus of your Fund dated February 28, 2005 (the "Selling Fund
Prospectus"), together with the related Statement of Additional Information
dated October 25, 2005, are on file with the Securities and Exchange Commission
(the "SEC"). The Selling Fund Prospectus is incorporated by reference into this
Proxy Statement/Prospectus. The Prospectus of Buying Fund dated February 28,
2005, (the "Buying Fund Prospectus"), and the related Statement of Additional
Information dated October 25, 2005, and the Statement of Additional Information
relating to the Reorganization dated January ___, 2006, are on file with the
SEC. The Buying Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus and a copy of the Buying Fund Prospectus is attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated January ___, 2006, also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Trust.
i
Copies of the Prospectuses of Buying Fund and your Fund and the related
Statements of Additional Information are available without charge by writing to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, or by calling (800) 959-4246. Additional information about your Fund
and Buying Fund may be obtained on the internet at www.aiminvestments.com.
Trust has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semi-annual
report succeeding the annual report, if any. If you have not received such
reports or would like to receive an additional copy, please contact A I M
Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or
by calling (800) 959-4246. Such reports will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
----
INTRODUCTION..................................................................................................... 1
SUMMARY ........................................................................................................ 2
The Reorganization...................................................................................... 3
Comparison of Investment Objectives and Principal Strategies............................................ 5
Comparison of Performance............................................................................... 11
Comparison of Fees and Expenses......................................................................... 12
Comparison of Multiple Class Structures................................................................. 14
Comparison of Sales Charges............................................................................. 15
Comparison of Distribution and Purchase and Redemption Procedures....................................... 20
The Board's Recommendation.............................................................................. 21
RISK FACTORS..................................................................................................... 22
Risks Associated with Buying Fund....................................................................... 22
Comparison of Risks of Buying Fund and Your Fund........................................................ 23
INFORMATION ABOUT BUYING FUND.................................................................................... 24
Description of Buying Fund Shares....................................................................... 24
Management's Discussion of Fund Performance............................................................. 25
Financial Highlights.................................................................................... 25
ADDITIONAL INFORMATION ABOUT THE PLAN............................................................................ 26
Terms of the Reorganization............................................................................. 26
The Reorganization...................................................................................... 26
Board Considerations.................................................................................... 29
Other Terms............................................................................................. 40
Federal Income Tax Consequences......................................................................... 42
Accounting Treatment.................................................................................... 46
RIGHTS OF SHAREHOLDERS........................................................................................... 47
CAPITALIZATION................................................................................................... 47
LEGAL MATTERS.................................................................................................... 50
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND........................................................... 51
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.................................................... 52
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING................................................................. 54
Proxy Statement/Prospectus.............................................................................. 54
Time and Place of Special Meeting....................................................................... 55
Voting in Person........................................................................................ 56
Voting by Proxy......................................................................................... 56
Voting by Telephone or the Internet..................................................................... 58
Quorum Requirement and Adjournment...................................................................... 58
Vote Necessary to Approve the Plan...................................................................... 60
Proxy Solicitation...................................................................................... 60
Other Matters........................................................................................... 60
Ownership of Shares..................................................................................... 60
EXHIBIT A Classes of Shares of Your Fund and Corresponding Classes of Shares of Buying Fund......................
EXHIBIT B Comparison of Performance of Your Fund and Buying Fund.................................................
EXHIBIT C Comparison Fee Table and Expense Examples..............................................................
EXHIBIT D Shares Outstanding of Each Class of Your Fund on Record Date...........................................
EXHIBIT E Ownership of Shares of Your Fund.......................................................................
EXHIBIT F Ownership of Shares of Buying Fund.....................................................................
APPENDIX I Plan of Reorganization................................................................................
APPENDIX II Prospectus of Buying Fund............................................................................
APPENDIX III Discussion of Performance of Buying Fund............................................................
iii
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(K), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT INC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iv
INTRODUCTION
During 2003 and 2004, AMVESCAP, the parent company of AIM, undertook an
integration initiative with respect to its United States mutual fund operations.
Among other things, AMVESCAP's integration initiative included the establishment
of a single distributor for all AMVESCAP U.S. mutual funds, the integration of
back office support for AMVESCAP's U.S. mutual funds, the allocation of primary
responsibility for investment advisory, administrative, accounting, and legal
and compliance services for all of AMVESCAP's U.S. mutual funds to AIM and
streamlining the various mutual funds offered by AMVESCAP's subsidiaries in the
U.S.
Since completion of the AMVESCAP integration initiative, AIM has
undertaken an extensive review of its U.S. mutual fund offerings and has
concluded that it would be appropriate to consolidate certain funds having
similar investment objectives and strategies. The Reorganization is one of a
number of fund reorganizations AIM is proposing as a result of this review
process. AIM believes that the shareholders of your Fund will benefit from the
proposed Reorganization because the combination of the funds will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale.
SUMMARY
The Board, including the independent trustees, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. Your Fund and Buying Fund have identical investment
objectives, utilize similar investment strategies and invest in similar
securities. The Board believes that a larger combined fund should have greater
market presence and may achieve greater operating efficiencies because certain
fixed costs, such as legal, accounting, shareholder services and trustee
expenses, will be spread over the greater assets of the combined fund. In
addition, the total annual operating expenses of the combined fund are expected
to be lower than your Fund's current total annual operating expenses. For
additional information concerning the factors the Board of Trustees considered
in approving the Plan, see "Additional Information About the Plan -- Board
Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Plan. For more
complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Both your Fund and Buying Fund are separate series of Trust, a Delaware
statutory trust.
If shareholders of your Fund approve the Plan and other closing conditions
are satisfied, all of the assets of your Fund will be transferred to Buying
Fund, Buying Fund will assume the liabilities of your Fund, and Trust will issue
shares of each class of Buying Fund to shareholders of the corresponding class
of shares of your Fund, as set forth on Exhibit A. For a description of certain
of the closing conditions that must be satisfied, see "Additional Information
About the Plan -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Plan is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Plan."
Trust will receive an opinion of Ballard Spahr Andrews & Ingersoll, LLP to
the effect that the Reorganization will constitute a tax-free reorganization for
Federal income tax purposes. Thus, shareholders will not have to pay additional
Federal income tax as a result of the Reorganization. See "Additional
Information About the Plan -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
1
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund have identical investment objectives and invest
in similar types of securities. Both your Fund and Buying Fund seek long-term
growth of capital. Your Fund invests primarily in blue chip companies, which are
large or medium sized companies that have market leading positions and certain
financial characteristics described in your Fund's Prospectus. Buying Fund
invests primarily in large-capitalization companies that AIM believes have the
potential for above average growth in revenue and earnings.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
AIM BLUE CHIP FUND AIM LARGE CAP GROWTH FUND
(YOUR FUND) (BUYING FUND)
INVESTMENT OBJECTIVES
- - Long-term growth of capital - Long-term growth of capital
INVESTMENT STRATEGIES
- - Invests at least 80% of its net assets, in - Invests at least 80% of its net assets in
securities of blue chip companies. securities of large-capitalization companies.
- - In complying with the 80% investment requirement, - In complying with the 80% investment
the fund may invest primarily in marketable equity requirement, the fund may invest primarily in
securities, including convertible securities, but its marketable equity securities, including
investments may include other securities, such as convertible securities, but its investments may
synthetic instruments. include other securities, such as synthetic
instruments.
- - May invest in United States government securities - No corresponding strategy.
and high-quality debt securities when the portfolio
managers believe securities other than marketable
equity securities offer the opportunity for long-term
growth of capital and current income.
- - No corresponding strategy. - Portfolio Managers may focus on securities
of companies with market capitalizations that
are within the top 50% of stocks in the Russell
1000 Index at the time of purchase.
- Portfolio managers purchase securities of a
limited number of large-cap companies that they
believe have the potential for above-average
growth in revenues and earnings.
- - May invest up to 25% of its total assets in - May invest up to 25% of its total assets in
foreign securities. foreign securities.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31, for Class A shares of your Fund and Buying Fund can be found at
Exhibit B. Also included as part of Exhibit B is a table showing the
2
average annual total returns for the periods indicated for your Fund and Buying
Fund. For more information regarding the total return of your Fund, see the
"Financial Highlights" section of the Selling Fund Prospectus, which has been
made a part of this Proxy Statement/Prospectus by reference. For more
information regarding the total return of Buying Fund, see "Information About
Buying Fund -- Financial Highlights." Past performance cannot guarantee
comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of October 31, 2004, and Buying Fund, as of
October 31, 2004, expressed as a percentage of net assets ("Expense Ratio"), can
be found at Exhibit C. Pro forma estimated Expense Ratios, based on historical
data at a specified date and related projected data for each class of shares of
Buying Fund after giving effect to the Reorganization are also provided as of
October 31, 2004 as part of Exhibit C.
The current investment advisory fee schedule of your Fund is lower at
certain asset levels than the current investment advisory fee schedule of Buying
Fund. [As a result, in connection with the Reorganization, the Board of Buying
Fund has approved an amendment to Buying Fund's investment advisory fee schedule
such that AIM will receive a monthly fee calculated at the following annual
rates, based on the average daily net assets of Buying Fund:
Annual Rate Net Assets
- ----------- ----------
0.75% First $350 million
0.625% Excess over $350 million]
In addition, AIM has contractually agreed to waive its advisory fees
through December 31, 2009, for both your Fund and the Buying Fund in connection
with a settlement agreement reached with the New York Attorney General ("NYAG").
For the period January 1, 2005 to December 31, 2009, the following advisory fee
rates will apply after the waiver:
Annual Rate Net Assets
- ----------- ----------
0.695% First $250 million
0.67% Next $250 million
0.645% Next $500 million
0.62% Next $1.5 billion
0.595% Next $2.5 billion
0.57% Next $2.5 billion
0.545% Next $2.5 billion
0.52 % Excess over $10 billion
As a result, the investment advisory fee schedule applicable to Buying
Fund after the Reorganization will be the same as the investment advisory fee
currently applicable to your Fund.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are currently
available to investors and the corresponding share class of Buying Fund that
shareholders of your Fund will receive in the Reorganization can be found at
Exhibit A. For information regarding the features of each of the share classes
of your Fund and Buying Fund, see the Selling Fund Prospectus and the Buying
Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No sales charges are applicable to shares of Buying Fund received by
holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemption of shares of Buying Fund received in
3
connection with the Reorganization will be the same as the holding period for
your shares immediately prior to the Reorganization.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus
and the related Statements of Additional Information.
CLASS A CLASS B CLASS C
- - subject to an initial - not subject to an - not subject to an
sales charge* initial sales charge initial sales charge
- - may be subject to a - subject to a CDSC on - subject to a CDSC on
CDSC on redemptions made certain redemptions certain redemptions
within 12 or 18 months
from the date of certain
purchases
CLASS R INVESTOR CLASS INSTITUTIONAL CLASS
- - not subject to an - not subject to an - not subject to an
initial sales charge initial sales charge initial sales charge
- - may be subject to a - not subject to a CDSC - not subject to a CDSC
CDSC on redemptions made
within 12 months from the
date of certain purchases
- ----------------
* Your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and trustees and those
of their investment advisor.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value, net of
reinvested dividends and capital gains distributions.
COMPARISON OF DISTRIBUTION AND PURCHASE AND REDEMPTION PROCEDURES
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM.
Your Fund and Buying Fund have adopted a distribution plan that allows the
payment of distribution and service fees for the sale and distribution of the
shares of each of their respective classes. Distribution fees are payable to AIM
Distributors for distribution services. The fee tables at Exhibit C include
comparative information about the distribution and service fees payable by each
class of shares of your Fund and Buying Fund. Each class of shares of Buying
Fund will have the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
The purchase and redemption procedures of your Fund and Buying Fund are
substantially the same. For information regarding the purchase and redemption
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
4
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of your Fund, unanimously
recommends that you vote "FOR" this Proposal.
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with
Buying Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
The values of convertible securities in which Buying Fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to Buying
Fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
Your Fund and Buying Fund have identical investment objectives. Your Fund
invests in blue chip companies, which may include both medium and large sized
companies, while Buying Fund invests in companies with large market
capitalizations. As a result of the Reorganization, your Fund's shareholders
will lose some mega-cap and core style exposure, while gaining more large cap
growth exposure, which has the potential for higher volatility.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Trust in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Trust. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares at the end of the month which is eight years after the date on which
shares were purchased, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its semi-annual
report to shareholders for the semi-annual period ended April 30, 2005 is set
forth in Appendix III of this Proxy Statement/Prospectus.
5
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
financial highlights for Buying Fund in Appendix III attached to this Proxy
Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE PLAN
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Plan. Significant provisions of the Plan are summarized
below; however, this summary is qualified in its entirety by reference to the
Plan, a copy of which is attached as Appendix I to this Proxy
Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
March 13, 2006, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on March 10, 2006 (the "Valuation Date"). At the Effective Time, all of
the assets of your Fund will be delivered to Trust's custodian for the account
of Buying Fund in exchange for the assumption by Buying Fund of the liabilities
of your Fund and delivery by Trust directly to the holders of record as of the
Effective Time of the issued and outstanding shares of each class of your Fund
of a number of shares of each corresponding class of Buying Fund (including, if
applicable, fractional shares rounded to the nearest thousandth), having an
aggregate net asset value equal to the value of the net assets of your Fund so
transferred, assigned and delivered, all determined and adjusted as provided in
the Plan. Upon delivery of such assets, Buying Fund will receive good and
marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Trust will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended October
31, 2005 and for the short taxable year beginning on November 1, 2005 and ending
on the Closing and (b) all of your Fund's net capital gain recognized in its
taxable year ended October 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Plan.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Trust will redeem the outstanding
shares of your Fund from shareholders in accordance with the Plan and
Declaration of Trust, Bylaws and the Delaware Statutory Trust Act.
BOARD CONSIDERATIONS
AIM initially proposed that the Board consider the Reorganization at an
in-person meeting of the Boards held on October 27, 2005, at which preliminary
discussions of the Reorganization took place. After careful consideration and
after weighing the pros and cons of the Reorganization, the Board of your Fund
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Plan and the Reorganization, at a meeting of the Board held on
November 14, 2005.
Over the course of the Board meetings, the Board received from AIM written
materials that contained information concerning your Fund and Buying Fund,
including comparative total return and fee and expense information, a comparison
of investment objectives and strategies of your Fund and Buying Fund and pro
forma expense ratios for Buying Fund giving effect to the Reorganization. AIM
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
Following the initial Board meeting, the Board requested additional
information from AIM with respect to: the availability of suitable merger
candidates, current litigation, contingent assets and liabilities, the advantage
(if
6
any) of structuring the Reorganizations as taxable transactions, the calculation
of pro forma expense ratios and the effect on transfer agency fees. AIM provided
such additional information to the Board prior to and at the November 14, 2005
meeting. In addition, the Board requested a follow-up report after the
consummation of the Reorganization that shows the actual costs and expenses of
the Reorganization.
In evaluating the Reorganization, the Board considered a number of
factors, including:
- The investment objective and principal investment strategies of your
Fund and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro
forma expenses of Buying Fund after giving effect to the
Reorganization.
- The comparative performance of your Fund and Buying Fund.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax
purposes, including the treatment of any unrealized capital gains
and capital loss carryforwards available to offset future capital
gains of your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by
your Fund or Buying Fund in connection with the Reorganization.
- The projected financial impact to AIM and its affiliates of the
Reorganization.
AIM proposed the Reorganization as part of an effort to consolidate the
AIM Funds' large cap growth fund offerings. In considering the Reorganization,
the Board noted that the funds have identical investment objectives and invest
in similar types of securities. In addition, Buying Fund's performance track
record is generally better than your Fund's and the expenses of the combined
fund are expected to be lower than those of your Fund.
The Board noted that the funds both attract investors looking for a large
cap growth investment program, and despite having different portfolio managers,
there is moderate portfolio overlap between the two funds. As of July 31, 2005,
approximately 49% of your Fund's total net assets were invested in securities
Buying Fund also owns. The Board noted that your Fund's shareholders may lose
some mega-cap and core style exposure, while gaining some large cap exposure,
which could lead to more volatility.
The Board considered the relative sizes of the two funds and concluded
that Buying Fund should be the surviving fund in the Reorganization, even though
your Fund has a larger asset base. As of July 31, 2005, Buying Fund had net
assets of approximately $818 million, compared to net assets for your Fund of
approximately $2.2 billion. The Board determined that it was appropriate for
Buying Fund to be the surviving fund in the Reorganization primarily because the
investment process Buying Fund's current portfolio management team utilizes to
manage Buying Fund will be applied to your Fund after the Reorganization. Buying
Fund's current investment team has been managing the fund since its inception in
1999 and will manage the combined fund. Moreover, the investment strategies and
stock selection techniques of Buying Fund will be the investment strategies and
stock selection techniques of the combined fund. The portfolio composition of
the combined fund is therefore expected to be more like Buying Fund.
Consequently, the Board determined that Buying Fund's performance track record
more accurately reflects the results of the investment process that the combined
fund will utilize after the Reorganization.
The Board considered the performance of Buying Fund in relation to the
performance of your Fund, noting that Buying Fund has provided better short-term
returns to its shareholders than your Fund. See "Exhibit B - Comparison of
Performance of Your Fund and Buying Fund." As of July 31, 2005, the relative
performance of Class A shares of your Fund and Buying Fund (without sales loads)
was as follows:
7
AVERAGE ANNUAL TOTAL RETURNS
One Five Ten Since Inception
Year Years Years Inception Date
----- ------ ----- --------- ---------
Your Fund 9.46% -7.94% 7.02% 8.73% 02/04/87
Buying Fund 12.21% -10.67% N/A 0.28% 03/01/99
In addition, the Board noted that as of June 30, 2005, Buying Fund's
performance relative to its Lipper peer group was better than your Fund for the
1-year, 3-year and year-to-date periods, and that such performance more
accurately reflects the investment process that the combined fund will apply.
The Board also considered the operating expenses the funds incur. As a
percentage of the average daily net assets, after giving effect to contractual
fee waivers and expense limitations, the total annual operating expenses of
Buying Fund both before and after giving pro forma effect to the Reorganization
are lower than the total annual operating expenses of your Fund.
At the November 14, 2005 meeting, the Board considered AIM's proposal to
amend the advisory agreement for Buying Fund to reflect a reduced advisory fee
schedule, effective as of the Closing. The Board noted that the reduced advisory
fee schedule is the same as your Fund's current advisory fee schedule. In
addition, AIM previously agreed to waivers of its management fees for both
funds. AIM reported to the Board that, based upon historical data at a specified
date and related projected data, on a pro forma basis, the total annual
operating expense ratios of Buying Fund, after giving effect to current fee
waivers, are expected to be approximately 0.09% lower than those of your Fund
for Class A, Class B, Class C and Class R shares, approximately 0.13% lower for
Investor Class shares, and approximately 0.15% lower for Institutional Class
shares. In the absence of fee waivers and expense limitations, on a pro forma
basis, the total annual operating expense ratios of Buying Fund are expected to
be slightly higher for Class A, Class B, Class C and Class R shares of your
Fund, and slightly lower for Investor Class and Institutional Class shares of
your Fund. The Board considered the proposed reduction of the advisory fee
schedule in approving the Reorganization at the November 14, 2005 meeting. The
Investment Company Act of 1940 requires that changes to an investment advisory
agreement be approved at an in-person meeting. [Accordingly. the Board did not
formally approve the reduced advisory fee schedule until an in-person meeting on
December , 2005.]
The Board also considered, based upon historical data at a specified date,
the effect of the Reorganization on the anticipated tax benefits to shareholders
from the utilization of the capital loss carryforwards of your Fund and Buying
Fund as offsets to future realized capital gains. Although approximately 90% of
the capital loss carryforwards of Buying Fund are estimated to be disallowed as
a consequence of the Reorganization, the combined fund would still retain
significant capital loss carryforwards after the Reorganization. Such capital
loss carryforwards are estimated to be greater than the net realized built-in
gain in the assets that Buying Fund is expected to hold immediately after
consummation of the Reorganization. The Board also noted that the treatment of
these tax attributes can be affected by a variety of different factors occurring
after the date of presentation to the Board (before and after the Closing). As a
result, the outcome of these matters is difficult to predict.
The total expenses to be incurred by your Fund in connection with the
Reorganization are expected to be approximately $1.4 million. The Board noted
that AIM had agreed to pay 75% of those costs and expenses, or approximately
$1,050,000. Buying Fund will bear its costs and expenses incurred in connection
with the Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Reorganization, AIM estimated the amount of mailing,
printing, solicitation, and legal and accounting fees to be incurred by both
Buying Fund and your Fund. AIM then performed a qualitative analysis that took
into account, among other things, the expected benefits to be enjoyed by your
Fund's shareholders through reduced expenses on a pro forma basis, the amount of
time estimated for your Fund's shareholders to recoup expenses incurred in the
Reorganization in light of such expected benefits, the effect incurring such
expenses would have on the net asset value of your Fund, whether there was a
financial impact to AIM's profit and loss (positive or negative) and the
relative performance of your Fund and Buying Fund.
8
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the two Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommended the
approval of the Plan by the shareholders of your Fund at the Special Meeting.
OTHER TERMS
If any amendment is made to the Plan following the mailing of this Proxy
Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material adverse effect on shareholders, the Plan may be amended
without shareholder approval by mutual agreement of the parties.
The obligations of Trust pursuant to the Plan are subject to various
conditions, including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets held
by your Fund immediately prior to the Reorganization;
- Trust's Registration Statement on Form N-14 under the Securities Act
of 1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no
stop-order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceeding for that purpose
shall have been initiated or threatened by the SEC (and not
withdrawn or terminated);
- the shareholders of your Fund shall have approved the Plan; and
- Trust shall have received an opinion from Ballard Spahr Andrews &
Ingersoll, LLP that the consummation of the transactions
contemplated by the Plan will not result in the recognition of gain
or loss for Federal income tax purposes for your Fund, Buying Fund
or their shareholders.
The Board of Trustees of Trust may waive without shareholder approval any
default or any failure to satisfy any of the above conditions as long as such a
waiver is mutual and will not have a material adverse effect on the benefits
intended under the Plan for the shareholders of your Fund. The Plan may be
terminated and the Reorganization may be abandoned at any time if the
shareholders of your Fund do not approve the Plan or if the Closing does not
occur on or before September 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of
its assets to Buying Fund solely in exchange for shares of Buying
Fund and Buying Fund's assumption of the liabilities of your Fund or
on the distribution of those shares to your Fund's shareholders;
9
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued
directly to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund
upon the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax
basis of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor,
provided that such shares of your Fund are capital assets in the
hands of such shareholder as of the Closing; and
- Buying Fund will thereafter succeed to and take into account any
capital loss carryover and certain other tax attributes of your
Fund, subject to all relevant conditions and limitations on the use
of such tax benefits.
Trust has not requested and will not request an advance ruling from the
IRS as to the Federal tax consequences of the Reorganization. As a condition to
Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a favorable opinion
to Trust as to the foregoing Federal income tax consequences of the
Reorganization, which opinion will be conditioned upon, among other things, the
accuracy, as of the Effective Time, of certain representations of Trust upon
which Ballard Spahr Andrews & Ingersoll, LLP will rely in rendering its opinion.
The conclusions reached in that opinion could be jeopardized if the
representations of Trust are incorrect in any material respect. A copy of the
opinion will be filed with the Securities and Exchange Commission. and will be
available for public inspection. See "Information Filed with the Securities and
Exchange Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganizations will each be accounted for on a tax-free combined
basis. Accordingly, the book cost basis to Buying Fund of the assets of your
Fund will be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
Your Fund and Buying Fund are each separate series of shares of beneficial
interest of Trust. Since both funds are part of the same legal entity there are
no material differences in the rights of shareholders.
CAPITALIZATION
The following table sets forth, as of October 31, 2005, (i) the
capitalization of each class of shares of your Fund; (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Plan.
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- -------------- ----------- --------------
Net Assets...................... $935,121,439 $166,869,316 $(170,970) $1,101,819,785
Shares Outstanding.............. 79,955,279 16,492,380 (16,894) 108,913,901
Net Asset Value Per Share....... $ 11.70 $ 10.12 $ 10.12
10
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS B SHARES CLASS B SHARES ADJUSTMENTS CLASS B SHARES
-------------- -------------- ----------- --------------
Net Assets...................... $763,535,457 $103,719,605 $(135,931) $867,119,131
Shares Outstanding.............. 69,181,922 10,708,378 (14,028) 89,514,620
Net Asset Value Per Share....... $ 11.04 $ 9.69 $ 9.69
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS C SHARES CLASS C SHARES ADJUSTMENTS CLASS C SHARES
-------------- -------------- ----------- --------------
Net Assets...................... $162,200,068 $48,315,379 $(28,245) $210,487,202
Shares Outstanding.............. 14,696,996 4,985,842 (2,915) 21,727,492
Net Asset Value Per Share....... $ 11.04 $ 9.69 $ 9.69
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS R SHARES CLASS R SHARES ADJUSTMENTS CLASS R SHARES
-------------- -------------- ----------- --------------
Net Assets...................... $6,812,744 $2,330,874 $(1,028) $9,142,590
Shares Outstanding.............. 585,439 231,501 (102) 908,113
Net Asset Value Per Share....... $ 11.64 $ 10.07 $ 10.07
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR PRO FORMA INVESTOR
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
------------ ------------ ----------- ------------
Net Assets...................... $26,964,604 $358,696,557 $(4,388) $385,656,773
Shares Outstanding.............. 2,299,887 35,249,574 (431) 37,896,950
Net Asset Value Per Share....... $ 11.72 $ 10.18 $ 10.18
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INSTITUTIONAL INSTITUTIONAL PRO FORMA INSTITUTIONAL
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
------------- ------------- ----------- -------------
Net Assets...................... $1,309,002 $123,031,774 $(9,438) $124,331,338
Shares Outstanding.............. 109,187 12,051,023 (924) 12,178,322
Net Asset Value Per Share....... $ 11.99 $ 10.21 $ 10.21
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the
Reorganization will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" for more information about the pricing, purchase, redemption and
repurchase of shares of Buying Fund, tax consequences to shareholders of various
transactions in shares of Buying Fund, distribution arrangements and the
multiple class structure of Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which have been made a part of this Proxy Statement/ Prospectus by reference:
(i) see "Fund Performance" for more information about the performance of your
Fund; (ii) see "Fund Management" and "Portfolio Managers" for more information
about the management of your Fund; (iii) see "Shareholder Information" for more
information about the pricing of shares of your Fund; (iv) see "Taxes" for more
information about tax consequences to shareholders of various transactions in
shares of your Fund; and (v) see
11
"Dividends And Capital Gain Distributions" for more information about your
Fund's policy with respect to dividends and distributions.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which Trust has filed with the SEC pursuant to the requirements of the 1933 Act
and the 1940 Act, to which reference is hereby made. The SEC file number of
Trust's registration statement containing the Selling Fund Prospectus and
related Statement of Additional Information and the Buying Fund Prospectus and
related Statement of Additional Information is Registration No. 811-1424. Such
Selling Fund Prospectus and Buying Fund Prospectus are incorporated herein by
reference.
Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith file reports
and other information with the SEC. Reports, proxy material, registration
statements and other information filed by Trust (including the Registration
Statement of Trust relating to Buying Fund on Form N-14 of which this Proxy
Statement/Prospectus is a part) may be inspected without charge and copied at
the public reference facilities maintained by the SEC at Room 1014, Judiciary
Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following regional
office of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may also be obtained from the Public Reference Section
of the SEC at 450 Fifth Street, NW, Washington, DC 20549, at the prescribed
rates. The SEC maintains a website at www.sec.gov that contains information
regarding Trust and other registrants that file electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However, you do not need to attend the Special Meeting to vote your shares.
Instead, you may simply complete, sign and return the enclosed proxy card or
vote by telephone or through a website established for that purpose.
Trust intends to mail this Proxy Statement/Prospectus, the enclosed Notice
of Special Meeting of Shareholders and the enclosed proxy card on or about
January __, 2006 to all shareholders entitled to vote. Shareholders of record of
your Fund as of the close of business on December 2, 2005 (the "Record Date")
are entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit D.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Trust at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
12
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares FOR the
proposal to approve the Plan, as recommended by the Board, and in accordance
with management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Trust in writing to the address of Trust set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve the Plan are not received, the persons named as
proxies may propose one or more adjournments of the Special Meeting to permit
further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the votes cast at the Special Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR the Reorganization in favor of such an adjournment
and will vote those proxies required to be voted AGAINST the Reorganization
against such adjournment. A shareholder vote may be taken on the Reorganization
prior to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
VOTE NECESSARY TO APPROVE THE PLAN
If a quorum is present, approval of the Plan requires the affirmative vote
of a majority of shares cast by the shareholders of your Fund at the Special
Meeting. Abstentions and broker non-votes are counted as present but are not
considered votes cast at the Special Meeting.
PROXY SOLICITATION
Trust will solicit proxies for the Special Meetings. Trust expects to
solicit proxies principally by mail, but Trust may also solicit proxies by
telephone, facsimile or personal interview. Trust's officers will not receive
any additional or special compensation for any such solicitation. AIM will bear
75% of your Fund's costs and expenses incurred in connection with the
reorganization, including solicitation costs. Solicitation costs are expected to
be approximately $63,000.
13
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as
of December 2, 2005, to the knowledge of Trust owned 5% or more of any class of
the outstanding shares of your Fund can be found at Exhibit E.
A list of the name, address and percent ownership of each person who, as
of December 2, 2005, to the knowledge of Trust owned 5% or more of any class of
the outstanding shares of Buying Fund can be found at Exhibit F.
14
EXHIBIT A
CLASSES OF SHARES OF YOUR FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A Class A
Class B Class B
Class C Class C
Class R Class R
Investor Class Investor Class
Institutional Class Institutional Class
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
(Your Fund)
AIM BLUE CHIP FUND
The bar chart and table shown below provide an indication of the risks of
investing in your Fund. Your Fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of your Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 32.00%
1996 23.75%
1997 31.91%
1998 30.42%
1999 25.65%
2000 -9.29%
2001 -22.91%
2002 -26.42%
2003 25.28%
2004 4.29%
During the periods shown in the bar chart, the highest quarterly return
was 24.45% (quarter ended December 31, 1998) and the lowest quarterly return was
- -20.05% (quarter ended March 31, 2001). The year-to-date return of your Fund
Class A shares as of September 30, 2005 was 0.43%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-1
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----------------------------------------- ------- ------- -------- ----------- ---------
CLASS A 02/04/87
Return Before Taxes (1.43)% (8.67)% 8.41% --
Return After Taxes on Distributions (1.43) (8.67) 7.66 --
Return Before Taxes on Distributions (0.93) (7.15) 6.98 --
and Sale of Fund Shares
CLASS B 10/01/96
Return Before Taxes (1.45) (8.62) -- 4.61%
CLASS C 08/04/97
Return Before Taxes 2.55 (8.25) -- 0.94
CLASS R(2) 02/04/87(2)
Return Before Taxes 4.11 (7.76) 8.87 --
INVESTOR CLASS(3) 02/04/87(3)
Return Before Taxes 4.37 (7.60) 9.05 --
S&P 500 Index(4) 10.87 (2.30) 12.07 --
Russell 1000(R) Growth Index(5) 6.30 (9.29) 9.59 --
Lipper Large-Cap Growth Fund Index(6) 7.45 (9.72) 8.64 --
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold shares of your Fund through tax-deferred arrangements, such
as 401(k) plans or individual retirement accounts. After-tax returns are shown
for Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
- --------------------------
(1) Since Inception performance is only provided for a class with less than
ten calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
your Fund's Class R shares. The returns shown for the five year period and
ten year period are the blended returns of the historical performance of
your Fund's Class R shares since their inception and the restated
historical performance of your Fund's Class A shares (for periods prior to
inception of the Class R shares) at net asset value, adjusted to reflect
the higher Rule 12b-l fees applicable to the Class R shares. The inception
date shown in the table is that of your Fund's Class A shares. The
inception date of your Fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the blended returns of the
historical performance of your Fund's Investor Class shares since their
inception and the restated historical performance of your Fund's Class A
shares (for the periods prior to inception of the Investor Class shares)
at net asset value and reflect the higher Rule 12b-1 fees applicable to
Class A shares. The inception date shown in the table is that of your
Fund's Class A shares. The inception date of your Fund's Investor Class
shares is September 30, 2003.
(4) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. Your Fund has elected to use the Standard &
Poor's 500 Index as its broad-based index. Your Fund has also included the
Russell 1000(R) Growth Index as its style specific index. In addition,
your Fund has included the Lipper Large-Cap Growth Fund Index (which may
or may not include your Fund) for comparison to a peer group.
(5) The Russell 1000(R) Growth Index measures the performance of those
securities in the Russell 1000(R) Index with a higher than average growth
forecast. The Russell 1000(R) Index measures the performance of the 1,000
largest companies domiciled in the United States.
(6) The Lipper Large-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Large-Cap Growth
category. These funds, by portfolio practice, invest at least 75% of their
equity assets in companies with market capitalizations (on a three-year
weighted basis) greater than 300% of the dollar-weighted median market
capitalization of the middle 1,000 securities of the S&P SuperComposite
1500 Index. Large-Cap Growth funds typically have an above-average
price-to-earnings ratio, price-to-book ratio, and three year
sales-per-share growth value, compared to the S&P 500 index.
B-2
(Buying Fund)
AIM LARGE CAP GROWTH FUND
The bar chart and table shown below provide an indication of the risks of
investing in Buying Fund. Buying Fund's past performance (before and after
taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Buying Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
2000 8.52%
2001 -36.13%
2002 -26.46%
2003 29.32%
2004 8.87%
During the periods shown in the bar chart, the highest quarterly return
was 26.64% (quarter ended March 31, 2000) and the lowest quarterly return was
- -34.26% (quarter ended March 31, 2001). The year-to-date return of Buying Fund
Class A shares as of September 30, 2005 was 3.22%.
A significant portion of Buying Fund's returns during certain periods was
attributable to its investments in initial public offerings (IPOs). Although IPO
investments have had a positive impact on Buying Fund's performance in the past,
there can be no assurance that it will have favorable IPO investment
opportunities in the future. For additional information regarding Buying Fund's
performance, please see the "Financial Highlights" section of the prospectus.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-3
AVERAGE ANNUAL TOTAL RETURNS(1)
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS INCEPTION DATE
- ----------------------------------------- ------ ------- --------- ---------
CLASS A 03/01/99
Return Before Taxes 2.90% (7.48)% (0.95)%
Return After Taxes on Distributions 2.90 (7.48) (0.95)
Return After Taxes on Distributions
and Sale of Fund 1.88 (6.19) (0.81)
Shares
CLASS B 04/05/99
Return Before Taxes 3.14 (7.41) (2.60)
CLASS C 04/05/99
Return Before Taxes 7.25 (7.03) (2.41)
CLASS R(2) 03/01/99(2)
Return Before Taxes 8.66 (6.54) (0.12)
INVESTOR CLASS(3) 03/01/99(3)
Return before Taxes 9.30 (6.33) 0.10
S&P 500 Index(4) 10.87 (2.30) 1.13(7) 02/28/99(7)
Russell 1000(R) Growth Index(5) 6.30 (9.29) (3.56)(7) 02/28/99(7)
Lipper Large-Cap Growth Fund Index(6) 7.45 (9.72) (3.92)(7) 02/28/99(7)
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold shares of Buying Fund through tax-deferred arrangements, such
as 401(k) plans or individual retirement accounts. After-tax returns are shown
for Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
- --------------------------
(1) A significant portion of Buying Fund's returns during certain periods was
attributable to its investments in IPOs. Although IPO investments have had
a positive impact on Buying Fund's performance in the past, there can be
no assurance that Buying Fund will have favorable IPO investment
opportunities in the future. For additional information regarding Buying
Fund's performance, please see the "Financial Highlights" section of this
prospectus.
(2) The returns shown for the one year period are the historical returns of
Buying Fund's Class R shares. The returns shown for 5 year and since
inception periods are the blended returns of the historical performance of
Buying Fund's Class R shares since their inception and the restated
historical performance of Buying Fund's Class A shares (for periods prior
to inception of the Class R shares) at net asset value, adjusted to
reflect the higher Rule 12b-1 fees applicable to the Class R shares. The
inception date shown in the table is that of Buying Fund's Class A shares.
The inception date of Buying Fund's Class R shares is June 3, 2002.
(3) The returns shown for these periods are the blended returns of the
historical performance of Buying Fund's Investor class shares since their
inception and the restated historical performance of Buying Fund's Class A
shares (for the periods prior to inception of the Investor class shares)
at the net asset value and reflect the higher Rule 12b-1 fees applicable
to Class A shares. The inception date shown in the table is that of Buying
Fund's Class A shares. The inception date of Buying Fund's Investor Class
shares is September 30, 2003.
(4) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. Buying Fund has elected to use the Standard
& Poor's 500 Index as its broad-based index. Buying Fund has also included
the Russell 1000(R) Growth Index, which the fund believes more closely
reflects the performance of the types of securities in which Buying Fund
invests. In addition, Buying Fund has included the Lipper Large Cap Growth
Fund Index (which may or may not include the fund) for comparison to a
peer group.
(5) The Russell 1000(R) Growth Index measures the performance of those
securities in the Russell 1000(R) Index with a higher than average growth
forecast. The Russell 1000(R) Index measures the performance of the
largest 1,000 companies in the United States.
(6) The Lipper Large-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Large-Cap Growth
category. These funds typically invest in stocks with market
capitalizations greater than $5 billion at the time of purchase and have
an above-average price-to-earnings ratio, price-to-book ratio, and a three
year sales-per-share growth value, compared to the S&P 500 Index.
(7) The average annual total return given is since the month end closest to
the inception date of the class with the longest performance history.
B-4
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class R, Investor Class, and Institutional Class shares of AIM Blue
Chip Fund ("Your Fund") and Class A, Class B, Class C, Class R, Investor Class,
and Institutional Class shares of AIM Large Cap Growth Fund ("Buying Fund"). Pro
Forma Combined Expense Ratios of Buying Fund giving effect to the Reorganization
are also provided. There is no guarantee that actual expenses will be the same
as those shown in this table.
AIM BLUE CHIP FUND
YOUR FUND
(AS OF 10/31/04)
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
------- ------- ------- ------- -------- -------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
(Load) Imposed on
Purchase
(as a percentage of
offering price) 5.50% None None None None None
Maximum Deferred Sales
Charge (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) None(1,2) 5.00% 1.00% None(3) None None
ANNUAL FUND OPERATING
EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Distribution and/or
Service (12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% 0.25% -
Other Expenses 0.46% 0.46% 0.46% 0.46% 0.46% 0.11%
Total Annual Fund
Operating Expenses 1.35% 2.10% 2.10% 1.60% 1.35% 0.75%
Fee Waiver(6,7) 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Net Annual Fund
Expenses(8,9) 1.34% 2.09% 2.09% 1.59% 1.34% 0.74%
AIM LARGE CAP GROWTH FUND
BUYING FUND
(AS OF 10/31/04)
INVESTOR
CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
------- ------- ------- ------- -------- -------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
(Load) Imposed on
Purchase
(as a percentage of
offering price) 5.50% None None None None None
Maximum Deferred Sales
Charge
(as a percentage of
original purchase price
or redemption proceeds,
as applicable) None(1,2) 5.00% 1.00% None(3) None None
ANNUAL FUND OPERATING
EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or
Service (12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% 0.25% -
Other Expenses 0.45% 0.45% 0.45% 0.45% 0.45% 0.18%
Total Annual Fund
Operating Expenses 1.45% 2.20% 2.20% 1.70% 1.45% 0.93%
Fee Waiver(6,7) 0.12% 0.12% 0.12% 0.12% 0.12% 0.08%
Net Annual Fund
Expenses(8,9) 1.33% 2.08% 2.08% 1.58% 1.33% 0.85%
AIM LARGE CAP GROWTH FUND
BUYING FUND
PRO FORMA COMBINED
(AS OF 10/31/04)
INVESTOR
INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R CLASS INSTITUTIONAL
CLASS SHARES SHARES SHARES SHARES SHARES SHARES CLASS SHARES
------------- ------- ------- ------- ------- -------- -------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
(Load) Imposed on
Purchase
(as a percentage of
offering price) None 5.50% None None None None None
Maximum Deferred Sales
Charge
(as a percentage of
original purchase price
or redemption proceeds,
as applicable) None None(1,2) 5.00% 1.00% None3 None None
ANNUAL FUND OPERATING
EXPENSES(4)
(expenses that are
deducted from fund
assets)
Management fees 0.75% 0.64% 0.64% 0.64% 0.64% 0.64% 0.64%
Distribution and/or
Service (12b-1) Fees(5) - 0.25% 1.00% 1.00% 0.50% 0.25% -
Other Expenses 0.18% 0.44% 0.44% 0.44% 0.44% 0.44% 0.12%
Total Annual Fund
Operating Expenses 0.93% 1.33% 2.08% 2.08% 1.58% 1.33% 0.76%
Fee Waiver(6,7) 0.08% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%
Net Annual Fund
Expenses(8,9) 0.85% 1.32% 2.07% 2.07% 1.57% 1.32% 0.75%
- -------------------------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
C-1
(5) Effective July 1, 2005, the Board of Trustees has approved a permanent
reduction of the Rule 12b-1 fees applicable to Class A shares to 0.25%.
Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Blue Chip Fund and AIM Large Cap Growth Fund has contractually agreed to
waive a portion of its advisory fees to the extent necessary so that the
advisory fees payable by the Funds' (based on the Funds' average daily net
assets) do not exceed the annual rate of 0.695% of the first $250 million,
plus 0.67% of the next $250 million, plus 0.645% of the next $500 million,
plus 0.62% of the next $1.5 billion, plus 0.595% of the next $2.5 billion,
plus 0.57% of the next $2.5 billion, plus 0.545% of the next $2.5 billion
, plus 0.52% of the Fund's daily net assets in excess of $10 billion. The
Fee Waiver reflects this agreement.
(7) The investment advisor for AIM Large Cap Growth Fund has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent
necessary to limit Total Annual Fund Operating Expenses (excluding certain
items discussed below) of Class A, Class B, Class C, Class R, Investor
Class and Institutional Class shares to 1.32%, 2.07% 2.07%, 1.57%, 1.32%
and 1.07% of average daily net assets, respectively. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total
Annual Fund Operating Expenses to exceed the numbers reflected above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items; (v) expenses related to a merger or reorganization,
as approved by the fund's Board of Trustees; (vi) expenses that the fund
has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement
arrangement with AMVESCAP (as defined herein) described more fully below,
the only expense offset arrangements from which the fund benefits are in
the form of credits that the fund receives from banks where the fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the fund. This
expense limitation agreement is in effect through October 31, 2006.
(8) At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse AIM Blue Chip and AIM Large Cap Growth Fund for
expenses related to market timing matters.
(9) AIM Blue Chip Fund will incur additional expenses in connection with the
Reorganization.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Your Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Your Fund into Buying Fund
are also provided. All costs are based upon the information set forth in the Fee
Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
----- ----- ------- -------
AIM BLUE CHIP FUND (YOUR FUND)
Class A....................................................... $ 679 $ 951 $ 1,244 $ 2,080
Class B....................................................... 712 955 1,324 2,235
Class C....................................................... 312 655 1,124 2,427
Class R....................................................... 162 502 866 1,895
Investor Class................................................ 136 425 734 1,619
Institutional Class........................................... 76 237 411 925
AIM LARGE CAP GROWTH FUND (BUYING FUND)
Class A....................................................... $ 678 $ 956 $ 1,255 $ 2,150
Class B....................................................... 711 960 1,335 2,305
Class C....................................................... 311 660 1,135 2,495
Class R....................................................... 161 507 878 1,968
Investor Class................................................ 135 430 746 1,693
Institutional Class........................................... 87 271 471 1,102
AIM LARGE CAP GROWTH FUND (BUYING FUND) - PRO FORMA COMBINED
Class A....................................................... $ 678 $ 946 $ 1,235 $ 2,060
Class B....................................................... 710 949 1,314 2,214
Class C....................................................... 310 649 1,114 2,406
Class R....................................................... 160 496 855 1,874
Investor Class................................................ 134 418 723 1,597
Institutional Class........................................... 77 240 417 937
C-3
You would pay the following expenses if you did not redeem your shares:
One Three Five Ten
Year Years Years Years
----- ----- ------- -------
AIM BLUE CHIP FUND (YOUR FUND)
Class A....................................................... $ 679 $ 951 $ 1,244 $ 2,080
Class B....................................................... 212 655 1,124 2,235
Class C....................................................... 212 655 1,124 2,427
Class R....................................................... 162 502 866 1,895
Investor Class................................................ 136 425 734 1,619
Institutional Class........................................... 76 237 411 925
AIM LARGE CAP GROWTH FUND (BUYING FUND)
Class A....................................................... $ 678 $ 956 $ 1,255 $ 2,150
Class B....................................................... 211 660 1,135 2,305
Class C....................................................... 211 660 1,135 2,495
Class R....................................................... 161 507 878 1,968
Investor Class................................................ 135 430 746 1,693
Institutional Class........................................... 87 271 471 1,102
AIM LARGE CAP GROWTH FUND (BUYING FUND) - PRO FORMA COMBINED
Class A....................................................... $ 678 $ 946 $ 1,235 $ 2,060
Class B....................................................... 210 649 1,114 2,214
Class C....................................................... 210 649 1,114 2,406
Class R....................................................... 160 496 855 1,874
Investor Class................................................ 134 418 723 1,597
Institutional Class........................................... 77 240 417 937
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT YOUR FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of December 2, 2005, there were the following number of shares
outstanding of each class of your Fund:
YOUR FUND
Class A Shares:
Class B Shares:
Class C Shares:
Class R Shares:
Investor Class Shares:
Institutional Class Shares:
D-1
EXHIBIT E
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" the fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ----------------
* Trust has no knowledge of whether all or any portion of the shares
owned of record are also owned beneficially.
E-1
EXHIBIT F
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
CLASS OF NUMBER OF PERCENT OWNED
NAME AND ADDRESS SHARES SHARES OWNED OF RECORD*
- -----------------
* Trust has no knowledge of whether all or any portion of the shares
owned of record are also owned beneficially.
F-1
APPENDIX I
PLAN OF REORGANIZATION
FOR
AIM BLUE CHIP FUND,
A SEPARATE PORTFOLIO OF
AIM EQUITY FUNDS
NOVEMBER 14, 2005
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS....................................................................... 1
SECTION 1.1. Definitions........................................................ 1
ARTICLE 2 TRANSFER OF ASSETS................................................................ 5
SECTION 2.1. Reorganization of Selling Fund..................................... 5
SECTION 2.2. Computation of Net Asset Value..................................... 5
SECTION 2.3. Valuation Date..................................................... 5
SECTION 2.4. Delivery........................................................... 6
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares........ 6
SECTION 2.6. Issuance of Buying Fund Shares..................................... 6
SECTION 2.7. Investment Securities.............................................. 6
SECTION 2.8. Liabilities........................................................ 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLING FUND.................................... 7
SECTION 3.1. Registration and Regulation of Selling Fund........................ 7
SECTION 3.2. Selling Fund Financial Statements.................................. 7
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities................ 7
SECTION 3.4. Selling Fund Shares; Business Operations........................... 8
SECTION 3.5. Accountants........................................................ 8
SECTION 3.6. Binding Obligation................................................. 9
SECTION 3.7. No Breaches or Defaults............................................ 9
SECTION 3.8. Permits............................................................ 9
SECTION 3.9. No Actions, Suits or Proceedings................................... 9
SECTION 3.10. Contracts......................................................... 10
SECTION 3.11. Properties and Assets............................................. 10
SECTION 3.12. Taxes............................................................. 10
SECTION 3.13. Benefit and Employment Obligations................................ 11
SECTION 3.14. Voting Requirements............................................... 11
SECTION 3.15. State Takeover Statutes........................................... 11
SECTION 3.16. Books and Records................................................. 11
SECTION 3.17. Prospectus and Statement of Additional Information................ 11
SECTION 3.18. No Distribution................................................... 12
SECTION 3.19. Liabilities of Selling Fund....................................... 12
SECTION 3.20. Shareholder Expenses.............................................. 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYING FUND..................................... 12
SECTION 4.1. Registration and Regulation of Buying Fund......................... 12
SECTION 4.2. Buying Fund Financial Statements................................... 12
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities................ 12
SECTION 4.4. Registration of Buying Fund Shares................................. 13
SECTION 4.5. Accountants........................................................ 14
SECTION 4.6. Binding Obligation................................................. 14
SECTION 4.7. No Breaches or Defaults............................................ 14
SECTION 4.8. Permits............................................................ 14
i
SECTION 4.9. No Actions, Suits or Proceedings.................................. 15
SECTION 4.10. Taxes............................................................. 15
SECTION 4.11. Representations Concerning the Reorganization..................... 15
SECTION 4.12. Prospectus and Statement of Additional Information................ 16
ARTICLE 4A CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND................................... 16
SECTION 4A.1 No Governmental Actions............................................ 16
SECTION 4A.2 No Brokers......................................................... 16
SECTION 4A.3 Value of Shares.................................................... 17
SECTION 4A.4 Intercompany Indebtedness; Consideration........................... 17
SECTION 4A.5 Authorizations or Consents......................................... 17
SECTION 4A.6 No Bankruptcy Proceedings.......................................... 17
ARTICLE 5 COVENANTS......................................................................... 17
SECTION 5.1. Conduct of Business................................................ 17
SECTION 5.2. Expenses........................................................... 18
SECTION 5.3. Further Assurances................................................. 18
SECTION 5.4. Consents, Approvals and Filings.................................... 18
SECTION 5.5. Submission of Plan to Shareholders................................. 19
ARTICLE 6 FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION................................ 19
SECTION 6.1. Further Conditions Precedent with respect to Both Funds............ 19
ARTICLE 7 TERMINATION OF PLAN............................................................... 20
SECTION 7.1. Termination........................................................ 20
SECTION 7.2. Survival After Termination......................................... 21
ARTICLE 8 MISCELLANEOUS..................................................................... 21
SECTION 8.1. Survival of Representations, Warranties and Covenants.............. 21
SECTION 8.2. Governing Law...................................................... 21
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment.................. 21
SECTION 8.4. Obligations of Trust............................................... 22
SECTION 8.5. Amendments......................................................... 22
SECTION 8.6. Entire Plan; Exhibits and Schedules................................ 22
SECTION 8.7. Successors and Assigns; Assignment................................. 22
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes of Shares of
Buying Fund
SCHEDULE 3.4 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.4 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.5(a) Classes of Shares of Buying Fund
SCHEDULE 4.14(b) Permitted Reorganizations of Funds
SCHEDULE 6.2(f) Tax Opinions
ii
PLAN OF REORGANIZATION
PLAN OF REORGANIZATION, dated as of November , 2005 (this "Plan"), is
adopted by AIM Equity Funds, a Delaware statutory trust ("Trust"), acting on
behalf of AIM Blue Chip Fund ("Selling Fund"), and AIM Large Cap Growth Fund
("Buying Fund"), each a separate series of Trust.
WITNESSETH
WHEREAS, Trust is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund and Buying Fund, for sale to the public; and
WHEREAS, Investment Adviser (as defined below) provides investment
advisory services to the Trust; and
WHEREAS, the Trust desires to provide for the reorganization of Selling
Fund through the transfer of all of its assets to Buying Fund in exchange for
the assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Trust of shares of Buying Fund in the manner
set forth in this Plan; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund; and
WHEREAS, this Plan is intended to be and is adopted by Trust as a Plan of
Reorganization within the meaning of the regulations under Section 368(a) of the
Code (as defined below); and
WHEREAS, Trust is duly organized, validly existing and in good standing
under Applicable Law (as defined below), with all requisite power and authority
to adopt this Plan and perform its obligations hereunder.
NOW, THEREFORE, Trust hereby adopts the following:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Plan, the following
terms shall have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms of
the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
1
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Trust on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or trustee of Trust.
"Buying Fund" means AIM Large Cap Growth Fund, a separate series of Trust.
"Buying Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2004, and the Buying Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Plan.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Plan.
"Closing Date" means March 13, 2006, or such other date as the parties may
mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of each Fund.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
2
"Governing Documents" means the organic documents which govern the
business and operations of Trust and shall include, as applicable, Amended and
Restated Agreement and Declaration of Trust, Amended and Restated Bylaws and
Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.8 of this Plan.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Plan" means this Plan of Reorganization, together with all exhibits and
schedules attached hereto and all amendments hereto and thereof.
"Registration Statement" means the registration statement on Form N-1A of
Trust, as amended, 1940 Act Registration No. 811-1424.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Trust of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Plan, and the
termination of Selling Fund's status as a designated series of shares of Trust.
"Required Shareholder Vote" means, if a quorum is present, the affirmative
vote of a majority of the shares cast at the Shareholders Meeting.
3
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Selling Fund" means AIM Blue Chip Fund, a separate series of Trust.
"Selling Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended October 31, 2004 and the Selling Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Trust
to consider and vote upon the approval of this Plan.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means September 30, 2006, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trust" means AIM Equity Funds, a Delaware statutory trust.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for the
Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for Eligible
Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds Retirement
Plan for Independent Directors and the Deferred Retirement Plan Account
Agreement.
"Trust Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
4
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Plan.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all of
the assets of Selling Fund shall be delivered to Custodian for the account of
Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Trust directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Registration Statement.
(c) The value of the assets and the amount of the Liabilities of
Selling Fund to be transferred to Buying Fund pursuant to this Plan shall be
computed in accordance with the policies and procedures of Selling Fund as
described in the Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of
value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Plan shall be made by Trust.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund will
be permanently closed as of the close of business on the Valuation Date and only
requests for the redemption of shares of Selling Fund received in proper form
prior to the close of regular trading on the NYSE on the Valuation Date shall be
accepted by Selling Fund. Redemption requests thereafter received by Selling
Fund shall be deemed to be redemption requests for Buying Fund Shares of the
corresponding class (assuming that the transactions contemplated by this Plan
have been consummated), to be distributed to Selling Fund Shareholders under
this Plan.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing
Date, Trust shall instruct Custodian to transfer all assets held by Selling Fund
to the account of Buying Fund
5
maintained at Custodian. Such assets shall be delivered by Trust to Custodian on
the Closing Date. The assets so delivered shall be duly endorsed in proper form
for transfer in such condition as to constitute a good delivery thereof, in
accordance with the custom of brokers, and shall be accompanied by all necessary
state stock transfer stamps, if any, or a check for the appropriate purchase
price thereof. Cash held by Selling Fund shall be delivered on the Closing Date
and shall be in the form of currency or wire transfer in Federal funds, payable
to the order of the account of Buying Fund at Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery
in the manner contemplated by Section 2.4(a) of securities held by Selling Fund
for the reason that any of such securities purchased prior to the Closing Date
have not yet been delivered to Selling Fund or its broker, then Trust shall
waive the delivery requirements of Section 2.4(a) with respect to said
undelivered securities if Selling Fund has delivered to Custodian by or on the
Closing Date, and with respect to said undelivered securities, executed copies
of an agreement of assignment and escrow and due bills executed on behalf of
said broker or brokers, together with such other documents as may be required by
Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares.
Following receipt of the Required Shareholder Vote and as soon as reasonably
practicable after the Closing, the status of Selling Fund as a designated series
of Trust shall be terminated and Trust shall redeem the outstanding shares of
Selling Fund from Selling Fund Shareholders in accordance with its Governing
Documents and all issued and outstanding shares of Selling Fund shall thereupon
be canceled on the books of Trust.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Trust shall provide instructions
to the transfer agent of Trust with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Trust shall record on its
books the ownership of the shares of each class of Buying Fund by Selling Fund
Shareholders and shall forward a confirmation of such ownership to Selling Fund
Shareholders. No redemption or repurchase of such shares credited to former
Selling Fund Shareholders in respect of Selling Fund Shares represented by
unsurrendered share certificates shall be permitted until such certificates have
been surrendered to Trust for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Trust.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Trust shall prepare a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Such records shall be prepared in accordance with the
requirements for specific identification tax lot accounting and clearly reflect
the bases used for determination of gain and loss realized on the sale of any
security transferred to Buying Fund hereunder. Such records shall be made
available by Trust prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
6
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLING FUND
Trust, on behalf of Selling Fund, represents and warrants as follows:
SECTION 3.1. Registration and Regulation of Selling Fund. All Selling Fund
shares which have been or are being offered for sale have been duly registered
under the Securities Act and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification. Selling Fund is in compliance in all material respects with
all applicable laws, rules and regulations, including, without limitation, the
Investment Company Act, the Securities Act, the Exchange Act and all applicable
state securities laws. Selling Fund is in compliance in all material respects
with the investment policies and restrictions applicable to it set forth in the
Registration Statement. The value of the net assets of Selling Fund is
determined using portfolio valuation methods that comply in all material
respects with the requirements of the Investment Company Act and the policies of
Selling Fund and all purchases and redemptions of Selling Fund Shares have been
effected at the net asset value per share calculated in such manner.
SECTION 3.2. Selling Fund Financial Statements. The books of account and
related records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Selling Fund Financial Statements
present fairly in all material respects the financial position of Selling Fund
as of the dates indicated and the results of operations and changes in net
assets for the periods then ended in accordance with generally accepted
accounting principles applied on a consistent basis for the periods then ended.
SECTION 3.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund. Except as set forth on Schedule 3.4, there are no
contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the Selling Fund Financial Statements.
SECTION 3.4. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
7
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
(d) From the date it commenced operations and ending on the Closing
Date, Selling Fund will have conducted its historic business within the meaning
of Section 1.368-1(d)(2) of the Treasury Regulations in a substantially
unchanged manner. In anticipation of its Reorganization, Selling Fund will not
dispose of assets that, in the aggregate, will result in less than fifty percent
(50%) of its historic business assets (within the meaning of Section
1.368-1(d)(3) of the Treasury Regulations) being transferred to Buying Fund.
(e) Except for the Senior Officer Trust is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Trust does not have, and has not had during the six (6) months prior to
the date of this Plan, any employees, and shall not hire any employees from and
after the date of this Plan through the Closing Date.
SECTION 3.5. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 3.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Selling Fund and, assuming this Plan has been
duly approved by the shareholders of Selling Fund, constitutes the legal, valid
and binding obligation of Trust enforceable against Trust in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.7. No Breaches or Defaults. The adoption and delivery of this
Plan by Trust on behalf of Selling Fund and performance by Trust of its
obligations hereunder has been
8
duly authorized by all necessary trust action on the part of Trust, other than
approval by the shareholders of Selling Fund, and (i) do not, and on the Closing
Date will not, result in any violation of the Governing Documents of Trust and
(ii) do not, and on the Closing Date will not, result in a breach of any of the
terms or provisions of, or constitute (with or without the giving of notice or
the lapse of time or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation or imposition of any Lien upon
any property or assets of Selling Fund (except for such breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect) under (A) any indenture, mortgage or loan
agreement or any other material agreement or instrument to which Trust is a
party or by which it may be bound and which relates to the assets of Selling
Fund or to which any property of Selling Fund may be subject; (B) any Permit (as
defined below); or (C) any existing applicable law, rule, regulation, judgment,
order or decree of any Governmental Authority having jurisdiction over Trust or
any property of Selling Fund.
SECTION 3.8. Permits. Trust has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust affecting any property, asset, interest or
right of Selling Fund, that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect with respect to Selling Fund.
There are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Selling Fund affecting in any significant respect the conduct of
such business. Trust is not, and has not been, to the knowledge of Trust, the
target of any investigation by the SEC or any state securities administrator
with respect to its conduct of the business of Selling Fund, other than as has
been disclosed to Trust's Board of Trustees.
SECTION 3.10. Contracts. Trust is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Trust there has not occurred any event that, with the lapse of time
or the giving of notice or both, would constitute such a default.
9
SECTION 3.11. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.12. Taxes.
(a) Selling Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Selling Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will have satisfied the
requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing Date. Selling Fund has no earnings and profits
accumulated in any taxable year in which the provisions of Subchapter M of the
Code did not apply to it. In order to (i) ensure continued qualification of
Selling Fund for treatment as a "regulated investment company" for tax purposes
and (ii) eliminate any tax liability of Selling Fund arising by reason of
undistributed investment company taxable income or net capital gain, Trust will
declare on or prior to the Valuation Date to the shareholders of Selling Fund a
dividend or dividends that, together with all previous such dividends, shall
have the effect of distributing (A) all of Selling Fund's investment company
taxable income (determined without regard to any deductions for dividends paid)
for the taxable year ended October 31, 2005 and for the short taxable year
beginning on November 1, 2005 and ending on the Closing Date and (B) all of
Selling Fund's net capital gain recognized in its taxable year ended October 31,
2005 and in such short taxable year (after reduction for any capital loss
carryover).
(b) Selling Fund has timely filed all Returns required to be filed
by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 3.13. Benefit and Employment Obligations. Except for the Trustee
Benefit Plans, Selling Fund has no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to, under any
Benefit Plan, and has no obligation to provide unfunded deferred compensation or
other unfunded or self-funded benefits to any Person.
SECTION 3.14. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Plan.
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SECTION 3.15. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Plan or any
of the transactions contemplated by this Plan.
SECTION 3.16. Books and Records. The books and records of Trust relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.17. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.18. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Plan.
SECTION 3.19. Liabilities of Selling Fund. The Liabilities of Selling Fund
that are to be assumed by Buying Fund in connection with the Reorganization, or
to which the assets of Selling Fund to be transferred in the Reorganization are
subject, were incurred by Selling Fund in the ordinary course of its business.
The fair market value of the assets of Selling Fund to be transferred to Buying
Fund in the Reorganization will equal or exceed the sum of the Liabilities to be
assumed by Buying Fund, plus the amount of Liabilities, if any, to which such
transferred assets will be subject.
SECTION 3.20. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYING FUND
Trust, on behalf of Buying Fund, represents and warrants as follows:
SECTION 4.1. Registration and Regulation of Buying Fund. Buying Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Buying Fund is in compliance in all material respects with the applicable
investment policies and restrictions set forth in the Registration Statement.
The value of the net assets of Buying Fund is determined using portfolio
valuation methods that comply in all material respects with the requirements of
the Investment Company Act and the policies of Buying Fund and all purchases and
redemptions of Buying Fund Shares have been effected at the net asset value per
share calculated in such manner.
11
SECTION 4.2. Buying Fund Financial Statements. The books of account and
related records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The audited Buying Fund Financial
Statements present fairly in all material respects the financial position of
Buying Fund as of the date(s) indicated and the results of operations and
changes in net assets for the period(s) then ended in accordance with generally
accepted accounting principles applied on a consistent basis for the period(s)
then ended.
SECTION 4.3. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Trust. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the Buying Fund Financial Statements which are required
to be disclosed in accordance with generally accepted accounting principles.
SECTION 4.4. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are set
forth on Schedule 4.5(a). Under its Governing Documents, Trust is authorized to
issue an unlimited number of shares of each such class.
(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Trust then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of the Registration Statement on Form
N-14, shall be furnished to the shareholders of Selling Fund entitled to vote at
the Shareholders Meeting in accordance with normal market practice for such
transactions. The Combined Proxy Statement/Prospectus and related Statement of
Additional Information of Buying Fund, when they become effective, shall conform
in all material respects to the applicable requirements of the Securities Act
and the Investment Company Act and shall not include any untrue statement
12
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being offered
for sale (other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Trust to revoke or rescind any such registration
or qualification.
SECTION 4.5. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.6. Binding Obligation. This Plan has been duly authorized and
delivered by Trust on behalf of Buying Fund and, assuming this Plan has been
duly authorized and delivered by Trust on behalf of Selling Fund, constitutes
the legal, valid and binding obligation of Trust, enforceable against Trust in
accordance with its terms from and with respect to the revenues and assets of
Buying Fund, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting creditors'
rights generally, or by general equity principles (whether applied in a court of
law or a court of equity and including limitations on the availability of
specific performance or other equitable remedies).
SECTION 4.7. No Breaches or Defaults. The execution and delivery of this
Plan by Trust on behalf of Buying Fund and performance by Trust of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of Trust and (i) do not, and on the Closing Date will not, result in
any violation of the Governing Documents and (ii) do not, and on the Closing
Date will not, result in a breach of any of the terms or provisions of, or
constitute (with or without the giving of notice or the lapse of time or both) a
default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Buying Fund (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which Trust is a party or by which it may be
bound and which relates to the assets of Buying Fund or to which any properties
of Buying Fund may be subject; (B) any Permit; or (C) any existing applicable
law, rule, regulation, judgment, order or decree of any Governmental Authority
having jurisdiction over Trust or any property of Buying Fund.
SECTION 4.8. Permits(a) . Trust has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Trust there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such
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that would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
SECTION 4.9. No Actions, Suits or Proceedings. There are no judicial,
administrative or arbitration actions, suits, or proceedings instituted or
pending or, to the knowledge of Trust, threatened in writing or, if probable of
assertion, orally, against Trust, affecting any property, asset, interest or
right of Buying Fund, that could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect with respect to Buying Fund. There
are not in existence on the date hereof any plea agreements, judgments,
injunctions, consents, decrees, exceptions or orders that were entered by, filed
with or issued by any Governmental Authority relating to Trust's conduct of the
business of Buying Fund affecting in any significant respect the conduct of such
business. Trust is not, and has not been, to the knowledge of Trust, the target
of any investigation by the SEC or any state securities administrator with
respect to its conduct of the business of Buying Fund, other than as has been
disclosed to Trust's Board of Trustees.
SECTION 4.10. Taxes.
(a) Buying Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Buying Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will satisfy the requirements of
Part I of Subchapter M of the Code to maintain such qualification for its
current taxable year. Buying Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not apply
to it.
(b) Buying Fund has timely filed all Returns required to be filed by
it and all Taxes with respect thereto have been paid, except where the failure
so to file or so to pay, would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Adequate provision has been
made in the Buying Fund Financial Statements for all Taxes in respect of all
periods ending on or before the date of such financial statements, except where
the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Buying
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 4.11. Representations Concerning the Reorganization.
(a) There is no plan or intention by Trust or any person related to
Trust to acquire or redeem any of the Buying Fund Shares issues in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
14
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code;
provided, however, that this Section 4.11(b) shall not preclude any of the
reorganizations of funds set forth on Schedule 4.11(b).
(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations; provided, however, that this Section 4.11(c) shall not preclude any
of the reorganizations of funds set forth on Schedule 4.14(b).
(d) Prior to or in the Reorganization, neither Buying Fund nor any
person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
SECTION 4.12. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
ARTICLE 4A
CONDITIONS PRECEDENT WITH RESPECT TO EACH FUND
Trust's obligations to implement this Plan on each Fund's behalf
shall be subject to satisfaction of the following conditions on or before the
Closing Date, any one or more of which Trust may waive:
SECTION 4A.1 No Governmental Actions. There is no pending action, suit or
proceeding, nor, to the knowledge of Trust, has any litigation been overtly
threatened in writing or, if probable of assertion, orally, against Trust before
any Governmental Authority which questions the validity or legality of this Plan
or of the transactions contemplated hereby or which seeks to prevent the
consummation of the transactions contemplated hereby, including the
Reorganization.
SECTION 4A.2 No Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Trust in connection with this Plan or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Trust or any action taken by it.
15
SECTION 4A.3 Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal, as of the Effective Time, to the fair market value
of the shares of each corresponding class of Selling Fund to be constructively
surrendered in exchange therefor. The fair market value of the assets of Buying
Fund will exceed the amount of its liabilities immediately after the exchange.
SECTION 4A.4 Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between the Funds that was issued or acquired, or will
be settled, at a discount. No consideration other than Buying Fund Shares (and
Buying Fund's assumption of Selling Fund's Liabilities, including for this
purpose any liabilities to which the assets of Selling Fund are subject) will be
given in exchange for the assets of Selling Fund acquired by Buying Fund in
connection with the Reorganization. The fair market value of the assets of
Selling Fund transferred to Buying Fund in the Reorganization will equal or
exceed the sum of the Liabilities assumed by Buying Fund, plus the amount of
liabilities, if any, to which such transferred assets are subject.
SECTION 4A.5 Authorizations or Consents. Other than those which shall have
been obtained or made on or prior to the Closing Date and any that must be made
after the Closing Date to comply with Section 2.5 of this Plan, no authorization
or approval or other action by, and no notice to or filing with, any
Governmental Authority will be required to be obtained or made by Trust in
connection with the due adoption by Trust of this Plan and the consummation by
Trust of the transactions contemplated hereby.
SECTION 4A.6 No Bankruptcy Proceedings. Trust is not, with respect to
either Fund, under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Selling Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
(b) From the date of this Plan up to and including the Closing Date
(or, if earlier, the date upon which this Plan is terminated pursuant to Article
7), Trust shall conduct the business of Buying Fund only in the ordinary course
and substantially in accordance with past practices, and shall use its
reasonable best efforts to preserve intact its business organization and
16
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
SECTION 5.2. Expenses. Buying Fund shall bear all of its costs and
expenses incurred in connection with this Plan and the Reorganization without
any reimbursement therefor. Prior to the submission of the Plan to the Boards of
Trustees of Trust for approval, the Investment Adviser, in the ordinary course
of its business as a registered investment advisor operating under the Advisors
Act, agreed to bear 75% of the costs and expenses of Selling Fund incurred in
connection with this Plan and the Reorganization and other transactions
contemplated hereby; provided that any such expenses incurred by Selling Fund
shall not be reimbursed or paid for by the Investment Advisor or any other
Person unless those expenses are solely and directly related to the
Reorganization.
SECTION 5.3. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Consents, Approvals and Filings. Trust shall make all
necessary filings, as soon as reasonably practicable, including, without
limitation, those required under the Securities Act, the Exchange Act, the
Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Plan. In addition, Trust shall use its reasonable best efforts (i) to
comply as promptly as reasonably practicable with all requirements of
Governmental Authorities applicable to the Reorganization and the other
transactions contemplated herein and (ii) to obtain as promptly as reasonably
practicable all necessary permits, orders or other consents of Governmental
Authorities and consents of all third parties necessary for the consummation of
the Reorganization and the other transactions contemplated herein. Trust shall
use reasonable efforts to provide such information and communications to
Governmental Authorities as such Governmental Authorities may request.
SECTION 5.5. Submission of Plan to Shareholders. Trust shall take all
action necessary in accordance with applicable law and its Governing Documents
to convene the Shareholders Meeting. Trust shall, through its Board of Trustees,
recommend to the shareholders of Selling Fund approval of this Plan. Trust shall
use its reasonable best efforts to hold a Shareholders Meeting as soon as
practicable after the date hereof.
17
ARTICLE 6
FURTHER CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Further Conditions Precedent with respect to Both Funds. The
obligation of Trust to consummate the Reorganization is subject to the
satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived in writing by Trust.
(a) The representations and warranties of Trust on behalf of Selling
Fund and Buying Fund set forth in this Plan shall be true and correct in all
material respects as of the date of this Plan and as of the Closing Date with
the same effect as though all such representations and warranties had been made
as of the Closing Date.
(b) Trust shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund and Buying Fund
set forth herein to be performed or satisfied at or prior to the Closing Date.
(c) There shall be delivered at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of Trust, in such individual's
capacity as an officer of Trust and not as an individual, to the effect that the
conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii) a
certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary (in such capacity) of Trust certifying as to the accuracy and
completeness of the attached Governing Documents of Trust, and resolutions,
consents and authorizations of or regarding Trust with respect to the execution
and delivery of this Plan and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of
Section 3.12(a) shall have been declared.
(e) To the extent applicable, the Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by the
Investment Adviser pursuant to voluntary and contractual fee waiver or expense
limitation commitments between the Investment Adviser and Selling Fund.
(f) All filings required to be made prior to the Closing Date with,
and all consents, approvals, permits and authorizations required to be obtained
on or prior to the Closing Date from, Governmental Authorities in connection
with the execution and delivery of this Plan and the consummation of the
transactions contemplated herein by Trust shall have been made or obtained, as
the case may be; provided, however, that such consents, approvals, permits and
authorizations may be subject to conditions that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(g) This Plan, the Reorganization of Selling Fund and related
matters shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
18
(h) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.1(h),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Plan and the Reorganization and to effect all shareholder redemptions and
distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Plan shall be included as assets of Selling Fund
held immediately prior to the Reorganization.
(i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(j) The Registration Statement on Form N-14 filed by Trust with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.1(k) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(k) Trust shall have received on or before the Closing Date an
opinion of Trust Counsel in form and substance reasonably acceptable to Trust,
as to the matters set forth on Schedule 6.2(f). In rendering such opinion, Trust
Counsel may request and rely upon representations contained in certificates of
officers of Trust and others, and the officers of Trust shall use their best
efforts to make available such truthful certificates.
ARTICLE 7
TERMINATION OF PLAN
SECTION 7.1. Termination. This Plan may be terminated by Trust on or prior
to the Closing Date as follows:
(a) if circumstances develop that, in its judgment, make proceeding
with the Reorganization inadvisable for either Fund;
(b) if the Closing Date shall not be on or before the Termination
Date;
(c) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been obtained
as contemplated by Section 5.5; or
19
(d) if any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Reorganization and such order, decree, ruling or other
action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Plan is terminated in
accordance with Section 7.1 hereof and the Reorganization of Selling Fund is not
consummated, this Plan shall become void and of no further force and effect with
respect to the Reorganization and Selling Fund, except for the provisions of
Section 5.2.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Plan, and the covenants in this Plan that
are required to be performed at or prior to the Closing Date, shall terminate
upon the consummation of the transactions contemplated hereunder. The covenants
in this Plan that are required to be performed in whole or in part subsequent to
the Closing Date shall survive the consummation of the transactions contemplated
hereunder for a period of one (1) year following the Closing Date.
SECTION 8.2. Governing Law. This Plan shall be construed and interpreted
according to the laws of the State of Delaware applicable to contracts made and
to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This Plan
shall inure to the benefit of and be binding upon the parties hereto and the
respective successors and assigns of the parties and such Persons. Nothing in
this Plan is intended or shall be construed to confer upon any entity or Person
other than the parties hereto and their respective successors and permitted
assigns any right, remedy or claim under or by reason of this Plan or any part
hereof. Without the prior written consent of the parties hereto, this Plan may
not be assigned by any of the parties hereto.
20
SECTION 8.4. Obligations of Trust. Trust hereby acknowledges and agrees
that each of Buying Fund and Selling Fund is a separate investment portfolio of
Trust, that Trust is executing this Plan on behalf of each Buying Fund and
Selling Fund, and that any amounts payable by Trust under or in connection with
this Plan shall be payable solely from the revenues and assets of Buying Fund or
Selling Fund, as applicable. Trust further acknowledges and agrees that this
Plan has been executed by a duly authorized officer of Trust in his or her
capacity as an officer of Trust intending to bind Trust as provided herein, and
that no officer, trustee or shareholder of Trust shall be personally liable for
the liabilities or obligation of Trust incurred hereunder. Finally, Trust
acknowledges and agrees that the liabilities and obligations of Selling Fund
pursuant to this Plan shall be enforceable against the assets of Buying Fund or
Selling Fund, as applicable, only and not against the assets of Trust generally
or assets belonging to any other series of Trust.
SECTION 8.5. Amendments. This Plan may not be amended, altered or modified
except with the approval of Trust's Board of Trustees.
SECTION 8.6. Entire Plan; Exhibits and Schedules. This Plan, including the
Exhibits, Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant thereto,
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, written or oral, between the parties with respect to such
subject matter.
SECTION 8.7. Successors and Assigns; Assignment. This Plan shall be
binding upon and inure to the benefit of Trust, on behalf of Selling Fund, and
Trust, on behalf of Buying Fund, and their respective successors and permitted
assigns.
21
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
A-1
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
- --------------------------------- -------------------------
AIM Blue Chip Fund AIM Large Cap Growth Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class C Shares Class C Shares
Class R Shares Class R Shares
Investor Class Investor Class
Institutional Class Shares Institutional Class Shares
1
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
1
SCHEDULE 4.5(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
Class A Shares
Class B Shares
Class C Shares
Class R Shares
Investor Class Shares
Institutional Shares
1
SCHEDULE 4.11(b)
PERMITTED REORGANIZATIONS OF FUNDS
AIM Aggressive Growth Fund into AIM Constellation Fund
AIM Weingarten Fund into AIM Constellation Fund
AIM Mid Cap Growth Fund into AIM Dynamics Fund
AIM Small Company Growth Fund into AIM Small Cap Growth Fund
AIM Premier Equity Fund into AIM Charter Fund
AIM V.I. Aggressive Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Blue Chip Fund into AIM V.I. Large Cap Growth Fund
AIM V.I. Premier Equity Fund into AIM V.I. Core Equity Fund
1
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Plan, will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and Selling Fund and Buying Fund will be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the Code,
no gain or loss will be recognized by Selling Fund on the transfer of its assets
to Buying Fund solely in exchange for Buying Fund Shares and Buying Fund's
assumption of the Liabilities or on the distribution of Buying Fund Shares to
Selling Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Selling Fund Shareholders on the receipt of Buying Fund
Shares in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying
Fund of the assets of Selling Fund will be the same as the basis of such assets
in the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
1
APPENDIX II
AIM LARGE CAP GROWTH FUND - CLASS A, B, C, R AND INVESTOR CLASS SHARES
Supplement dated July 1, 2005
to the Prospectus dated February 28, 2005
The following information replaces in its entirety the information appearing
under the heading "FEE TABLE AND EXPENSE EXAMPLE" in the prospectus:
"FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- ------------------------------------------------------------------------------------------------------------------------------------
(fees paid directly INVESTOR
from your investment) CLASS A CLASS B CLASS C CLASS R CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage
of offering price) 5.50% None None None None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or redemption
proceeds, whichever is
less) None(1,2) 5.00% 1.00% None(3) None
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- ------------------------------------------------------------------------------------------------------------------------------------
(expenses that are INVESTOR
deducted from fund assets) CLASS A CLASS B CLASS C CLASS R CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees(5) 0.25 1.00 1.00 0.50 0.25
Other Expenses 0.45 0.45 0.45 0.45 0.45
Total Annual Fund Operating Expenses 1.45 2.20 2.20 1.70 1.45
Fee Waiver(6,7) 0.12 0.12 0.12 0.12 0.12
Net Annual Fund Operating
Expenses(8) 1.33 2.08 2.08 1.58 1.33
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00%
contingent deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or
more of Class A shares, you may pay a 1.00% CDSC if a total redemption
of the retirement plan assets occurs within 12 months from the date of
the retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if
the distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those
shown in the table.
(5) The Board of Trustees has approved a permanent reduction of the Rule
12b-1 fees applicable to Class A shares to 0.25% effective July 1,
2005. Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective January 1, 2005 through December 31, 2009, the advisor has
contractually agreed to waive a portion of its advisory fees. The Fee
Waiver reflects this agreement. (See "Fund Management--Advisor
Compensation" following.)
(7) The fund's investment advisor has contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to
limit Total Annual Fund Operating Expenses (excluding certain items
discussed below) of Class A, Class B, Class C, Class R and Investor
Class shares to 1.32%, 2.07% 2.07%, 1.57% and 1.32% of average daily
net assets, respectively. In determining the advisor's obligation to
waive advisory fees and/or reimburse expenses, the following expenses
are not taken into account, and could cause the Total Annual Fund
Operating Expenses to exceed the limits: (i) interest; (ii) taxes;
(iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's
day-to-day operations), as defined in the Financial Accounting
Standard's Board's Generally Accepted Accounting Principles or as
approved by the fund's Board of Trustee's; (v) expenses related to a
merger or reorganization, as approved by the fund's Board of Trustees;
and (vi) expenses that the fund has incurred but did not actually pay
because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP (as defined herein)
described more fully below, the only expense offset arrangements from
which the fund benefits are in the form of credits that the fund
receives from banks where the fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to
pay certain expenses incurred by the fund. This expense limitation
agreement is in effect through June 30, 2006.
(8) At the request of the Board of Trustees, AMVESCAP (as defined herein)
has agreed to reimburse the fund for expenses related to market timing
matters. Net Annual Fund Operating Expenses restated for items in Note
5, Note 6 and Note 7 and net of this arrangement were 1.32%, 2.07%,
2.07%, 1.57% and 1.32% for Class A, Class B, Class C, Class R and
Investor Class shares, respectively, for the year ended October 31,
2004.
If a financial institution is managing your account, you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay
more than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the fund's operating expenses remain the same and includes the effect
of contractual fee waivers and/or expense reimbursement, if any. To the extent
fees are waived and/or expenses are reimbursed voluntarily, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $ 678 $ 956 $ 1,255 $ 2,150
Class B 711 960 1,335 2,305
Class C 311 660 1,135 2,495
Class R 161 507 878 1,968
Investor Class 135 430 746 1,693
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $ 678 $ 956 $ 1,255 $ 2,150
Class B 211 660 1,135 2,305
Class C 211 660 1,135 2,495
Class R 161 507 878 1,968
Investor Class 135 430 746 1,693
- --------------------------------------------------------------------------------
</Table>
2
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information in a different format from the preceding Fee Table and
Expense Example about the effect of a fund's expenses, including investment
advisory fees and other fund costs, on the fund's return over a 10-year period.
Because a fund's annual return when quoted is already reduced by the fund's fees
and expenses for that year, this hypothetical expense information is intended to
help you understand the annual and cumulative impact of a fund's fees and
expenses on your investment. Assuming a hypothetical investment of $10,000 in
each class of shares of the fund and a 5% return before expenses each year, the
chart shows the cumulative return before expenses, the cumulative return after
expenses, the ending balance and the estimated annual expenses for each year one
through ten. The chart also assumes that the current annual expense ratio stays
the same throughout the 10-year period. The current annual expense ratio for
each class, which is the same as stated in the Fee Table above, is reflected in
the chart and is net of any contractual fee waiver or expense reimbursement.
There is no assurance that the annual expense ratio will be the expense ratio
for the fund class. To the extent that the advisor makes any waivers or
reimbursements pursuant to a voluntary arrangement, your actual expenses may be
less. The chart does not take into account initial or contingent deferred sales
charges, if any. You should understand that this is only a hypothetical
presentation made to illustrate what expenses and returns would be under the
above scenarios; your actual returns and expenses are likely to differ (higher
or lower) from those shown below.
<Table>
<Caption>
CLASS A--
ANNUAL
EXPENSE
RATIO 1.33% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.67% 7.47% 11.42% 15.51% 19.75% 24.14% 28.70% 33.42% 38.32% 43.39%
End of Year
Balance $10,367.00 $10,747.47 $11,141.90 $11,550.81 $11,974.72 $12,414.20 $12,869.80 $13,342.12 $13,831.77 $14,339.40
Estimated
Annual
Expenses $ 135.44 $ 140.41 $ 145.56 $ 150.91 $ 156.44 $ 162.19 $ 168.14 $ 174.31 $ 180.71 $ 187.34
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS B--
ANNUAL
EXPENSE
RATIO 2.08% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 2.92% 5.93% 9.02% 12.20% 15.48% 18.85% 22.32% 25.89% 30.51% 35.30%
End of Year
Balance $10,292.00 $10,592.53 $10,901.83 $11,220.16 $11,547.79 $11,884.99 $12,232.03 $12,589.20 $13,051.23 $13,530.21
Estimated
Annual
Expenses $ 211.04 $ 217.20 $ 223.54 $ 230.07 $ 236.79 $ 243.70 $ 250.82 $ 258.14 $ 170.51 $ 176.77
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
CLASS C--
ANNUAL
EXPENSE
RATIO 2.08% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 2.92% 5.93% 9.02% 12.20% 15.48% 18.85% 22.32% 25.89% 29.57% 33.35%
End of Year
Balance $10,292.00 $10,592.53 $10,901.83 $11,220.16 $11,547.79 $11,884.99 $12,232.03 $12,589.20 $12,956.81 $13,335.15
Estimated
Annual
Expenses $ 211.04 $ 217.20 $ 223.54 $ 230.07 $ 236.79 $ 243.70 $ 250.82 $ 258.14 $ 265.68 $ 273.44
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
3
<Table>
<Caption>
CLASS R--
ANNUAL
EXPENSE
RATIO 1.58% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.42% 6.96% 10.61% 14.40% 18.31% 22.36% 26.54% 30.87% 35.34% 39.97%
End of Year
Balance $10,342.00 $10,695.70 $11,061.49 $11,439.79 $11,831.03 $12,235.65 $12,654.11 $13,086.88 $13,534.46 $13,997.33
Estimated
Annual
Expenses $ 160.70 $ 166.20 $ 171.88 $ 177.76 $ 183.84 $ 190.13 $ 196.63 $ 203.35 $ 210.31 $ 217.50
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
INVESTOR
CLASS --
ANNUAL
EXPENSE
RATIO 1.33% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return
After
Expenses 3.67% 7.47% 11.42% 15.51% 19.75% 24.14% 28.70% 33.42% 38.32% 43.39%
End of Year
Balance $10,367.00 $10,747.47 $11,141.90 $11,550.81 $11,974.72 $12,414.20 $12,869.80 $13,342.12 $13,831.77 $14,339.40
Estimated
Annual
Expenses $ 135.44 $ 140.41 $ 145.56 $ 150.91 $ 156.44 $ 162.19 $ 168.14 $ 174.31 $ 180.71 $ 187.34"
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
The following sentence replaces in its entirety the first sentence appearing
after the table under the heading "SHAREHOLDER INFORMATION - CHOOSING A SHARE
CLASS" on page A-1 of the prospectus:
"Certain funds also offer Institutional Class shares to certain
eligible institutional investors; consult the fund's Statement of
Additional Information for the Institutional Class shares for details."
The following paragraph replaces in its entirety the first paragraph appearing
under the heading "SHAREHOLDER INFORMATION - PURCHASING SHARES - GRANDFATHERED
INVESTORS" on page A-8 of the prospectus:
"Investor Class shares of a fund may be purchased only by: (1) persons
or entities who had established an account, prior to April 1, 2002, in
Investor Class shares of any of the funds currently distributed by ADI
(the Grandfathered Funds) and have continuously maintained such account
in Investor Class shares since April 1, 2002; (2) any person or entity
listed in the account registration for any Grandfathered Funds, which
account was established prior to April 1, 2002 and continuously
maintained since April 1, 2002, such as joint owners, trustees,
custodians and designated beneficiaries; (3) customers of certain
financial institutions, wrap accounts or other fee-based advisory
programs, or insurance company separate accounts, which have had
relationships with ADI and/or any Grandfathered Funds prior to April 1,
2002 and continuously maintained such relationships since April 1,
2002; (4) defined benefit, defined contribution and deferred
compensation plans; and (5) fund trustees, employees of AMVESCAP PLC
and its subsidiaries, AMVESCAP directors, and their immediate
families."
The following information is added as Item (5) under the heading "SHAREHOLDER
INFORMATION - EXCHANGING SHARES - PERMITTED EXCHANGES - EXCHANGES NOT SUBJECT TO
A SALES CHARGE" on page A-13 of the prospectus:
"(5) Investor Class shares for Class A or Class A3 shares of any fund
which does not offer Investor Class shares."
4
AIM LARGE CAP GROWTH FUND
PROSPECTUS
FEBRUARY 28, 2005
AIM Large Cap Growth Fund seeks to provide long-term growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Class A, B, C, R and
Investor Class shares of the fund. Please read it before investing and keep it
for future reference.
Investor Class shares offered by this prospectus are offered only to
grandfathered investors. Please see the section of the prospectus entitled
"Purchasing Shares -- Grandfathered Investors."
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisor 5
Advisor Compensation 6
Portfolio Managers 6
OTHER INFORMATION 6
- ------------------------------------------------------
Sales Charges 6
Dividends and Distributions 6
FINANCIAL HIGHLIGHTS 7
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Excessive Short Term-Trading Activity
Disclosures A-5
Purchasing Shares A-7
Redeeming Shares A-9
Exchanging Shares A-11
Pricing of Shares A-14
Taxes A-16
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions.
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design and myaim.com are service marks
of A I M Management Group Inc. AIM Trimark is a service mark of A I M Management
Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The investment
objective of the fund may be changed by the Board of Trustees without
shareholder approval.
The fund seeks to meet its objective by investing, normally, at least 80% of
its assets in securities of large-capitalization companies. In complying with
this 80% investment requirement, the fund will invest primarily in marketable
equity securities, including convertible securities, but its investments may
include other securities, such as synthetic instruments. Synthetic instruments
are investments that have economic characteristics similar to the fund's direct
investments, and may include warrants, futures, options, exchange-traded funds
and American Depositary Receipts. The fund considers a company to be a
large-capitalization company if it has a market capitalization, at the time of
purchase, no smaller than the smallest capitalized company included in the
Russell 1000--Registered Trademark-- Index during the most recent 11-month
period (based on month-end data) plus the most recent data during the current
month. The Russell 1000 Index is a widely recognized, unmanaged index of common
stocks that measures the performance of the 1,000 largest companies in the
Russell 3000--Registered Trademark-- Index, which measures the performance of
the 3,000 largest U.S. companies based on total market capitalization. The fund
may invest up to 25% of its total assets in foreign securities. For cash
management purposes, the fund may also hold a portion of its assets in cash or
cash equivalents, including shares of affiliated money market funds. Any
percentage limitations with respect to assets of the fund are applied at the
time of purchase.
The fund's portfolio managers may focus on securities of companies with
market capitalizations that are within the top 50% of stocks in the Russell 1000
Index at the time of purchase. The portfolio managers purchase securities of a
limited number of large-cap companies that they believe have the potential for
above-average growth in revenues and earnings. The portfolio managers consider
whether to sell a particular security when they believe the security no longer
has that potential.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
The fund may engage in active and frequent trading of portfolio securities
to achieve its investment objective. If the fund does trade in this way, it may
incur increased transaction costs, which can lower the actual return on your
investment. Active trading may also increase short-term gains and losses, which
may affect the taxes you have to pay.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
The values of the convertible securities in which the fund may invest also
will be affected by market interest rates, the risk that the issuer may default
on interest or principal payments and the value of the underlying common stock
into which these securities may be converted. Specifically, since these types of
convertible securities pay fixed interest and dividends, their values may fall
if market interest rates rise and rise if market interest rates fall.
Additionally, an issuer may have the right to buy back certain of the
convertible securities at a time and at a price that is unfavorable to the fund.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information.
1
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
2000................................................................... 8.52%
2001................................................................... -36.13%
2002................................................................... -26.46%
2003................................................................... 29.32%
2004................................................................... 8.87%
</Table>
(1) A significant portion of the fund's returns during certain periods was
attributable to its investments in initial public offerings (IPOs). Although
IPO investments have had a positive impact on the fund's performance in the
past, there can be no assurance that the fund will have favorable IPO
investment opportunities in the future. For additional information regarding
the fund's performance, please see the "Financial Highlights" section of
this prospectus.
During the periods shown in the bar chart, the highest quarterly return was
26.64% (quarter ended March 31, 2000) and the lowest quarterly return was
- -34.26% (quarter ended March 31, 2001).
2
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
PERFORMANCE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS(1)
- ----------------------------------------------------------------------------------------------
(for the periods ended December 31, SINCE INCEPTION
2004) 1 YEAR 5 YEARS INCEPTION DATE
- ----------------------------------------------------------------------------------------------
Class A 03/01/99
Return Before Taxes 2.90% (7.48)% (0.95)%
Return After Taxes on Distributions 2.90 (7.48) (0.95)
Return After Taxes on Distributions
and Sale of Fund Shares 1.88 (6.19) (0.81)
Class B 04/05/99
Return Before Taxes 3.14 (7.41) (2.60)
Class C 04/05/99
Return Before Taxes 7.25 (7.03) (2.41)
Class R(2) 03/01/99(2)
Return Before Taxes 8.66 (6.54) (0.12)
Investor Class(3) 03/01/99(3)
Return Before Taxes 9.30 (6.33) 0.10
- ----------------------------------------------------------------------------------------------
S&P 500 Index(4) 10.87 (2.30) 1.13(7) 02/28/99(7)
Russell 1000--Registered Trademark--
Growth Index(5) 6.30 (9.29) (3.56)(7) 02/28/99(7)
Lipper Large-Cap Growth Fund Index(6) 7.45 (9.72) (3.92)(7) 02/28/99(7)
- ----------------------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C, R and Investor Class will
vary.
(1) A significant portion of the fund's returns during certain periods was
attributable to its investments in IPOs. Although IPO investments have had a
positive impact on the fund's performance in the past, there can be no
assurance that the fund will have favorable IPO investment opportunities in
the future. For additional information regarding the fund's performance,
please see the "Financial Highlights" section of this prospectus.
(2) The returns shown for the one year period are the historical returns of the
fund's Class R shares. The returns shown for 5 year and since inception
periods are the blended returns of the historical performance of the fund's
Class R shares since their inception and the restated historical performance
of the fund's Class A shares (for periods prior to inception of the Class R
shares) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. The inception date shown in the table is
that of the fund's Class A shares. The inception date of the fund's Class R
shares is June 3, 2002.
(3) The returns shown for these periods are the blended returns of the
historical performance of the Fund's Investor class shares since their
inception and the restated historical performance of the fund's Class A
shares (for the periods prior to inception of the Investor class shares) at
the net asset value and reflect the higher Rule 12b-1 fees applicable to
Class A shares. The inception date shown in the table is that of the fund's
Class A shares. The inception date of the fund's Investor Class shares is
September 30, 2003.
(4) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. The fund has elected to use the Standard &
Poor's 500 Index as its broad-based index. The fund has also included the
Russell 1000--Registered Trademark-- Growth Index, which the fund believes
more closely reflects the performance of the types of securities in which
the fund invests. In addition, the fund has included the Lipper Large Cap
Growth Fund Index (which may or may not include the fund) for comparison to
a peer group.
(5) The Russell 1000--Registered Trademark-- Growth Index measures the
performance of those securities in the Russell 1000--Registered Trademark--
Index with a higher than average growth forecast. The Russell
1000--Registered Trademark-- Index measures the performance of the largest
1,000 companies in the United States.
(6) The Lipper Large-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Growth category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an above-average price-to-earnings
ratio, price-to-book ratio, and a three year sales-per-share growth value,
compared to the S&P 500 Index.
(7) The average annual total return given is since the month end closest to the
inception date of the class with the longest performance history.
3
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------
(fees paid directly from INVESTOR
your investment) CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price) 5.50% None None None None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or redemption
proceeds, whichever is less) None(1,2) 5.00% 1.00% None(3) None
- ---------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- ---------------------------------------------------------------------------------------
(expenses that are deducted from INVESTOR
fund assets) CLASS A CLASS B CLASS C CLASS R CLASS
- ---------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service
(12b-1) Fees 0.35 1.00 1.00 0.50 0.25
Other Expenses 0.45 0.45 0.45 0.45 0.45
Total Annual Fund Operating
Expenses 1.55 2.20 2.20 1.70 1.45
Fee Waiver(5) 0.08 0.08 0.08 0.08 0.08
Net Annual Fund Operating
Expenses(6) 1.47 2.12 2.12 1.62 1.37
- ---------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Effective January 1, 2005 through December 31, 2009, the advisor has
contractually agreed to waive a portion of its advisory fees. The Fee Waiver
reflects this agreement. (See "Fund Management--Advisor Compensation"
following.)
(6) At the request of the Trustees of AIM Equity Funds, AMVESCAP (as defined
herein) has agreed to reimburse the Trust for fund expenses related to
market timing matters. Net Annual Fund Operating Expenses net of this
arrangement were 1.46%, 2.11%, 2.11%, 1.61% and 1.36% for Class A, Class B,
Class C, Class R and Investor Class shares, respectively, for the year ended
October 31, 2004.
If a financial institution is managing your account you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year, that the
fund's operating expenses remain the same and includes the effect of any
contractual fee waivers and/or expense reimbursement. To the extent fees are
waived and/or expenses are reimbursed voluntarily, your expenses will be lower.
Although your actual returns and costs may be higher or lower, based on these
assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $691 $989 $1,309 $2,258
Class B 715 964 1,339 2,334
Class C 315 664 1,139 2,499
Class R 165 511 881 1,971
Investor Class 136 434 750 1,678
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $691 $989 $1,309 $2,258
Class B 215 664 1,139 2,334
Class C 215 664 1,139 2,499
Class R 165 511 881 1,971
Investor Class 139 434 750 1,678
- --------------------------------------------------------------------------------
</Table>
4
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is located
at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor
supervises all aspects of the fund's operations and provides investment advisory
services to the fund, including obtaining and evaluating economic, statistical
and financial information to formulate and implement investment programs for the
fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 200 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds) and AIM reached final settlements with certain
regulators, including without limitation the Securities and Exchange Commission
(SEC), the New York Attorney General (NYAG) and the Colorado Attorney General
(COAG), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM funds that they advised
and to the independent directors/trustees of such funds that they had entered
into certain arrangements permitting market timing of such funds, thereby
breaching their fiduciary duties to such funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. (ADI) (the distributor of the retail AIM funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the settlements, $325 million will be made available for distribution
to the shareholders of those AIM funds that IFG formerly advised that were
harmed by market timing activity, and $50 million will be made available for
distribution to the shareholders of those AIM funds advised by AIM that were
harmed by market timing activity. These settlement funds will be distributed in
accordance with a methodology to be determined by an independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and the COAG, AIM has also agreed to reduce management fees on certain AIM
equity and balanced funds by $15 million per year for the next five years, based
upon effective fee rates and assets under management as of July 1, 2004, and not
to increase certain management fees during this period. In addition, as required
by the settlements, AIM is in the process of making certain governance and
compliance reforms and reviewing its policies and procedures.
At the request of the trustees of the AIM funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
funds related to market timing matters.
The independent trustees of the AIM funds have been assisted by their own
independent counsel and financial expert in their own investigation of market
timing activity in the AIM funds. A special committee, consisting of four
independent trustees, was formed to oversee this investigation. None of the
costs of this investigation will be borne by the AIM funds or by fund
shareholders.
IFG, AIM, certain related entities, certain of their current and former
officers and/or certain of the AIM funds have received regulatory inquiries in
the form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including but not limited
to revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders. Additional regulatory inquiries related to these or other
issues may be received by the AIM funds, IFG, AIM and/or related entities and
individuals in the future.
A number of civil lawsuits related to market timing, late trading and
related issues have been filed against (depending on the lawsuit) certain of the
AIM funds, IFG, AIM, AMVESCAP, certain related entities, certain of their
current and former officers and/or certain unrelated third parties. All such
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 for consolidated or coordinated pre-trial proceedings. Other civil
lawsuits have been filed against (depending on the lawsuit) IFG, AIM, ADI,
certain related entities, certain of their current and former officers and/or
certain of the AIM funds and their trustees alleging the improper use of fair
value pricing, excessive advisory and/or distribution fees, improper charging of
distribution fees on limited offering funds or share classes and improper mutual
fund sales practices and directed-brokerage arrangements and participation in
class action settlements. Additional civil lawsuits related to the above or
other issues may be filed against the AIM funds, IFG, AIM and/or related
entities and individuals in the future.
You can find more detailed information concerning all of the above matters,
including the parties to the civil lawsuits and summaries of the various
allegations and remedies sought in such lawsuits, in the fund's Statement of
Additional Information and on AIM's Internet website under the heading "Settled
Enforcement Actions and Investigations Related to Market Timing, Regulatory
Inquiries and Pending Litigation" (http://www.aiminvestments.com/regulatory).
As a result of the matters discussed above, investors in the AIM funds might
react by redeeming their investments. This might require the funds to sell
investments to provide for sufficient liquidity and
5
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
could also have an adverse effect on the investment performance of the funds.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2004, the advisor received compensation
of 0.75% of average daily net assets. The annual management fee payable to the
advisor pursuant to the investment advisory agreement ranges from 0.75% to
0.625% of average daily net assets, based on net asset levels. The advisor has
contractually agreed to advisory fee waivers for the period January 1, 2005 to
December 31, 2009 as part of its settlement with the Attorney General of New
York ("NYAG"). The advisor will waive advisory fees to the extent necessary so
that the advisory fee payable does not exceed the Advisory Fee Rates After
January 1, 2005. Following are the advisory fee rates before and after January
1, 2005.
<Table>
<Caption>
ADVISORY FEE RATES BEFORE ADVISORY FEE RATES AFTER
JANUARY 1, 2005 WAIVER JANUARY 1, 2005 WAIVER
- --------------------------------------------------------------------------
0.75% of the first $1 billion 0.695% of the first $250 million
0.70% of the next $1 billion 0.67% of the next $250 million
0.625% of the next $3 billion 0.645% of the next $500 million
0.60% of the next $5 billion* 0.62% of the next $1.5 billion
0.575% of amount over $10 billion* 0.595% of the next $2.5 billion
0.57% of the next $2.5 billion
0.545% of the next $2.5 billion
0.52% of amount over $10 billion
</Table>
* After fee waiver. This rate includes AIM's voluntary agreement to waive an
amount equal to 0.025% for each $5 billion increment in net assets over $5
billion, up to a maximum of 0.175% on net assets over $35 billion.
PORTFOLIO MANAGERS
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
- - Geoffrey V. Keeling, Senior Portfolio Manager, who has been responsible for
the fund since 1999 and has been associated with the advisor and/or its
affiliates since 1995.
- - Robert L. Shoss, Senior Portfolio Manager, who has been responsible for the
fund since 1999 and has been associated with the advisor and/or its affiliates
since 1995.
They are assisted by the advisor's Large Cap Growth Team, which may be
comprised of portfolio managers, research analysts and other investment
professionals of the advisor. Team members provide research support and make
securities recommendations with respect to the fund's portfolio, but do not have
day-to-day management responsibilities with respect to the fund's portfolio.
Members of the team may change from time to time. More information on these
portfolio managers and the team, including biographies of other members of the
team, may be found on the advisor's website (http://www.aiminvestments.com). The
website is not a part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a description
of their compensation structure, and information regarding other accounts they
manage.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Large Cap Growth Fund are subject to the
maximum 5.50% initial sales charge as listed under the heading "CATEGORY I
Initial Sales Charges" in the "Shareholder Information--Choosing a Share Class"
section of this prospectus. Certain purchases of Class A shares at net asset
value may be subject to the contingent deferred sales charge listed in that
section. Purchases of Class B and Class C shares are subject to the contingent
deferred sales charges listed in that section. Certain purchases of Class R
shares may be subject to the contingent deferred sales charge listed in that
section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
6
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal years 2004, 2003, 2002 and 2001 has been
audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information prior to fiscal year 2001 was audited by other public
accountants.
For a discussion of how investments in IPOs affected the fund's performance,
see the "Performance Information" section of this prospectus.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 8.88 $ 7.37 $ 8.82 $ 17.74 $ 11.29
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08)(a) (0.09)(a) (0.08)(a) (0.15)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.36 1.59 (1.36) (8.84) 6.60
====================================================================================================================
Total from investment operations 0.28 1.51 (1.45) (8.92) 6.45
====================================================================================================================
Net asset value, end of period $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 3.15% 20.49% (16.44)% (50.28)% 57.13%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,498 $154,052 $105,320 $138,269 $225,255
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.82% 1.70% 1.57% 1.58%
====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.92)%(c) (1.01)% (1.01)% (0.72)% (0.82)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $173,297,774.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.55%.
7
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Net asset value, beginning of period $ 8.61 $ 7.20 $ 8.67 $ 17.54 $ 11.25
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.33) (8.71) 6.56
===========================================================================================================================
Total from investment operations 0.21 1.41 (1.47) (8.87) 6.29
===========================================================================================================================
Net asset value, end of period $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 2.44% 19.58% (16.96)% (50.57)% 55.91%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $112,931 $122,011 $104,040 $144,747 $210,224
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $120,582,108.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.20%.
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
Net asset value, beginning of period $ 8.62 $ 7.21 $ 8.67 $ 17.55 $ 11.25
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.32) (8.72) 6.57
======================================================================================================================
Total from investment operations 0.21 1.41 (1.46) (8.88) 6.30
======================================================================================================================
Net asset value, end of period $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.44% 19.56% (16.84)% (50.60)% 56.00%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,420 $44,272 $36,575 $57,865 $79,392
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $49,924,256.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.20%.
8
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
------ ------ -------------
Net asset value, beginning of period $ 8.87 $ 7.37 $ 8.40
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.09)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.36 1.59 (0.99)
====================================================================================================
Total from investment operations 0.26 1.50 (1.03)
====================================================================================================
Net asset value, end of period $ 9.13 $ 8.87 $ 7.37
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 2.93% 20.35% (12.26)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,761 $2,127 $ 9
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.69%(c)(d) 1.97% 1.85%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (1.07)%(c) (1.16)% (1.16)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 111% 123% 111%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,443,827.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.70%.
(e) Annualized.
(f) Not annualized for periods less than one year.
9
-------------------------
AIM LARGE CAP GROWTH FUND
-------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INVESTOR CLASS
---------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
----------- ------------------
Net asset value, beginning of period $ 8.88 $ 8.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)(b) (0.01)(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.37 0.65
=================================================================================================
Total from investment operations 0.32 0.64
=================================================================================================
Net asset value, end of period $ 9.20 $ 8.88
_________________________________________________________________________________________________
=================================================================================================
Total return(c) 3.60%(b) 7.77%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,905 $ 174
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.19%(b)(d)(e) 1.56%(f)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.57)%(d) (0.75)%(f)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(g) 111% 123%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) The advisor reimbursed Investor Class expenses related to an overpayment of
Rule 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
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.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $403,878,080.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.42%.
(f) Annualized.
(g) Not annualized for periods less than one year.
10
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, AIM serves as investment advisor to many other mutual
funds (the funds). The following information is about all the funds.
CHOOSING A SHARE CLASS
Most of the funds have multiple classes of shares, each class representing an
interest in the same portfolio of investments. Certain classes have higher
expenses than other classes which may lower the return on your investment
relative to a less expensive class. In deciding which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your shares, (ii) the provisions of the distribution plan, if
any, applicable to the class (iii) the eligibility requirements that apply to
purchases of a particular class, and (iv) any services you may receive in making
your investment determination. In addition, you should consider the other
factors described below. Please contact your financial advisor to assist you in
making your decision.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B(3) CLASS C CLASS K CLASS R INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial - No initial - No initial - No initial - No initial - No initial
charge sales charge sales charge sales charge sales charge sales charge sales charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent contingent deferred sales
charge for charge charge on charge on deferred sales deferred sales charge
certain redemptions redemptions charge(2) charge(2)
purchases(2) within six within one
years year(6)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.45% 0.50% 0.25%(9)
service (12b-1)
fee than Class B,
Class C, Class K
or Class R shares
(See "Fee Table
and Expense
Example")
- Does not - Converts to - Does not - Does not - Does not - Does not
convert to Class A shares convert to Class convert to convert to convert to
Class A shares at the end of A shares Class A shares Class A shares Class A shares
the month
which is eight
years after
the date on
which shares
were purchased
along with a
pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Available only - Purchase - Generally more - Generally, - Generally, - Closed to new
appropriate for for a limited orders limited appropriate only available only available investors,
long-term number of to amount less for short- to retirement to employee except as
investors funds than term investors plans, benefit described in
$100,000(5) educational plans(8) the
- Purchase savings "Purchasing
orders limited programs and Shares --
to amount less wrap programs Grandfathered
than Investors"
$1,000,000(7) section of
your
prospectus
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code. These plans
include 401(k) plans (including AIM Solo 401(k) plans), money purchase
pension plans and profit sharing plans. Plans that have existing accounts
invested in Class B shares will continue to be allowed to make additional
purchases.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Equity Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another fund, the shares into which you exchanged will not convert to Class
A shares until the end of the month which is eight years after the date on
which you purchased your original shares.
(5) Any purchase order for Class B shares in an amount equal to or in excess of
$100,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another fund that are subject to a CDSC into AIM Short Term Bond
Fund.
(7) Any purchase order for Class C shares in an amount equal to or in excess of
$1,000,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
MCF--02/05
A-1
-------------
THE AIM FUNDS
-------------
(8) Generally, Class R shares are only available to employee benefit plans.
These may include, for example, retirement and deferred compensation plans
maintained pursuant to Sections 401, 403, 457 of the Internal Revenue Code;
nonqualified deferred compensation plans; health savings accounts maintained
pursuant to Section 223 of the Internal Revenue Code, respectively; and
voluntary employees' beneficiary arrangements maintained pursuant to Section
501(c)(9) of the Internal Revenue Code. Retirement plans maintained pursuant
to Section 401 generally include 401(k) plans, profit sharing plans, money
purchase pension plans, and defined benefit plans. Retirement plans
maintained pursuant to Section 403 must be established and maintained by
non-profit organizations operating pursuant to Section 501(c)(3) of the
Internal Revenue Code in order to purchase Class R shares. Class R shares
are generally not available for individual retirement accounts such as
traditional, Roth, SEP, SAR-SEP and SIMPLE IRAs.
(9) Investor Class shares of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares and AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio with
respect to their Investor Class shares) has adopted 12b-1 plans that allow the
fund to pay distribution fees to A I M Distributors, Inc. (ADI) for the sale and
distribution of its shares and fees for services provided to shareholders, all
or a substantial portion of which are paid to the dealer of record. Because the
fund pays these fees out of its assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES
Sales charges on the funds and classes of those funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
Certain categories of persons are permitted to purchase Class A shares of
the funds without paying an initial sales charge because their transactions
involve little expense, such as persons who have a relationship with the funds
or with AIM and certain programs for purchase. For more detailed information
regarding eligibility to purchase or redeem shares at reduced or without sales
charges, please consult the fund's website at www.aiminvestments.com and click
on the links "My Account", Service Center, or consult the fund's Statement of
Additional Information, which is available upon request free of charge.
INITIAL SALES CHARGES
The funds (except AIM Short Term Bond Fund) are grouped into three categories
with respect to initial sales charges. The "Other Information" section of your
prospectus will tell you in what category your particular fund is classified.
CATEGORY I INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY II INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY III INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
AIM SHORT TERM BOND FUND INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares
of any fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
MCF--02/05
A-2
-------------
THE AIM FUNDS
-------------
If you currently own Class A shares of a Category I or II fund or AIM Short
Term Bond Fund and make additional purchases at net asset value that result in
account balances of $1,000,000 or more, the additional shares purchased will be
subject to an 18-month, 1% CDSC.
Some retirement plans can purchase Class A shares at their net asset value
per share. If ADI paid a concession to the dealer of record in connection with a
Large Purchase of Class A shares by a retirement plan, the Class A shares may be
subject to a 1% CDSC at the time of redemption if all retirement plan assets are
redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
ADI may pay a dealer concession and/or a service fee for Large Purchases and
purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS K AND CLASS R SHARES
You can purchase Class K and Class R shares at their net asset value per share.
If ADI pays a concession to the dealer of record, however, the Class K shares
are subject to a 0.70% CDSC and the Class R shares are subject to a 0.75% CDSC
at the time of redemption if all retirement plan assets are redeemed within 12
months from the date of the retirement plan's initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you are redeeming shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial advisor must notify
the transfer agent at the time of purchase that your purchase qualifies for such
treatment. Certain individuals and employer-sponsored retirement plans may link
accounts for the purpose of qualifying for lower initial sales charges. You or
your financial consultant must provide other account numbers to be considered
for Rights of Accumulation, or mark the Letter of Intent section on the account
application, or provide other relevant documentation, so that the transfer agent
can verify your eligibility for the reduction or exception. Consult the fund's
Statement of Additional Information for details.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM
Floating Rate Fund and Investor Class shares of any fund will not be taken into
account in determining whether a purchase qualifies for a reduction in initial
sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of a fund with fund shares
currently owned (Class A, B, C, K or R) and investments in the AIM College
Savings Plan(SM) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
public offering price of all other shares you own. The transfer agent may
automatically link certain accounts registered in the same name, with the same
taxpayer identification number, for the purpose of qualifying you for lower
initial sales charge rates.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of the funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain funds; and
- - when a merger, consolidation, or acquisition of assets of a fund occurs.
MCF--02/05
A-3
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of a fund other than AIM Short Term Bond Fund and
you received such Class C shares by exchanging Class C shares of AIM Short
Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class A, C, K or Class R shares held through such
plan that would otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class A, C, K or Class R shares held through such plan
that would otherwise be subject to a CDSC;
- - if you are a participant in a qualified retirement plan and redeem Class A,
Class C, Class K or Class R shares in order to fund a distribution;
- - if you participate in the Systematic Redemption Plan and withdraw up to 12% of
the value of your shares that are subject to a CDSC in any twelve-month
period;
- - if you redeem shares to pay account fees;
- - for redemptions following the death or post-purchase disability of a
shareholder or beneficial owner;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
ADDITIONAL PAYMENTS TO FINANCIAL ADVISORS
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed above.
In addition to those payments, ADI or one or more of its corporate affiliates
(collectively, ADI Affiliates) may make additional cash payments to financial
advisors in connection with the promotion and sale of shares of AIM funds. These
additional cash payments may include cash revenue sharing payments and other
payments for certain administrative services, transaction processing services
and certain other marketing support services. ADI Affiliates make these payments
from their own resources, from ADI's retention of underwriting concessions and
from payments to ADI under Rule 12b-1 plans. In this context, "financial
advisors" include any broker, dealer, bank (including bank trust departments),
registered investment advisor, financial planner, retirement plan administrator
and any other financial intermediary having a selling, administration or similar
agreement with ADI Affiliates.
ADI Affiliates make revenue sharing payments as incentives to certain
financial advisors to promote and sell shares of AIM funds. The benefits ADI
Affiliates receive when they make these payments include, among other things,
placing AIM funds on the financial advisor's funds sales system, placing AIM
funds on the financial advisor's preferred or recommended fund list, and access
(in some cases on a preferential basis over other competitors) to individual
members of the financial advisor's sales force or to the financial advisor's
management. Revenue sharing payments are sometimes referred to as "shelf space"
payments because the payments compensate the financial advisor for including AIM
funds in its fund sales system (on its "sales shelf"). ADI Affiliates compensate
financial advisors differently depending typically on the level and/or type of
considerations provided by the financial advisor. The revenue sharing payments
ADI Affiliates make may be calculated on sales of shares of AIM funds
(Sales-Based Payments), in which case the total amount of such payments shall
not exceed 0.25% of the public offering price of all shares sold by the
financial advisor during the particular period. Such payments also may be
calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor (Asset-Based Payments), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of AIM funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of AIM
funds in investor accounts. ADI Affiliates may pay a financial advisor either or
both Sales-Based Payments and Asset-Based Payments.
ADI Affiliates also may make other payments to certain financial advisors
for processing certain transactions or account maintenance activities (such as
processing purchases, redemptions or exchanges or producing customer account
statements) or for providing certain other marketing support services (such as
financial assistance for conferences, seminars or sales or training programs at
which ADI Affiliates personnel may make presentations on AIM funds to the
financial advisor's sales force). Financial advisors may earn profits on these
payments for these services, since the amount of the payment may exceed the cost
of providing the service. Certain of these payments are subject to limitations
under applicable law.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of AIM fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more shares
of AIM funds or retain shares of AIM funds in their clients' accounts, ADI
Affiliates benefit from the incremental management and other fees paid to ADI
Affiliates by the AIM funds with respect to those assets.
You can find further details in the fund's Statement of Additional
Information about these payments and the services provided by financial
advisors. In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you
MCF--02/05
A-4
-------------
THE AIM FUNDS
-------------
additional fees or commissions other than those disclosed in this prospectus.
You can ask your financial advisor about any payments it receives from ADI
Affiliates or the AIM funds, as well as about fees and/or commissions it
charges.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
While the funds provide their shareholders with daily liquidity, their
investment programs are designed to serve long-term investors. Excessive
short-term trading activity in the funds' shares (i.e., a purchase of fund
shares followed shortly thereafter by a redemption of such shares, or vice
versa) may hurt the long-term performance of certain funds by requiring them to
maintain an excessive amount of cash or to liquidate portfolio holdings at a
disadvantageous time, thus interfering with the efficient management of such
funds by causing them to incur increased brokerage and administrative costs.
Where excessive short-term trading activity seeks to take advantage of arbitrage
opportunities from stale prices for portfolio securities, the value of fund
shares held by long-term investors may be diluted. The Boards of Trustees have
adopted policies and procedures designed to discourage excessive or short-term
trading of fund shares for all funds except the money market funds. However,
there is the risk that these funds' policies and procedures will prove
ineffective in whole or in part to detect or prevent excessive or short-term
trading. These funds may alter their policies at any time without prior notice
to shareholders if the advisor believes the change would be in the best
interests of long-term shareholders.
AIM and its affiliates (collectively, AIM Affiliates) currently use the
following tools designed to discourage excessive short-term trading in the
retail funds:
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) use of fair value pricing consistent with procedures approved by the Boards
of Trustees of the funds.
Each of these tools is described in more detail below. Although these tools are
designed to discourage excessive short-term trading, you should understand that
none of these tools alone nor all of them taken together eliminate the
possibility that excessive short-term trading activity in the funds will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with long-term shareholder
interests.
The Boards of Trustees of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio (the money market funds) have not adopted any policies and
procedures that would limit frequent purchases and redemptions of such funds'
shares. The Boards do not believe that it is appropriate to adopt any such
policies and procedures for the money market funds for the following reasons:
- - The money market funds are offered to investors as cash management vehicles.
Investors must perceive an investment in such funds as an alternative to cash,
and must be able to purchase and redeem shares regularly and frequently.
- - One of the advantages of a money market fund as compared to other investment
options is liquidity. Any policy that diminishes the liquidity of the money
market funds will be detrimental to the continuing operations of such funds.
- - The money market funds' portfolio securities are valued on the basis of
amortized cost, and such funds seeks to maintain a constant net asset value.
As a result, there are no price arbitrage opportunities.
- - Because the money market funds seek to maintain a constant net asset value,
investors expect to receive upon redemption the amount they originally
invested in such funds. Imposition of redemption fees would run contrary to
investor expectations.
The Boards considered the risks of not having a specific policy that limits
frequent purchases and redemptions, and it determined that those risks are
minimal, especially in light of the reasons for not having such a policy as
described above. Nonetheless, to the extent that the fund must maintain
additional cash and/or securities with short-term durations than may otherwise
be required, the fund's yield could be negatively impacted.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to
detect excessive short-term trading activities. If, as a result of this
monitoring, the AIM Affiliates believe that a shareholder has engaged in
excessive short-term trading, they may, in their discretion, ask the shareholder
to stop such activities or refuse to process purchases or exchanges in the
shareholder's accounts other than exchanges into a money market fund. In making
such judgments, the AIM Affiliates seek to act in a manner that they believe is
consistent with the best interests of long-term shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts. This is one reason why this tool cannot eliminate the possibility of
excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund,
AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio) per
calendar year, or a fund or an AIM Affiliate determines, in its sole discretion,
that your short-term trading activity is excessive (regardless of whether or not
MCF--02/05
A-5
-------------
THE AIM FUNDS
-------------
you exceed such guidelines), it may, in its discretion, reject any additional
purchase and exchange orders. Each fund and the AIM Affiliates reserve the
discretion to accept exchanges in excess of these guidelines on a case-by-case
basis if they believe that granting such exceptions would be consistent with the
best interests of shareholders. An exchange is the purchase of shares in one
fund which is paid for with the proceeds from a redemption of shares of another
fund effectuated on the same day. The movement out of one fund (redemption) and
into one or more other funds (purchase) on the same day shall be counted as one
exchange. Exchanges effected as part of programs that have been determined by an
AIM Affiliate to be non-discretionary, such as dollar cost averaging, portfolio
rebalancing, or other automatic non-discretionary programs that involve
exchanges, generally will not be counted toward the trading guidelines
limitation of four exchanges out of a fund per calendar year.
The ability of the AIM Affiliates to monitor exchanges made by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to implement these trading guidelines and
may be further limited by systems limitations applicable to those types of
accounts. Additionally, the AIM Affiliates maintain certain retirement plan
accounts on a record keeping system that is currently incapable of effecting or
monitoring the trading guidelines.
Some investments in the funds are made indirectly through vehicles such as
qualified tuition plans, variable annuity and insurance contracts, and funds of
funds which use the funds as underlying investments (each a conduit investment
vehicle). If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to impose exchange
limitations on individual transactions initiated by investors who have invested
in the funds through the conduit investment vehicle.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by
exchange, shares of certain funds within 30 days of purchase. See "Redeeming
Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan accounts
and approved fee-based program accounts is severely limited or non-existent in
those instances in which the broker, retirement plan administrator or fee-based
program sponsor maintains the underlying shareholder accounts and is unwilling
or unable to assess such fees and may be further limited by systems limitations
applicable to these types of accounts. Additionally, the AIM Affiliates maintain
certain retirement plan accounts on a record keeping system that is currently
incapable of processing the redemption fee. The provider of this system is
working to enhance the system to facilitate the processing of this fee.
For additional discussion of the applicability of redemption fees on shares
of the fund held through omnibus accounts, retirement plan accounts, approved
fee-based program accounts and conduit investment vehicles, see "Redeeming
Shares -- Redemption Fee".
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of Trustees of
the fund. Fair value pricing may reduce the ability of frequent traders to take
advantage of arbitrage opportunities resulting from potentially "stale" prices
of portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares -- Determination of Net Asset Value" for more
information.
MCF--02/05
A-6
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
If you hold your shares through a broker/dealer or other financial institution,
your eligibility to purchase those shares, the conditions for purchase and sale,
and the minimum and maximum amounts allowed may differ depending on that
institution's policies.
MINIMUM INVESTMENTS PER FUND ACCOUNT
There are no minimum investments with respect to Class K or Class R shares for
fund accounts. The minimum investments with respect to Class A, A3, B and C
shares and Investor Class shares for fund accounts are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per fund investment for $25
403 and salary deferrals from
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Employer-Sponsored Retirement
Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 25
All other accounts 1,000 50
ADI has the discretion to accept orders for lesser amounts.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed. Additionally, Federal law requires that
the fund verify and record your identifying information.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in retirement accounts on the
internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-7
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by ADI (the Grandfathered
Funds) and have continuously maintained such account in Investor Class shares
since April 1, 2002; (2) any person or entity listed in the account registration
for any Grandfathered Funds, which account was established prior to April 1,
2002 and continuously maintained since April 1, 2002, such as joint owners,
trustees, custodians and designated beneficiaries; (3) customers of certain
financial institutions, wrap accounts or other fee-based advisory programs, or
insurance company separate accounts, which have had relationships with ADI
and/or any of the Grandfathered Funds prior to April 1, 2002 and continuously
maintained such relationships since April 1, 2002; and (4) fund trustees,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the funds by authorizing the
transfer agent to withdraw the amount of your investment from your bank account
on a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one fund account to one or more other fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the day of the month you specify, in the
amount you specify. Dollar Cost Averaging cannot be set up for the 29th through
the 31st of the month. The minimum amount you can exchange to another fund is
$50. You may participate in a dollar cost averaging program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Dollar Cost Averaging program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same fund. You may invest
your dividends and distributions per the rules listed in the "Permitted
Exchanges" section.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another fund:
(1) Your account balance (a) in the fund paying the dividend must be at least
$5,000; and (b) in the fund receiving the dividend must be at least $500;
and
(2) Both accounts must have identical registration information.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your fund holdings should be rebalanced, on a percentage basis,
between two and ten of your funds on a quarterly, semiannual or annual basis.
Your portfolio will be rebalanced through the exchange of shares in one or more
of your funds for shares of the same class of one or more other funds in your
portfolio. Rebalancing will NOT occur if your portfolio is within 2% of your
stated allocation. If you wish to participate in the Program, make changes or
cancel the Program, the transfer agent must receive your request to participate,
changes, or cancellation in good order at least five business days prior to the
next rebalancing date, which is normally the 28th day of the last month of the
period you choose. You may realize taxable gains from these exchanges. We may
modify, suspend or terminate the Program at any time on 60 days prior written
notice. You may participate in a portfolio rebalancing program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Portfolio Rebalancing Program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
RETIREMENT PLANS
Shares of most of the funds can be purchased through tax-sheltered retirement
plans made available to corporations, individuals and employees of non-profit
organizations and public schools. A plan document must be adopted to establish a
retirement plan. You may use AIM sponsored retirement plans, which include IRAs,
Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans, Solo 401(k) plans
and Money Purchase/Profit Sharing plans, or another sponsor's retirement plan.
AIM Investment Services, Inc. assesses certain fees associated with the
maintenance of certain types of retirement plan accounts and the provision of
specialized recordkeeping services for those plan accounts. ADI assesses certain
fees associated with the maintenance of retirement plan documents for which it
acts as the prototype sponsor. Contact your financial advisor for details.
MCF--02/05
A-8
-------------
THE AIM FUNDS
-------------
REDEEMING SHARES
REDEMPTION FEE
You may be charged a 2% redemption fee (on redemption proceeds) if you redeem,
including redeeming by exchange, shares of the following funds within 30 days of
their purchase:
<Table>
AIM Asia Pacific Growth Fund AIM Global Value Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM European Growth Fund AIM International Core Equity Fund
AIM European Small Company AIM International Growth Fund
Fund AIM International Small Company Fund
AIM Global Aggressive Growth AIM S&P 500 Index Fund
Fund AIM Trimark Fund
AIM Global Equity Fund
AIM Global Growth Fund
</Table>
Currently, the redemption fee may be applied on Class A and Investor Class
shares (and Institutional Class shares of AIM S&P 500 Index Fund). The AIM
Affiliates expect the above funds to charge the redemption fee on all shares for
all of the above funds effective April 1, 2005.
The redemption fee will be retained by the fund from which you are redeeming
shares (including redemptions by exchange), and is intended to offset the
trading costs, market impact and other costs associated with short-term money
movements in and out of the fund. The redemption fee is imposed to the extent
that the number of fund shares you redeem exceeds the number of fund shares that
you have held for more than 30 days. In determining whether the minimum 30 day
holding period has been met, only the period during which you have held shares
of the fund from which you are redeeming is counted. For this purpose, shares
held longest will be treated as being redeemed first and shares held shortest as
being redeemed last.
The 2% redemption fee generally will not be charged on transactions
involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by
brokers that do not have the systematic capability to process the redemption
fee;
(2) total or partial redemptions of shares by approved fee-based programs that
do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans
maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal
Revenue Code (the Code) where the systematic capability to process the
redemption fee does not exist;
(4) total or partial redemptions effectuated by funds of funds, qualified
tuition plans maintained pursuant to Section 529 of the Code, and insurance
company separate accounts which use the funds as underlying investments;
(5) total or partial redemptions effectuated pursuant to an automatic
non-discretionary rebalancing program or a systematic withdrawal plan
established with the funds or a financial intermediary;
(6) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(7) total or partial redemption of shares acquired through investment of
dividends and other distributions; or
(8) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of
shares of the above funds regardless of the type of account in which such shares
are held. This goal is not immediately achievable because of systems limitations
and marketplace resistance. Brokers that maintain omnibus accounts, sponsors of
fee-based program accounts and retirement plan administrators for accounts that
are exempt from the redemption fee pursuant to (1) through (8) above may impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than those set forth above. Lastly, the provider of AIM's
retirement plan record keeping system is working to enhance the system to
facilitate the processing of the redemption fee. Until such computer programs
are modified or alternate processes are developed, the fund's ability to assess
a redemption fee on these types of share classes and accounts is severely
limited.
Some investments in the funds are made indirectly through conduit investment
vehicles. If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to assess redemption fees on
individual transactions initiated by investors who have invested in the funds
through the conduit investment vehicle. In these cases, the applicability of
redemption fees will be determined based on the aggregate holdings and
redemptions of the conduit investment vehicle in a fund.
The funds have the discretion to waive the 2% redemption fee if a fund is in
jeopardy of losing its registered investment company qualification for tax
purposes.
Your broker or financial advisor may charge service fees for handling
redemption transactions. Your shares also may be subject to a contingent
deferred sales charge (CDSC) in addition to the redemption fee.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
If you purchase $1,000,000 or more of Class A shares of any fund, or if you make
additional purchases of Class A shares on and after
MCF--02/05
A-9
-------------
THE AIM FUNDS
-------------
October 31, 2002 at net asset value, your shares may be subject to a CDSC upon
redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Advisor Contact your financial advisor, including
your retirement plan or program sponsor.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered
owners/trustees; (2) the name of the fund
and your account number; (3) if the transfer
agent does not hold your shares, endorsed
share certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent at 1-800-959-4246 or
our AIM 24-hour Automated Investor Line at
1-800-246-5463. You will be allowed to
redeem by telephone if (1) the proceeds are
to be mailed to the address on record (if
there has been no change communicated to us
within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
retirement accounts and 403(b) plans, may
not be redeemed by telephone. For funds
other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, the transfer
agent must receive your call during the
hours of the customary trading session of
the New York Stock Exchange (NYSE) in order
to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must receive your call before
the last net asset value determination on a
business day in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts may be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. For funds other
than Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money
Portfolio, the transfer agent must confirm
your transaction during the hours of the
customary trading session of the NYSE in
order to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must confirm your transaction
before the last net asset value
determination on a business day in order to
effect the redemption at that day's closing
price.
</Table>
- --------------------------------------------------------------------------------
MCF--02/05
A-10
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared. Payment may be
postponed in cases where the SEC declares an emergency or normal trading is
halted.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine, but we are
not liable for telephone instructions that are reasonably believed to be
genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine, but we are
not liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND, AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND AND INVESTOR CLASS SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND, PREMIER PORTFOLIO, PREMIER TAX-EXEMPT PORTFOLIO AND
PREMIER U.S. GOVERNMENT MONEY PORTFOLIO ONLY)
You may redeem shares of these funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REDEMPTIONS IN KIND
Although the funds generally intend to pay redemption proceeds solely in cash,
the funds reserve the right to satisfy redemption requests by making payment in
securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the
funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If the fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, or the fund is not able to
verify your identity as required by law, the fund may, at its discretion, redeem
the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one fund for those of
another fund. An exchange is the purchase of shares in one fund which is paid
for with the proceeds from a redemption of shares of another fund effectuated on
the same day. Before requesting an exchange, review the prospectus of the fund
you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
You may be charged a redemption fee on certain redemptions, including
exchanges. See "Redeeming Shares -- Redemption Fee."
MCF--02/05
A-11
-------------
THE AIM FUNDS
-------------
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another fund.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Class A Shares of AIM Limited
Maturity Treasury Fund, AIM X
Tax-Exempt Cash Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class
A3 Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B, C, K, R, Institutional
Class Shares or Shares of the X
AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class X
A Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class B, C, K, R, Institutional
Class Shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class B. Exceptions are:
- Class B Shares of other funds
cannot be exchanged for Class X
B Shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class A, A3, C, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class Shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class C. Exceptions are:
- Class C shares of other funds
cannot be exchanged for Class X
C shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class A, A3, B, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class K X
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class A, A3, B, C, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class R X
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, K, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class A, A3, B, C, R, or
Investor Class shares.
Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Shares to be exchanged for X
Class B, C or R shares must
not have been acquired by
exchange from Class A shares
of any fund.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class K, Institutional Class
shares, or shares of AIM Summit X
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-12
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THE AIM FUNDS
-------------
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, K, R, AIM
Cash Reserve Shares, Investor
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class A, A3, or Investor Class.
Exceptions are:
- Investor Class shares cannot
be exchanged for Class A
shares of any fund which
offers Investor Class shares. X
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class Class B, C, K, R, AIM Cash
Reserve Shares, Institutional
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class A, A3, or AIM Cash Reserve
Shares. Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM X
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class B, C, K, R, Institutional
or Investor Class shares. X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
You may be required to pay an initial sales charge when exchanging from a
fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of a fund subject to an initial sales charge (excluding
Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class K shares for other Class K shares;
(5) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III funds purchased at net asset value for Class
A shares of a Category I or II fund, Class A shares of AIM Short Term Bond
Fund;
(3) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
MCF--02/05
A-13
-------------
THE AIM FUNDS
-------------
(1) Class A shares of Category I or II fund, Class A shares of AIM Short Term
Bond Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash
Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
fund (i) subject to an initial sales charge or (ii) purchased at net asset
value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money
Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any fund or for Class A shares of any fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I or
II fund or AIM Short Term Bond Fund, and exchanged those shares for AIM Cash
Reserve Shares of AIM Money Market Fund, you may further exchange the AIM
Cash Reserve Shares for Class A shares of a Category I or II fund or AIM
Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - Shares of the fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange with the
exception of dividends that are reinvested; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, a fund may delay the purchase of shares being
acquired in an exchange for up to five business days if it determines that it
would be materially disadvantaged by the immediate transfer of exchange
proceeds. The exchange privilege is not an option or right to purchase shares.
Any of the participating funds or the distributor may modify or terminate this
privilege at any time. The fund or the distributor will provide you with notice
of such modification or termination whenever it is required to do so by
applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the funds from which and into which the exchange is
to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each fund's shares is the fund's net asset value per share. The
funds value portfolio securities for which market quotations are readily
available at market value. The funds value all other securities and assets for
which market quotations are not readily available at their fair value in good
faith using procedures approved by the Boards of Trustees of the funds.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific events
occurred after the security ceased trading or because of the passage of time
between the close of the market on which the security trades and the close of
the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last
MCF--02/05
A-14
-------------
THE AIM FUNDS
-------------
market quotation to be unreliable. Such events may include a merger or
insolvency, events which affect a geographical area or an industry segment, such
as political events or natural disasters, or market events, such as a
significant movement in the U.S. market. Where market quotations are not readily
available, including where AIM determines that the closing price of the security
is unreliable, AIM will value the security at fair value in good faith using
procedures approved by the Boards of Trustees. Fair value pricing may reduce the
ability of frequent traders to take advantage of arbitrage opportunities
resulting from potentially "stale" prices of portfolio holdings. However, it
cannot eliminate the possibility of frequent trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
AIM may use indications of fair value from pricing services approved by the
Boards of Trustees. In other circumstances, the AIM valuation committee may fair
value securities in good faith using procedures approved by the Boards of
Trustees. As a means of evaluating its fair value process, AIM routinely
compares closing market prices, the next day's opening prices for the security
in its primary market if available, and indications of fair value from other
sources. Fair value pricing methods and pricing services can change from time to
time as approved by the Boards of Trustees.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, AIM will value the security at
fair value in good faith using procedures approved by the Boards of Trustees.
Foreign Securities: 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 an
issuer specific event has occurred that AIM determines, in its judgment, is
likely to have affected the closing price of a foreign security, it will price
the security at fair value. AIM also relies on a screening process from a
pricing vendor to indicate the degree of certainty, based on historical data,
that the closing price in the principal market where a foreign security trades
is not the current market value as of the close of the NYSE. For foreign
securities where AIM believes, at the approved degree of certainty, that the
price is not reflective of current market value, AIM will use the indication of
fair value from the pricing service to determine the fair value of the security.
The pricing vendor, pricing methodology or degree of certainty may change from
time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, are valued
on the basis of prices provided by independent pricing services. Prices provided
by the pricing services 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 special securities,
dividend rate, maturity and other market data. Prices received from pricing
services are fair value prices. In addition, if the price provided by the
pricing service is unreliable, the AIM valuation committee may fair value the
security using procedures approved by the Boards of Trustees.
Short-term Securities: The funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio value all their securities
at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and
AIM Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent a fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
The funds disclose portfolio holdings at different times and with different
lag times on www.aiminvestments.com and in annual, semi-annual and quarterly
shareholder reports. Refer to such reports or the website to determine the types
of securities in which a fund has invested. You may also refer to the Statement
of Additional Information to determine what types of securities in which a fund
may invest. You may obtain copies of these reports or of the Statement of
Additional Information from AIM as described on the back cover of this
prospectus.
Each fund determines the net asset value of its shares on each day the NYSE
is open for business (a business day), as of the close of the customary trading
session, or earlier NYSE closing time that day. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each business
day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio determine the net asset value of their shares every fifteen
minutes on each business day, beginning at 8:00 a.m. Eastern Time. The last net
asset value determination on any business day for Premier Portfolio and Premier
U.S. Government Money Portfolio will generally occur at 5:30 p.m. Eastern Time,
and the last net asset
MCF--02/05
A-15
-------------
THE AIM FUNDS
-------------
value determination on any business day for Premier Tax-Exempt Portfolio will
generally occur at 4:30 p.m. Eastern Time. Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio are authorized not to open
for trading on a day that is otherwise a business day if the Bond Market
Association recommends that government securities dealers not open for trading
and any such day will not be considered a business day. Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio also
may close early on a business day if the Bond Market Association recommends that
government securities dealers close early. If Premier Portfolio, Premier
Tax-Exempt Portfolio or Premier U.S. Government Money Portfolio uses its
discretion to close early on a business day, the last net asset value
calculation will occur as of the time of such closing.
TIMING OF ORDERS
For funds other than Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, you can purchase or redeem shares on each
business day prior to the close of the customary trading session or any earlier
NYSE closing time that day. For funds other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio, purchase
orders that are received and accepted before the close of the customary trading
session or any earlier NYSE closing time on a business day generally are
processed that day and settled on the next business day.
For Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, you can purchase or redeem shares on each business
day, prior to the last net asset value determination on such business day;
however, if your order is received and accepted after the close of the customary
trading session or any earlier NYSE closing time that day, your order generally
will be processed on the next business day and settled on the second business
day following the receipt and acceptance of your order.
For all funds, you can exchange shares on each business day, prior to the
close of the customary trading session or any earlier NYSE closing time that
day. Shareholders of Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio therefore cannot exchange their shares after the
close of the customary trading session or any earlier NYSE closing time on a
particular day, even though these funds remain open after such closing time.
The funds price purchase, exchange and redemption orders at the net asset
value calculated after the transfer agent receives an order in good order. Any
applicable sales charges are applied at the time an order is processed. A fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions. Every year, you will be sent information showing the amount
of dividends and distributions you received from each fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax. Exchanges of shares for shares of
another fund are treated as a sale, and any gain realized on the transaction
will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in fund shares
may differ materially from the federal income tax consequences described above.
In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of fund shares is
inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401, 403, 408, 408A
and 457 of the Internal Revenue Code, individual retirement accounts (IRAs) and
Roth IRAs. You should consult your tax advisor before investing.
MCF--02/05
A-16
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of the
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. Beginning with
fiscal periods ending after July 9, 2004, the fund also files its complete
schedule of portfolio holdings with the SEC for the 1st and 3rd quarters of each
fiscal year on Form N-Q.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us by
mail at AIM Investment Services, Inc., P.O. Box 4739, Houston, TX 77210-4739 or
<Table>
BY TELEPHONE: (800) 959-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, SAIs, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
THE FUND'S MOST RECENT PORTFOLIO HOLDINGS, AS FILED
ON FORM N-Q, ARE ALSO AVAILABLE AT
WWW.AIMINVESTMENTS.COM.
</Table>
You can also review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter to
the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- ----------------------------------------
AIM Large Cap Growth Fund
SEC 1940 Act file number: 811-1424
- ----------------------------------------
AIMinvestments.com LCG-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
APPENDIX III
AIM LARGE CAP GROWTH FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE o Risk assessment--We avoid "high risk"
======================================== companies.
PERFORMANCE SUMMARY
FUND VS. INDEXES Next, we apply fundamental, or
For the six months ended April 30, 2005, qualitative, research to try to identify
AIM Large Cap Growth Fund underperformed Total returns, 10/31/04-4/30/05, companies with the potential to exceed
the broad market as represented by the excluding applicable sales charges. If earnings estimates and that exhibit
S&P 500 Index. The Fund's growth sales charges were included, returns sustainable growth characteristics. Our
orientation was a drawback, as value would be lower. team meets with analysts and the
stocks generally outperformed growth companies' management to evaluate
stocks. The S&P 500 Index includes both Class A Shares 0.87% proprietary products and the quality of
growth and value stocks. The Fund management. And we analyze trends,
essentially tracked its style-specific Class B Shares 0.57 growth rates and the competitive
index and slightly underperformed its landscape. We believe that stocks that
peer group index. The latter Class C Shares 0.57 pass our quantitative and qualitative
underperformance can largely be screens have significantly reduced
explained by the Fund's lower weighting Class R Shares 0.88 likelihoods of missing earnings
in the health care sector, which was one estimates.
of the best-performing sectors of the Investor Class Shares 0.98
Lipper Large-Cap Growth Fund Index. We consider selling a stock when it
S&P 500 Index (Broad Market Index) 3.28 no longer meets our investment criteria,
HOW WE INVEST based on a negative earnings revision,
Russell 1000 Growth Index an earnings disappointment or a
We seek to invest in market-leading (Style-specific Index) 1.14 deterioration in its fundamental
companies that exhibit sustainable, business prospects. Also, we may sell a
above-average earnings growth potential Lipper Large-Cap Growth Fund Index holding simply because we find a better
and that are driven by strong company (Peer Group Index) 1.45 investment opportunity.
fundamentals such as the quality of
earnings, superior competitive positions SOURCE: LIPPER, INC. MARKET CONDITIONS AND YOUR FUND
and favorable industry trends. We focus
on companies that we believe are most ======================================== The broad U.S. stock market enjoyed a
likely to meet or exceed earnings "relief rally" following the 2004
expectations for the foreseeable future. We begin with an investable universe presidential election, but that rally
Also, we avoid "high risk" of stocks with market capitalizations faded during the first months of 2005.
companies--companies that we consider greater than $5 billion and long-term Individual sectors experienced
overvalued, or that are experiencing annual earnings-per-share growth of at considerable volatility. For instance,
unsustainable growth. least 10%. We take all stocks meeting as a group, information technology
those criteria and apply a quantitative stocks performed strongly in late 2004
model that ranks them on factors that we but weakened considerably in the first
have found to be highly correlated with months of 2005. Despite rising
outperformance in the large-cap growth short-term interest rates and
universe. Those criteria include: historically high energy prices, the
economy continued to expand in the
o Earnings revisions--We examine the fourth quarter of 2004 and the first
breadth and magnitude of positive quarter of 2005.
earnings.
o Earnings sustainability and capital
use--We examine a company's balance
sheet and profitability.
o Valuation--We compare a stock's price
to its cash flow and earnings measures.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Managed Health Care 7.1% 1. Johnson & Johnson 4.5%
[PIE CHART]
Materials 4.1% 2. Pharmaceuticals 7.0 2. Dell Inc. 4.2
Health Care 24.2%
Money Market Funds Plus 3. Computer Hardware 5.9 3. Gillette Co. (The) 3.5
Other Assets Less Liabilities 1.7%
Information Technology 16.4% 4. Integrated Oil & Gas 4.8 4. UnitedHealth Group, Inc. 3.4
Consumer Discretionary 17.8%
Industrials 8.8% 5. Aerospace & Defense 4.7 5. Alcon, Inc. (Switzerland) 2.8
Financials 9.3%
Energy 8.7% TOTAL NET ASSETS $751.6 MILLION 6. SLM Corp. 2.5
Consumer Staples 9.0%
TOTAL NUMBER OF HOLDINGS* 74 7. Aetna Inc. 2.4
8. Becton, Dickinson & Co. 2.2
9. Yum! Brands, Inc. 2.1
10. Valero Energy Corp. 2.1
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
</Table>
2
<Table>
During the reporting period, the Fund o Symantec provides a broad range of The views and opinions expressed in
was positioned somewhat defensively. software, appliances and services management's discussion of Fund
This was a result of our bottom-up designed to help individuals and performance are those of A I M Advisors,
investment process. For instance businesses secure and manage their Inc. These views and opinions are
compared to the broad market: information technology infrastructure; subject to change at any time based on
its Norton brand is the leader in factors such as market and economic
o Within the consumer discretionary security software for the consumer. Some conditions. These views and opinions may
sector, we were relatively overweight in investors were uneasy when the company not be relied upon as investment advice
restaurant stocks, including Yum! announced plans to acquire VERITAS, or recommendations, or as an offer for a
Brands. fearing the merger might distract particular security. The information is
management. We had merger-related not a complete analysis of every aspect
o Within the information technology concerns as well, and we eliminated the of any market, country, industry,
sector, we were significantly stock from the Fund before the close of security or the Fund. Statements of fact
underweight in the highly volatile and the reporting period. are from sources considered reliable,
cyclical semiconductor industry. but A I M Advisors, Inc. makes no
o Harman International manufactures representation or warranty as to their
o Within the health care sector, we were high-end audio equipment under several completeness or accuracy. Although
underweight large-cap pharmaceutical brand names for consumers and historical performance is no guarantee
stocks, which generally performed professionals. The company's largest of future results, these insights may
poorly, and overweight managed health markets are in automotive sound systems help you understand our investment
care stocks, which performed relatively and vehicle dashboard systems. Both management philosophy.
well. markets have become more competitive of
late as automobile manufacturers have See important Fund and index
WHILE THEY HAVE BEEN become more price-sensitive. We sold our disclosures inside front cover.
OUT OF FAVOR FOR THREE OF holdings in the stock before the close
THE LAST FOUR YEARS, of the reporting period because we were GEOFFREY V. KEELING,
LARGE-CAP GROWTH STOCKS uncertain about the company's ability to [KEELING Chartered Financial
SEEMED WELL POSITIONED sustain its earnings. PHOTO] Analyst, senior portfolio
AT THE CLOSE OF THE manager, is co-manager of
REPORTING PERIOD. IN CLOSING AIM Large Cap Growth
Fund. He joined AIM in 1995 and assumed
Stocks contributing to Fund While they have been out of favor for his present responsibilities in 1999.
performance included Gillette and three of the last four years, large-cap Mr. Keeling received a B.B.A. in finance
Johnson & Johnson. growth stocks seemed well positioned at from The University of Texas at Austin.
the close of the reporting period. In
o Gillette sold its first safety razor our view, several factors favored such ROBERT L. SHOSS, senior
in 1903, and by 2004, the company sold stocks as the reporting period closed, [SHOSS portfolio manager, is
$10.5 billion worth of blades and including: PHOTO] co-manager of AIM Large
razors, batteries and personal care Cap Growth Fund. He
products worldwide. Its commitment to o Reasonable valuations, particularly joined AIM in 1995 and
innovation and growth is widely relative to expected growth rates. assumed his present responsibilities in
recognized; 2004 marked the 11th 1999. Mr. Shoss received a B.A. from The
consecutive year in which 40% or more of o A moderately strong, growing economy. University of Texas at Austin and an
the company's sales came from new M.B.A. and a J.D. from the University of
products. In December 2004, the company o Significant cash reserves on many Houston.
agreed to merge with Procter & Gamble. companies' balance sheets, which could
lead to share buybacks, dividend Assisted by the Large Cap Growth Team
o Johnson & Johnson, one of the world's increases, or strategic acquisitions.
largest and most diversified health care
companies, has more than 200 operating o Improved market sentiment.
companies providing products and [RIGHT ARROW GRAPHIC]
services to the consumer, pharmaceutical As a result, we remained optimistic
and professional markets. For decades, about AIM Large Cap Growth Fund. We FOR A PRESENTATION OF YOUR FUND'S
the company has increased its sales and thank you for your continuing investment LONG-TERM PERFORMANCE RECORD, PLEASE
raised its dividend. We believed its in the Fund. TURN TO PAGE 5.
plans to acquire Guidant, a leading
manufacturer of cardiovascular products,
will help grow earnings.
Stocks detracting from Fund
performance included Symantec and Harman
International.
</Table>
3
(A I M LOGO)
AIM PREMIER EQUITY FUND,
A PORTFOLIO OF AIM FUNDS GROUP
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
January __, 2006
Dear Shareholder:
We are seeking your approval of an Agreement and Plan of Reorganization
(the "Agreement") that provides for the sale of the assets of AIM Premier Equity
Fund (the "Fund") to AIM Charter Fund ("Buying Fund"). This transaction will
result in the combination of the two funds. You will receive shares of Buying
Fund in connection with the transaction if shareholders approve it.
A I M Advisors, Inc. ("AIM"), the investment advisor to the AIM Funds,
conducted a review of the funds and concluded that it would be appropriate to
consolidate certain funds having similar investment objectives and strategies.
Your Fund is one of the funds that AIM recommended, and your Board of Trustees
approved, for consolidation. The attached Proxy Statement and Prospectus seeks
your approval of the consolidation of your Fund with Buying Fund.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Funds Group has
approved the Agreement and proposed combination. They recommend that you vote
FOR the proposal.
Your vote is important. Please take a moment after reviewing the enclosed
materials to sign and return your proxy card in the enclosed postage paid return
envelope. If you attend the meeting, you may vote in person. If you expect to
attend the meeting in person, or have questions, please notify us by calling
(800) 952-3502. You may also vote by telephone or through a website established
for that purpose by following the instructions that appear on the enclosed proxy
card. If we do not hear from you after a reasonable amount of time, you may
receive a telephone call from our proxy solicitor, [ ], reminding you to vote.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
President
AIM PREMIER EQUITY FUND,
A PORTFOLIO OF AIM FUNDS GROUP
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
We cordially invite you to attend our Special Meeting of Shareholders to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement") under
which all of the assets of AIM Premier Equity Fund (the "Fund"), an investment
portfolio of AIM Funds Group ("Trust"), will be transferred to AIM Charter Fund
("Buying Fund"), an investment portfolio of AIM Equity Funds ("Buyer"). Buying
Fund will assume the liabilities of the Fund and Buyer will issue shares of each
class of Buying Fund to shareholders of the corresponding class of shares of the
Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on December 2, 2005 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment of
the Special Meeting
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES
OF TRUST. YOU MAY ALSO VOTE BY TELEPHONE OR THROUGH A WEBSITE ESTABLISHED FOR
THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY MATERIALS. YOUR
VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY EXECUTING AND
SUBMITTING A REVISED PROXY CARD, BY GIVING WRITTEN NOTICE OF REVOCATION TO THE
SECRETARY OF TRUST OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
/s/ Kevin M. Carome
Kevin M. Carome
Secretary
January , 2006
AIM PREMIER EQUITY FUND, AIM CHARTER FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM FUNDS GROUP AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 347-4246 (800) 347-4246
COMBINED PROXY STATEMENT AND PROSPECTUS
JANUARY ___, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
AIM Premier Equity Fund. The Special Meeting will be held on February 28, 2006
at 3:00 p.m., Central Time. We intend to mail this Proxy Statement/Prospectus,
the enclosed Notice of Special Meeting of Shareholders and the enclosed proxy
card on or about January __, 2006 to all shareholders entitled to vote at the
Special Meeting.
At the Special Meeting, we are asking shareholders of AIM Premier Equity
Fund (your "Fund") to consider and approve an Agreement and Plan of
Reorganization (the "Agreement") that provides for the reorganization of your
Fund, an investment portfolio of AIM Funds Group ("Trust"), with AIM Charter
Fund ("Buying Fund"), an investment portfolio of AIM Equity Funds ("Buyer") (the
"Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Trustees of Trust (the "Board") has approved the Agreement and
the Reorganization as being advisable and in the best interests of your Fund.
Trust and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Trust and Buying Fund is a series of Buyer. A I M Advisors, Inc. ("AIM") serves
as the investment advisor to both your Fund and Buying Fund. AIM is a wholly
owned subsidiary of AMVESCAP PLC ("AMVESCAP"), an independent global investment
management company.
Your Fund and Buying Fund have similar investment objectives. Your Fund
seeks long-term growth of capital with a secondary objective of income, while
Buying Fund seeks growth of capital. See "Comparison of Investment Objectives
and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you should
know before voting on the Agreement. It is both the Proxy Statement of your Fund
and the Prospectus of Buying Fund. You should read and retain this Proxy
Statement/Prospectus for future reference.
The Prospectus of your Fund dated April 29, 2005 (the "Selling Fund
Prospectus"), together with the related Statement of Additional Information
dated April 29, 2005, are on file with the Securities and Exchange Commission
(the "SEC"). The Selling Fund Prospectus is incorporated by reference into this
Proxy Statement/Prospectus. The Prospectus of Buying Fund dated February 28,
2005, (the "Buying Fund Prospectus"), and the related Statement of Additional
Information dated October 25, 2005, and the Statement of Additional Information
relating to the Reorganization dated January ___, 2006, are on file with the
SEC. The Buying Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus and a copy of the Buying Fund Prospectus is attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated January ___, 2006, also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
i
of Additional Information described above, material incorporated by reference,
and other information about Trust and Buyer.
Copies of the Prospectuses of Buying Fund and your Fund and the related
Statements of Additional Information are available without charge by writing to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, or by calling (800) 959-4246. Additional information about your Fund
and Buying Fund may be obtained on the internet at www.aiminvestments.com.
Trust has previously sent to shareholders the most recent annual report for
your Fund, including financial statements, and the most recent semi-annual
report succeeding the annual report, if any. If you have not received such
reports or would like to receive an additional copy, please contact A I M
Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or
by calling (800) 959-4246. Such reports will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
----
INTRODUCTION.................................................................................. 1
SUMMARY....................................................................................... 1
The Reorganization.......................................................... 1
Comparison of Investment Objectives and Principal Strategies................ 2
Comparison of Performance................................................... 3
Comparison of Fees and Expenses............................................. 3
Comparison of Multiple Class Structures..................................... 4
Comparison of Sales Charges................................................. 4
Comparison of Distribution and Purchase and Redemption Procedures........... 5
The Board's Recommendation.................................................. 5
RISK FACTORS.................................................................................. 5
Risks Associated with Buying Fund........................................... 5
Comparison of Risks of Buying Fund and Your Fund............................ 5
INFORMATION ABOUT BUYING FUND................................................................. 6
Description of Buying Fund Shares........................................... 6
Management's Discussion of Fund Performance................................. 6
Financial Highlights........................................................ 6
ADDITIONAL INFORMATION ABOUT THE AGREEMENT.................................................... 6
Terms of the Reorganization................................................. 6
The Reorganization.......................................................... 6
Board Considerations........................................................ 7
Other Terms................................................................. 9
Federal Income Tax Consequences............................................. 10
Accounting Treatment........................................................ 11
RIGHTS OF SHAREHOLDERS........................................................................ 11
CAPITALIZATION................................................................................ 11
LEGAL MATTERS................................................................................. 12
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND........................................ 12
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION................................. 12
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING.............................................. 12
Proxy Statement/Prospectus.................................................. 12
Time and Place of Special Meeting........................................... 13
Voting in Person............................................................ 13
Voting by Proxy............................................................. 13
Voting by Telephone or the Internet......................................... 13
Quorum Requirement and Adjournment.......................................... 13
Vote Necessary to Approve the Agreement..................................... 14
Proxy Solicitation.......................................................... 14
Other Matters............................................................... 14
Ownership of Shares......................................................... 14
EXHIBIT A................ Classes of Shares of Your Fund and Corresponding Classes of Shares of Buying Fund
EXHIBIT B................ Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C................ Comparison Fee Table and Expense Examples
EXHIBIT D................ Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT E................ Ownership of Shares of Your Fund
EXHIBIT F................ Ownership of Shares of Buying Fund
APPENDIX I .............. Agreement and Plan of Reorganization
APPENDIX II ............. Prospectus of Buying Fund
APPENDIX III ............ Discussion of Performance of Buying Fund
iii
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(K), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT INC.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iv
INTRODUCTION
During 2003 and 2004, AMVESCAP, the parent company of AIM, undertook an
integration initiative with respect to its United States mutual fund operations.
Among other things, AMVESCAP's integration initiative included the establishment
of a single distributor for all AMVESCAP U.S. mutual funds, the integration of
back office support for AMVESCAP's U.S. mutual funds, the allocation of primary
responsibility for investment advisory, administrative, accounting, and legal
and compliance services for all of AMVESCAP's U.S. mutual funds to AIM and
streamlining the various mutual funds offered by AMVESCAP's subsidiaries in the
U.S.
Since completion of the AMVESCAP integration initiative, AIM has undertaken
an extensive review of its U.S. mutual fund offerings and has concluded that it
would be appropriate to consolidate certain funds having similar investment
objectives and strategies. The Reorganization is one of a number of fund
reorganizations AIM is proposing as a result of this review process. AIM
believes that the shareholders of your Fund will benefit from the proposed
Reorganization because the combination of the funds will allow Buying Fund the
best available opportunities for investment management, growth prospects and
potential economies of scale.
SUMMARY
The Board, including the independent trustees, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. Your Fund and Buying Fund have similar investment
objectives, utilize similar investment strategies and invest in similar
securities. The Board believes that a larger combined fund should have greater
market presence and may achieve greater operating efficiencies because certain
fixed costs, such as legal, accounting, shareholder services and trustee
expenses, will be spread over the greater assets of the combined fund. In
addition, the total annual operating expenses of the combined fund are expected
to be lower than your Fund's current total annual operating expenses. For
additional information concerning the factors the Board of Trustees considered
in approving the Agreement, see "Additional Information About the Agreement --
Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with Buying
Fund. Your Fund is a series of Trust, a Delaware statutory trust. Buying Fund is
a series of Buyer, also a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the value of the net assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Trust and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
1
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund have similar investment objectives. Your Fund
seeks long-term growth of capital with a secondary objective of income, while
Buying Fund seeks growth of capital. Your Fund and Buying Fund also invest in
similar types of securities. However, while your Fund seeks income as a
secondary objective when selecting stocks for investment, Buying Fund seeks to
invest primarily in undervalued equity securities.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
AIM PREMIER EQUITY FUND AIM CHARTER FUND
(YOUR FUND) (BUYING FUND)
INVESTMENT OBJECTIVES
- - Long-term growth of capital - Growth of capital
- - Income
INVESTMENT STRATEGIES
- - Invests at least 80% of its net - Invests at least 65% of its total
assets, plus the amount of any assets in securities, of established
borrowings for investment purposes, companies that have long-term
in equity securities, including above-average growth in earnings,
convertible securities. and growth companies that the
portfolio managers believe
have the potential for
above-average growth in earnings.
- - In complying with the 80% investment - No corresponding strategy.
requirement, the fund's investments
may include synthetic instruments.
- - Diversified among the core, growth - The portfolio manager seeks to
and value equity investment identify those companies that are,
disciplines to construct a single, in his view, undervalued relative to
core investment portfolio. current or projected earnings or the
current market value of assets owned
by the company.
- - A greater percentage of the fund's
assets will be invested using the
core investment discipline than
using either the growth or value
investment disciplines.
- - The core discipline portfolio
managers focus on equity securities
of out-of-favor cyclical growth
companies, established growth
companies that are undervalued
compared to historical relative
valuation parameters, companies
where there is early but tangible
evidence of improving prospects that
are not yet reflected in the price
of the company's equity securities,
and companies whose equity
securities are selling at prices
that do not reflect the current
market value of their assets and
where there is reason to expect
realization of this potential in the
form of increased equity values (the
"core categories").
2
- - The growth discipline portfolio
managers focus on equity securities
of companies with the potential to
consistently generate above-average
growth in sales and earnings,
established large-cap companies with
strong business franchises, and
companies experiencing significant
positive change leading to
accelerating revenue or earnings
growth - usually above market
expectations.
- - The value discipline portfolio
managers focus on equity securities
of companies that are selling at a
substantial discount to calculated
intrinsic value.
- - May invest in preferred stocks and - No corresponding strategy.
debt instruments that have prospects
for growth of capital.
- - May also invest up to 25% of its - May also invest up to 20% of its
total assets in foreign securities. total assets in foreign securities.
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31, for Class A shares of your Fund and for Class A shares of Buying
Fund can be found at Exhibit B. Also included as part of Exhibit B is a table
showing the average annual total returns for the periods indicated for your Fund
and Buying Fund. For more information regarding the total return of your Fund,
see the "Financial Highlights" section of the Selling Fund Prospectus, which has
been made a part of this Proxy Statement/Prospectus by reference. For more
information regarding the total return of Buying Fund, see "Information About
Buying Fund -- Financial Highlights." Past performance cannot guarantee
comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of December 31, 2004, and Buying Fund, as of
October 31, 2004, expressed as a percentage of net assets ("Expense Ratio"), can
be found at Exhibit C. Pro forma estimated Expense Ratios, based on historical
data at a specified date and related projected data for each class of shares of
Buying Fund after giving effect to the Reorganization are also provided as of
October 31, 2004 as part of Exhibit C.
The current investment advisory fee schedule of your Fund is lower at
certain asset levels than the current investment advisory fee schedule of Buying
Fund. [As a result, in connection with the Reorganization, the Board of Buying
Fund has approved an amendment to the investment advisory fee schedule
applicable to Buying Fund such that AIM will receive a monthly fee calculated at
the following annual rates, based on the average daily net assets of Buying
Fund:
Annual Rate Net Assets
- ----------- ----------
0.80% First $150 million
0.625% Over $150 million]
As a result, the investment advisory fee schedule applicable to Buying Fund
after the Reorganization is the same as the investment advisory fee schedule
currently applicable to your Fund.
In addition, AIM has contractually agreed to waive its advisory fees
through December 31, 2009, for both your Fund and the Buying Fund in connection
with a settlement agreement reached with the New York Attorney General. For the
period January 1, 2005 to December 31, 2009, the following advisory fee rates
will apply to both funds after the waiver:
3
Annual Rate Net Assets
- ----------- ----------
0.75% First $150 million
0.615% Next $4.85 billion
0.57% Next $2.5 billion
0.545% Next $2.5 billion
0.52% Over $10 billion
Additionally, in connection with the 2005 contract renewal process, AIM
agreed to an additional waiver of 0.02% of the investment advisory fee
applicable to your Fund, which expires on June 30, 2006. This additional 0.02%
advisory fee waiver will be eliminated on the closing of the Reorganization.
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are currently available
to investors and the corresponding share class of Buying Fund that shareholders
of your Fund will receive in the Reorganization can be found at Exhibit A. For
information regarding the features of each of the share classes of your Fund and
Buying Fund, see the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
COMPARISON OF SALES CHARGES
No sales charges are applicable to shares of Buying Fund received by
holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period for purposes of determining whether to charge
a CDSC upon redemption of shares of Buying Fund received in connection with the
Reorganization will be the same as the holding period of your shares immediately
prior to the Reorganization.
The chart below provides a summary for comparison purposes of the initial
sales charges and CDSCs applicable to each class of shares of your Fund and
Buying Fund. The fee tables at Exhibit C include comparative information about
maximum initial sales charges on purchases of Class A shares of your Fund and
Buying Fund and the maximum CDSC on redemptions of certain classes of shares of
your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus
and the related Statements of Additional Information.
CLASS A CLASS B CLASS C
------- ------- -------
- - subject to an initial sales - not subject to an initial sales charge - not subject to an initial sales charge
charge*
- - may be subject to a CDSC on - subject to a CDSC on certain redemptions - subject to a CDSC on certain redemptions
redemptions made within 12
or 18 months from the date
of certain purchases
CLASS R INSTITUTIONAL CLASS
------- -------------------
- - not subject to an initial sales charge - not subject to an initial sales charge
- - may be subject to a CDSC on redemptions made - not subject to a CDSC
within 12 months from the date of certain purchases
4
- ----------------
* Your Fund and Buying Fund waive initial sales charges on Class A shares for
certain categories of investors, including certain of their affiliated
entities and certain of their employees, officers and trustees and those of
their investment advisor.
The CDSC on redemptions of shares of Buying Fund is computed based on the
lower of their original purchase price or current market value, net of
reinvested dividends and capital gains distributions.
COMPARISON OF DISTRIBUTION AND PURCHASE AND REDEMPTION PROCEDURES
Shares of your Fund and Buying Fund are distributed by A I M Distributors,
Inc. ("AIM Distributors"), a registered broker-dealer and wholly owned
subsidiary of AIM.
Your Fund and Buying Fund have adopted a distribution plan that allows the
payment of distribution and service fees for the sale and distribution of the
shares of each of their respective classes. Distribution fees are payable to AIM
Distributors for distribution services. The fee tables at Exhibit C include
comparative information about the distribution and service fees payable by each
class of shares of your Fund and Buying Fund. Each class of shares of Buying
Fund will have the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
The purchase and redemption procedures of your Fund and Buying Fund are
substantially the same. For information regarding the purchase and redemption
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of your Fund, unanimously
recommends that you vote "FOR" this Proposal.
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with Buying
Fund.
There is a risk that you could lose all or a portion of your investment in
Buying Fund. The value of your investment in Buying Fund will go up and down
with the prices of the securities in which Buying Fund invests. The prices of
equity securities change in response to many factors including the historical
and prospective earnings of the issuer, the value of its assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
To the extent Buying Fund holds cash or cash equivalents rather than equity
securities for risk management purposes, Buying Fund may not achieve its
investment objective.
An investment in Buying Fund is not a deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
Your Fund diversifies its investment portfolio among the core, growth and
value equity investment disciplines managed by separate management teams to
construct a single, core investment portfolio. As a result, your Fund's
investments in different, independently-managed investment disciplines create
allocation risk, which is the risk that the allocation of investments among
core, growth and value companies may have a more significant effect on your
Fund's net asset value when one of these disciplines is performing more poorly
than the others. The active rebalancing of your Fund among these investment
disciplines may result in increased transaction costs. The independent
management of the three discipline sections may also result in adverse tax
consequences if the portfolio
5
managers responsible for your Fund's three investment disciplines effect
transactions in the same security on or about the same time.
In addition, income is a secondary objective of your Fund. There is a risk
that the income you may receive from your Fund may vary.
After the Reorganization, you will no longer encounter these risks because
Buying Fund does not allocate its investment portfolio among separate management
teams. Also, income is not a secondary objective of Buying Fund.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject, in
certain circumstances, to a contingent deferred sales charge) at the option of
the shareholder or at the option of Buyer in certain circumstances. Each share
of Buying Fund represents an equal proportionate interest in Buying Fund with
each other share and is entitled to such dividends and distributions out of the
income belonging to Buying Fund as are declared by the Board of Trustees of
Buyer. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares at the end of the month which is eight years after the date on which
shares were purchased, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its semi-annual
report to shareholders for the semi-annual period ended April 30, 2005 is set
forth in Appendix III of this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
financial highlights for Buying Fund in Appendix III attached to this Proxy
Statement/Prospectus.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur on
March 27, 2006, at 8:00 a.m., Eastern Time (the "Effective Time") on the basis
of values calculated as of the close of regular trading on the New York Stock
Exchange on March 24, 2006 (the "Valuation Date"). At the Effective Time, all of
the assets of your Fund will be delivered to Buyer's custodian for the account
of Buying Fund in exchange for the assumption by Buying Fund of the liabilities
of your Fund and delivery by Buyer directly to the holders of record as of the
Effective Time of the issued and outstanding shares of each class of your Fund
of a number of shares of each corresponding class of Buying Fund (including, if
applicable, fractional shares rounded to the nearest thousandth), having an
aggregate net asset value equal to the value of the net assets of your Fund so
transferred, assigned and delivered, all determined and adjusted as provided in
the Agreement. Upon delivery of such assets, Buying Fund will receive good and
marketable title to such assets free and clear of all liens.
6
In order to ensure continued qualification of your Fund for treatment as a
"regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Trust will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended December
31, 2005 and for the short taxable year beginning on January 1, 2006 and ending
on the Closing and (b) all of your Fund's net capital gain recognized in its
taxable year ended December 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Trust will redeem the outstanding
shares of your Fund from shareholders in accordance with the applicable
Agreement and Declaration of Trust, Bylaws and the Delaware Statutory Trust Act.
BOARD CONSIDERATIONS
AIM initially proposed that the Board consider the Reorganization at an
in-person meeting of the Boards held on October 27, 2005, at which preliminary
discussions of the Reorganization took place. After careful consideration and
after weighing the pros and cons of the Reorganization, the Board of your Fund
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at a meeting of the Board held on
November 14, 2005.
Over the course of the Board meetings, the Board received from AIM written
materials that contained information concerning your Fund and Buying Fund,
including comparative total return and fee and expense information, a comparison
of investment objectives and strategies of your Fund and Buying Fund and pro
forma expense ratios for Buying Fund giving effect to the Reorganization. AIM
also provided the Board with written materials concerning the structure of the
proposed Reorganization and the Federal tax consequences of the Reorganization.
Following the initial Board meeting, the Board requested additional
information from AIM with respect to: the availability of suitable merger
candidates, current litigation, contingent assets and liabilities, the advantage
(if any) of structuring the Reorganization as taxable transactions, the
calculation of pro forma expense ratios and the effect on transfer agency fees.
AIM provided such additional information to the Board prior to and at the
November 14, 2005 meeting. In addition, the Board requested a follow-up report
after the consummation of the Reorganization that shows the actual cost and
expenses of the Reorganization.
In evaluating the Reorganization, the Board considered a number of factors,
including:
- The investment objective and principal investment strategies of your
Fund and Buying Fund.
- The comparative performance of your Fund and Buying Fund.
- The comparative expenses of your Fund and Buying Fund and the pro
forma expenses of Buying Fund after giving effect to the
Reorganization.
- The comparative sizes of your Fund and Buying Fund.
- The consequences of the Reorganization for Federal income tax
purposes, including the treatment of any unrealized capital gains and
capital loss carryforwards available to offset future capital gains of
your Fund and Buying Fund.
- Any fees and expenses that will be borne directly or indirectly by
your Fund or Buying Fund in connection with the Reorganization.
7
- The projected financial impact to AIM and its affiliates of the
Reorganization.
AIM proposed the Reorganization as part of an effort to consolidate the AIM
Funds' large cap core fund offerings. In considering the Reorganization, the
Board noted that the funds have similar investment objectives, are managed using
similar investment strategies and invest in similar securities. In addition,
Buying Fund's performance track record relative to its Lipper peer group is
generally better than your Fund's and the expenses of the combined fund are
expected to be lower than those of your Fund.
The Board noted that approximately 50% of your Fund and all of Buying Fund
have been managed using the same discipline by the same lead portfolio manager
and portfolio management team. The Board noted that the funds have similar
investment objectives and similar investment strategies, resulting in
significant portfolio overlap between the two funds. As of July 31, 2005,
approximately 59% of your Fund's total net assets were invested in securities
Buying Fund also owns. The Board noted that Buying Fund is a large-cap core
fund, while your Fund also includes value and growth disciplines. Thus,
shareholders of your Fund may lose exposure to those value and growth
disciplines in Buying Fund's investment process.
The Board considered the relative sizes of the two funds and concluded that
Buying Fund should be the surviving fund in the Reorganization, even though your
Fund has a larger asset base. As of July 31, 2005, Buying Fund had net assets of
approximately $2.6 billion, compared to net assets for your Fund of
approximately $5.7 billion. The Board determined that it was appropriate for
Buying Fund to be the surviving fund in the Reorganization primarily because the
investment process Buying Fund's current portfolio management team utilizes to
manage Buying Fund will be applied to your Fund after the Reorganization.
Consequently, the Board determined that Buying Fund's performance track record
more accurately reflects the results of the investment process that the combined
fund will utilize after the Reorganization.
The Board considered the performance of Buying Fund in relation to the
performance of your Fund, noting that although your Fund has recently provided
better returns, Buying Fund has provided better long-term returns to its
shareholders than your Fund. As of July 31, 2005, the relative performance of
Class A shares of your Fund and Buying Fund (without sales loads) was as
follows:
AVERAGE ANNUAL TOTAL RETURNS
One Five Ten Since Inception
Year Years Years Inception Date
---- ----- ----- --------- ----
Your Fund 12.23% -6.41% 5.66% 12.28% 05/01/84
Buying Fund 10.39% -5.64% 7.42% 11.82% 11/26/68
The performance information in Exhibit B supports the Board's determination
that Buying Fund's long-term performance has been better than that of your Fund.
See "Exhibit B - Comparison of Performance of Your Fund and Buying Fund."
In addition, the Board noted that as of June 30, 2005, Buying Fund's
performance relative to its Lipper peer group was better than your Fund for the
3- and 5-year periods and that such performance more accurately reflects the
investment process that the combined fund will apply.
The Board also considered the operating expenses the funds incur. As a
percentage of the average daily net assets, the total annual operating expenses
of Buying Fund prior to giving pro forma effect to the Reorganization are lower
than the total annual operating expenses of your Fund. The Board noted that AIM
proposed to reduce the investment advisory fee applicable to the combined fund
as described above in "SUMMARY - Comparison of Fees and Expenses."
At the November 14, 2005 meeting, the Board considered AIM's proposal to
amend the advisory agreement for Buying Fund to reflect a reduced advisory fee,
effective as of the Closing. The Board noted that the reduced advisory fee
schedule is the same as your Fund's current advisory fee schedule. In addition,
AIM previously agreed to waivers of its management fees for both funds, as
described above in "SUMMARY -
8
Comparison of Fees and Expenses," and an additional 0.02% fee waiver applicable
to your Fund which expires on June 30, 2006. AIM reported to the Board that,
based upon historical data at a specified date and related projected data, on a
pro forma basis, the total annual operating expense ratios of Buying Fund, after
giving effect to current fee waivers in effect for the Buying Fund and an
additional 0.02% fee waiver that will not be carried over to the combined fund,
are expected to be approximately 0.04% lower than those of your Fund for Class
A, Class B, Class C and Class R shares and approximately 0.05% lower for
Institutional Class shares. In the absence of any fee waivers, on a pro forma
basis, the total annual operating expense ratios of Buying Fund are also
expected to be lower than those of your Fund after the Reorganization. The Board
considered the proposed reduction of the advisory fee schedule in approving the
Reorganization at the November 14, 2005 meeting. The Investment Company Act of
1940 requires that changes to an investment advisory agreement be approved at an
in-person meeting. [Accordingly, the Board did not formally approve the reduced
advisory fee schedule for Buying Fund until an in-person meeting on December ,
2005.]
As described above, your Fund is currently subject to an additional 0.02%
fee waiver that expires on June 30, 2006. The Board noted AIM's proposal not to
apply the additional fee waiver to the combined fund, but rather to pay
additional expenses your Fund is expected to incur in the Reorganization. The
additional amount is equal to the estimated dollar amount of the 0.02% fee
waiver from the closing date of the Reorganization through the expiration date
of June 30, 2006. The total expenses to be incurred by your Fund in connection
with the Reorganization are expected to be approximately $3 million. The Board
noted that AIM had agreed to pay approximately 86% or $2.6 million of those
costs and expenses, which includes the additional amount in lieu of the advisory
fee waiver noted above. Buying Fund will bear its costs and expenses incurred in
connection with the Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Reorganization, AIM estimated the amount of mailing,
printing, solicitation, and legal and accounting fees to be incurred by both
Buying Fund and your Fund. AIM then performed a qualitative analysis that took
into account, among other things, the expected benefits to be enjoyed by your
Fund's shareholders through reduced expenses on a pro forma basis, the amount of
time estimated for your Fund's shareholders to recoup expenses incurred in the
Reorganization in light of such expected benefits, the effect incurring such
expenses would have on the net asset value of your Fund, whether there was a
financial impact to AIM's profit and loss (positive or negative) and the
relative performance of your Fund and Buying Fund.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the two Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommended the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
OTHER TERMS
If any amendment is made to the Agreement following the mailing of this
Proxy Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material adverse effect on shareholders, the Agreement may be amended
without shareholder approval by mutual agreement of the parties.
Trust and Buyer have made representations and warranties in the Agreement
that are customary in matters such as the Reorganization. The obligations of
Trust and Buyer pursuant to the Agreement are subject to various conditions,
including the following mutual conditions:
- the assets of your Fund to be acquired by Buying Fund shall constitute
at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by your Fund
immediately prior to the Reorganization;
- Buyer's Registration Statement on Form N-14 under the Securities Act
of 1933 (the "1933 Act") shall have been filed with the SEC and such
Registration Statement shall have become effective, and no stop-order
suspending the effectiveness of the Registration Statement shall have
been issued, and no proceeding for that purpose shall have been
initiated or threatened by the SEC (and not withdrawn or terminated);
- the shareholders of your Fund shall have approved the Agreement; and
9
- Trust and Buyer shall have received an opinion from Ballard Spahr
Andrews & Ingersoll, LLP that the consummation of the transactions
contemplated by the Agreement will not result in the recognition of
gain or loss for Federal income tax purposes for your Fund, Buying
Fund or their shareholders.
The Board of Trustees of Trust and the Board of Trustees of Buyer may waive
without shareholder approval any default by Trust or Buyer or any failure by
Trust or Buyer to satisfy any of the above conditions as long as such a waiver
is mutual and will not have a material adverse effect on the benefits intended
under the Agreement for the shareholders of your Fund. The Agreement may be
terminated and the Reorganization may be abandoned at any time by mutual
agreement of the parties, or by either party if the shareholders of your Fund do
not approve the Agreement or if the Closing does not occur on or before
September 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
- the Reorganization will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code;
- no gain or loss will be recognized by your Fund upon the transfer of
its assets to Buying Fund solely in exchange for shares of Buying Fund
and Buying Fund's assumption of the liabilities of your Fund or on the
distribution of those shares to your Fund's shareholders;
- no gain or loss will be recognized by Buying Fund on its receipt of
assets of your Fund in exchange for shares of Buying Fund issued
directly to your Fund's shareholders;
- no gain or loss will be recognized by any shareholder of your Fund
upon the exchange of shares of your Fund for shares of Buying Fund;
- the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's tax
basis of the shares of your Fund surrendered in exchange therefor;
- the holding period of the shares of Buying Fund to be received by a
shareholder of your Fund will include the period for which such
shareholder held the shares of your Fund exchanged therefor, provided
that such shares of your Fund are capital assets in the hands of such
shareholder as of the Closing; and
- Buying Fund will thereafter succeed to and take into account any
capital loss carryover and certain other tax attributes of your Fund,
subject to all relevant conditions and limitations on the use of such
tax benefits.
Neither Trust nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Trust and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Trust and Buyer upon which Ballard Spahr Andrews & Ingersoll,
LLP will rely in rendering its opinion. The conclusions reached in that opinion
could be jeopardized if the representations of Trust or Buyer are incorrect in
any material respect. A copy of the opinion will be filed with the Securities
and Exchange Commission. and will be available for public inspection. See
"Information Filed with the Securities and Exchange Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S
10
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganizations will each be accounted for on a tax-free combined
basis. Accordingly, the book cost basis to Buying Fund of the assets of your
Fund will be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
Trust and Buyer are each Delaware statutory trusts. Generally, there are no
material differences between the rights of shareholders under the Agreement and
Declaration of Trust and the rights of shareholders under the Agreement and
Declaration of Trust of Buyer.
CAPITALIZATION
The following table sets forth, as of October 31, 2005, (i) the
capitalization of each class of shares of your Fund; (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- -------------- ----------- --------------
Net Assets .......................... $3,408,950,664 $1,640,589,125 $(265,695) $5,049,274,094
Shares Outstanding .................. 342,534,483 127,716,330 (20,677) 392,926,634
Net Asset Value Per Share............ $ 9.95 $ 12.85 $ 12.85
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS B SHARES CLASS B SHARES ADJUSTMENTS CLASS B SHARES
-------------- -------------- ----------- --------------
Net Assets........................... $1,539,650,269 $618,242,343 $(133,532) $2,157,759,080
Shares Outstanding................... 167,865,300 50,398,660 (10,883) 175,842,121
Net Asset Value Per Share............ $ 9.17 $ 12.27 $ 12.27
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS C SHARES CLASS C SHARES ADJUSTMENTS CLASS C SHARES
-------------- -------------- ----------- --------------
Net Assets........................... $224,279,754 $107,858,768 $ (18,490) $ 332,120,032
Shares Outstanding................... 24,432,338 8,768,276 (1,503) 27,001,640
Net Asset Value Per Share............ $ 9.18 $ 12.30 $ 12.30
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS R SHARES CLASS R SHARES ADJUSTMENTS CLASS R SHARES
-------------- -------------- ----------- --------------
Net Assets .......................... $1,435,261 $2,847,558 $(79) $4,282,740
Shares Outstanding .................. 145,255 222,909 (6) 335,285
Net Asset Value Per Share............ $ 9.88 $ 12.77 $ 12.77
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INSTITUTIONAL INSTITUTIONAL PRO FORMA INSTITUTIONAL
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
------------ ------------ ----------- ------------
Net Assets .......................... $29,174,723 $54,712,110 $(204) $83,886,629
Shares Outstanding .................. 2,887,886 4,137,924 (15) 6,344,236
Net Asset Value Per Share............ $ 10.10 $ 13.22 $ 13.22
11
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the Reorganization
will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market
Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the following
topics, please refer to the following sections of the Buying Fund Prospectus,
which has been made a part of this Proxy Statement/ Prospectus by reference and
which is attached to this Proxy Statement/Prospectus as Appendix II: (i) see
"Performance Information" for more information about the performance of Buying
Fund; (ii) see "Fund Management" for more information about the management of
Buying Fund; (iii) see "Other Information" for more information about Buying
Fund's policy with respect to dividends and distributions; and (iv) see "Other
Information" for more information about the pricing, purchase, redemption and
repurchase of shares of Buying Fund, tax consequences to shareholders of various
transactions in shares of Buying Fund, distribution arrangements and the
multiple class structure of Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which have been made a part of this Proxy Statement/ Prospectus by reference:
(i) see "Fund Performance" for more information about the performance of your
Fund; (ii) see "Fund Management" and "Portfolio Managers" for more information
about the management of your Fund; (iii) see "Shareholder Information" for more
information about the pricing of shares of your Fund; (iv) see "Taxes" for more
information about tax consequences to shareholders of various transactions in
shares of your Fund; and (v) see "Dividends And Capital Gain Distributions" for
more information about your Fund's policy with respect to dividends and
distributions.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which Trust and Buyer have filed with the SEC pursuant to the requirements of
the 1933 Act and the 1940 Act, to which reference is hereby made. The SEC file
number of Trust's registration statement containing the Selling Fund Prospectus
and related Statement of Additional Information is Registration No. 811-1540.
Such Selling Fund Prospectus is incorporated herein by reference. The SEC file
number for Buyer's registration statement containing the Buying Fund Prospectus
and related Statement of Additional Information is Registration No. 811-1424.
Such Buying Fund Prospectus is incorporated herein by reference.
Trust and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Trust and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Trust and Buyer and other registrants that file
electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed proxy
card because the Board is soliciting your proxy to vote at the Special Meeting
and at any adjournments of the Special Meeting. This Proxy Statement/Prospectus
gives you information about the business to be conducted at the Special Meeting.
However,
12
you do not need to attend the Special Meeting to vote your shares. Instead, you
may simply complete, sign and return the enclosed proxy card or vote by
telephone or through a website established for that purpose.
Trust intends to mail this Proxy Statement/Prospectus, the enclosed Notice
of Special Meeting of Shareholders and the enclosed proxy card on or about
January __, 2006 to all shareholders entitled to vote. Shareholders of record of
your Fund as of the close of business on December 2, 2005 (the "Record Date")
are entitled to vote at the Special Meeting. The number of shares outstanding of
each class of shares of your Fund on the Record Date can be found at Exhibit D.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we will
provide you with a ballot prior to the vote. However, if your shares are held in
the name of your broker, bank or other nominee, you must bring a letter from the
nominee indicating that you are the beneficial owner of the shares on the Record
Date and authorizing you to vote. Please call Trust at (800) 952-3502 if you
plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in time
to vote at the Special Meeting, your "proxy" (the individual named on your proxy
card) will vote your shares as you have directed. If you sign your proxy card
but do not make specific choices, your proxy will vote your shares FOR the
proposal to approve the Agreement, as recommended by the Board, and in
accordance with management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at any
adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Trust in writing to the address of Trust set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established for
that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a
13
broker has not received voting instructions from a shareholder and is barred
from voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is present
but sufficient votes to approve the Agreement are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of the votes cast at the Special Meeting in
person or by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote FOR the Reorganization in favor of such an adjournment
and will vote those proxies required to be voted AGAINST the Reorganization
against such adjournment. A shareholder vote may be taken on the Reorganization
prior to any such adjournment if sufficient votes have been received and it is
otherwise appropriate.
VOTE NECESSARY TO APPROVE THE AGREEMENT
If a quorum is present, approval of the Agreement requires the affirmative
vote of a majority of shares cast by the shareholders of your Fund at the
Special Meeting. Abstentions and broker non-votes are counted as present but are
not considered votes cast at the Special Meeting.
PROXY SOLICITATION
Trust will solicit proxies for the Special Meetings. Trust expects to
solicit proxies principally by mail, but Trust may also solicit proxies by
telephone, facsimile or personal interview. Trust's officers will not receive
any additional or special compensation for any such solicitation. AIM will bear
86% of your Fund's costs and expenses incurred in connection with the
reorganization, including solicitation costs. Solicitation costs are expected to
be approximately $161,000.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who, as of
December 2, 2005, to the knowledge of Trust owned 5% or more of any class of the
outstanding shares of your Fund can be found at Exhibit E.
A list of the name, address and percent ownership of each person who, as of
December 2, 2005, to the knowledge of Buyer owned 5% or more of any class of the
outstanding shares of Buying Fund can be found at Exhibit F.
14
EXHIBIT A
CLASSES OF SHARES OF YOUR FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A Class A
Class B Class B
Class C Class C
Class R Class R
Institutional Class Institutional Class
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
(Your Fund)
AIM PREMIER EQUITY FUND
The bar chart and table shown below provide an indication of the risks of
investing in your Fund. Your Fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of your Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 34.85%
1996 14.52%
1997 23.95%
1998 32.76%
1999 29.95%
2000 -14.95%
2001 -12.99%
2002 -30.91%
2003 24.90%
2004 5.48%
During the periods shown in the bar chart, the highest quarterly return was
27.35% (quarter ended December 31, 1998) and the lowest quarterly return was
- -18.61% (quarter ended June 30, 2002). The year-to-date return of AIM Premier
Equity Class A shares as of September 30, 2005 was 2.63%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-1
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- ----------------------------------------- ------ ------- -------- ----------- ---------
CLASS A 05/01/84
Return Before Taxes (0.36)% (8.64)% 7.71% --
Return After Taxes on Distributions (0.38) (9.02) 6.38 --
Return Before Taxes on Distributions and Sale of Fund Shares (0.21) (7.18) 6.20 --
CLASS B 10/18/93
Return Before Taxes (0.31) (8.64) 7.65 --
CLASS C 08/04/97
Return Before Taxes 3.68 (8.30) 1.30%
CLASS R(2) 05/01/84(2)
Return Before Taxes 5.25 (7.83) 8.05 --
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Lipper Large-Cap Core Fund Index(4) 8.29 (2.98) 10.26 --
- --------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual, after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
40I(k) plans or individual retirement accounts. After tax returns are shown for
Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
your Fund's Class R shares. The returns shown for the five and ten year
periods are the blended returns of the historical performance of your
Fund's Class R shares since their inception and the restated historical
performance of your Fund's Class A shares (for periods prior to inception
of the Class R shares) at net asset value, adjusted to reflect the higher
Rule 12b-l fees applicable to the Class R shares. The inception date shown
in the table is that of your Fund's Class A shares. The inception date of
your Fund's Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. In addition, the Lipper Large-Cap Core Fund
Index (which may or may not include your Fund) is included for comparison
to a peer group.
(4) The Lipper Large-Cap Core Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Core Classification. These
funds, by portfolio practice, invest at least 75% of their equity assets in
companies with market capitalizations (on a three-year weighted basis)
greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-Cap
Core funds have more latitude in the companies in which they invest. These
funds typically have an average price-to-earnings ratio, price-to-book
ratio, and three year sales-per-share growth value, compared to the S&P 500
Index. The S&P SuperComposite 1500 Index is considered representative of
the U.S. equity markets.
B-2
(Buying Fund)
AIM CHARTER FUND
The bar chart and table shown below provide an indication of the risks of
investing in Buying Fund. Buying Fund's past performance (before and after
taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Buying Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
YEARS %
1995 35.68%
1996 19.58%
1997 24.73%
1998 26.83%
1999 33.87%
2000 -14.69%
2001 -23.09%
2002 -16.14%
2003 23.99%
2004 8.67%
During the periods shown in the bar chart, the highest quarterly return was
26.08% (quarter ended December 31, 1998) and the lowest quarterly return was
- -21.72% (quarter ended September 30, 2001). The year-to-date return of AIM
Charter Class A shares as of September 30, 2005 was 2.65%.
The following performance table compares the fund's performance to that of
a broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
B-3
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION (1) DATE
- ----------------------------------------- ------ ------- -------- ------------- ----
CLASS A 11/26/68
Return Before Taxes 2.71% (6.87%) 9.19% --
Return After Taxes on Distributions 2.58 (7.11) 7.65 --
Return After Taxes on Distributions and Sale of Fund Shares 1.93 (5.74) 7.28 --
CLASS B 06/26/95
Return Before Taxes 2.97 (6.82) -- 7.41%
CLASS C 08/04/97
Return Before Taxes 6.95 (6.48) -- 2.26
CLASS R(2) 11/26/682
Return Before Taxes 8.37 (6.03) 9.56 --
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Russell 1000 Index(4) 11.40 (1.76) 12.16 --
Lipper Large-Cap Core Fund Index(5) 8.29 (2.98) 10.26 --
- ------------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for the one year period are the historical returns of
Buying Fund's Class R shares. The returns shown for the five year period
and ten year period are the blended returns of the historical performance
of Buying Fund's Class R shares since their inception and the restated
historical performance of Buying Fund's Class A shares (for periods prior
to inception of the Class R shares) at net asset value, adjusted to reflect
the higher Rule 12b-1 fees applicable to the Class R shares. The inception
date shown in the table is that of Buying Fund's Class A shares. The
inception date of Buying Fund's Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. Buying Fund has elected to use the Standard
& Poor's 500 Index as its broad-based index. Buying Fund has also included
the Russell 1000(R) Index, which Buying Fund believes more closely reflects
the performance of the types of securities in which Buying Fund invests. In
addition, Buying Fund has included the Lipper Large-Cap Core Fund Index
(which may or may not include Buying Fund) for comparison to a peer group.
(4) The Russell 1000(R) Index measures the performance of the 1,000 largest
companies domiciled in the United States.
(5) The Lipper Large-Cap Core Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Core category. These funds,
by portfolio practice, invest at least 75% of their equity assets in
companies with market capitalizations (on a three-year weighted basis)
greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-Cap
Core funds have more latitude in the companies in which they invest. These
funds typically have an average price-to-earnings ratio, price-to-book
ratio, and three year sales-per-share growth value, compared to the S&P 500
index.
B-4
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class R, and Institutional Class shares of AIM Premier Equity Fund
("Your Fund") and Class A, Class B, Class C, Class R, and Institutional Class
shares of AIM Charter Fund ("Buying Fund"). Pro Forma Combined Expense Ratios of
Buying Fund giving effect to the Reorganization are also provided. There is no
guarantee that actual expenses will be the same as those shown in this table.
AIM PREMIER EQUITY FUND AIM CHARTER FUND
YOUR FUND BUYING FUND
(AS OF 12/31/04) (AS OF 10/31/04)
------------------------------------------------ -------------------------------------------------
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES SHARES SHARES SHARES SHARES CLASS SHARES
------ ------ ------ ------ ------------ ------ ------ ------ ------ ------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge (Load)
Imposed on Purchase
(as a percentage of offering
price) 5.50% None None None None 5.50% None None None None
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) None(1, 2) 5.00% 1.00% None(3) None None(1, 2) 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING EXPENSES
(4)(expenses that are deducted
from fund assets) Management
fees (5) 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service
(12b-1) Fees(6) 0.25% 1.00% 1.00% 0.50% - 0.25% 1.00% 1.00% 0.50% -
Other Expenses(7) 0.40% 0.40% 0.40% 0.40% 0.08% 0.34% 0.34% 0.34% 0.34% 0.12%
Total Annual Fund Operating
Expenses 1.28% 2.03% 2.03% 1.53% 0.71% 1.22% 1.97% 1.97% 1.47% 0.75%
Fee Waiver(8,9) 0.05% 0.05% 0.05% 0.05% 0.05% 0.01% 0.01% 0.01% 0.01% 0.01%
Net Annual Fund Expenses(10,11) 1.23% 1.98% 1.98% 1.48% 0.66% 1.21% 1.96% 1.96% 1.46% 0.74%
AIM CHARTER FUND
BUYING FUND
PRO FORMA COMBINED
(AS OF 10/31/04)
-----------------------------------------------------
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
------ ------ ------ ------ ------------
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge (Load)
Imposed on Purchase
(as a percentage of offering
price) 5.50% None None None None
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) None(1, 2) 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING EXPENSES
(4)
(expenses that are deducted
from fund assets) Management
fees (5) 0.63% 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service
(12b-1) Fees(6) 0.25% 1.00% 1.00% 0.50% -
Other Expenses(7) 0.34% 0.34% 0.34% 0.34% 0.10%
Total Annual Fund Operating
Expenses 1.22% 1.97% 1.97% 1.47% 0.73%
Fee Waiver(8),(9) 0.05% 0.05% 0.05% 0.05% 0.05%
Net Annual Fund Expenses(10),
(11) 1.17% 1.92% 1.92% 1.42% 0.68%
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
C-1
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Effective upon the closing of the Reorganization, the Board approved a
permanent reduction of the advisory fee of the AIM Charter Fund to 0.80% of
the first $150 million, plus 0.625% of the Fund's average daily net assets
in excess of $150 million.
(6) The Board of Trustees has approved a permanent reduction of the Rule 12b-1
fees applicable to AIM Charter Fund Class A shares to 0.25% effective July
1, 2005. Distribution and/or Service (12b-1) Fees reflect this agreement.
(7) Other Expenses of AIM Premier Equity Fund Institutional Class shares are
based on estimated amounts for the current fiscal year.
(8) Effective January 1, 2005 through December 31, 2009, the advisor for AIM
Premier Equity Fund and AIM Charter Fund has contractually agreed to waive
a portion of its 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 uniform fee schedule rate of 0.75% of the first $150
million, plus 0.615% of the next $4.85 billion, plus 0.57% of the next $2.5
billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the Fund's
average daily net assets in excess of $10 billion. The Fee Waiver reflects
this agreement.
(9) Effective July 1, 2005 through June 30, 2006, the AIM Premier Equity Fund's
advisor has contractually agreed to waive an additional 0.02% of its
Management Fees.
(10) At the request of the Board of Trustees AMVESCAP (as defined herein) has
agreed to reimburse AIM Premier Equity and AIM Charter Fund for expenses
related to market timing matters.
(11) AIM Premier Equity Fund will incur additional expenses in connection with
the Reorganization.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Your Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Your Fund into Buying Fund
are also provided. All costs are based upon the information set forth in the Fee
Table above.
The Example assumes that you invest $10,000 for the time periods indicated
and shows the expenses that you would pay both if you redeem all of your shares
at the end of those periods and if you do not redeem your shares. The Example
also assumes that your investment has a 5% return each year and that the
operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM PREMIER EQUITY FUND (YOUR FUND)
Class A ........................................... $ 668 $ 923 $1,197 $1,995
Class B ........................................... 701 926 1,276 2,150
Class C ........................................... 301 626 1,076 2,343
Class R ........................................... 151 472 817 1,808
Institutional Class ............................... 67 216 377 865
AIM CHARTER FUND (BUYING FUND)
Class A ........................................... $ 667 $ 913 $1,178 $1,941
Class B ........................................... 699 915 1,257 2,097
Class C ........................................... 299 615 1,057 2,291
Class R ........................................... 149 462 797 1,753
Institutional Class ............................... 76 237 411 925
AIM CHARTER FUND (BUYING FUND) - PRO FORMA COMBINED
Class A ........................................... $ 663 $ 901 $1,158 $1,923
Class B ........................................... 695 903 1,237 2,079
Class C ........................................... 295 603 1,037 2,273
Class R ........................................... 145 449 776 1,733
Institutional Class ............................... 69 218 379 880
C-3
You would pay the following expenses if you did not redeem your shares:
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM PREMIER FUND (YOUR FUND)
Class A ........................................... $ 668 $ 923 $1,197 $1,995
Class B ........................................... 201 626 1,076 2,150
Class C ........................................... 201 626 1,076 2,343
Class R ........................................... 151 472 817 1,808
Institutional Class ............................... 67 216 377 865
AIM CHARTER FUND (BUYING FUND)
Class A ........................................... $ 667 $ 913 $1,178 $1,941
Class B ........................................... 199 615 1,057 2,097
Class C ........................................... 199 615 1,057 2,291
Class R ........................................... 149 462 797 1,753
Institutional Class ............................... 76 237 411 925
AIM CHARTER FUND (BUYING FUND) - PRO FORMA COMBINED
Class A ........................................... $ 663 $ 901 $1,158 $1,923
Class B ........................................... 195 603 1,037 2,079
Class C ........................................... 195 603 1,037 2,273
Class R ........................................... 145 449 776 1,733
Institutional Class ............................... 69 218 379 880
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT YOUR FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of December 2, 2005, there were the following number of shares
outstanding of each class of your Fund:
YOUR FUND
Class A Shares:
Class B Shares:
Class C Shares:
Class R Shares:
Institutional Class Shares:
D-1
EXHIBIT E
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" the fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS CLASS OF SHARES SHARES OWNED RECORD*
- ---------------- --------------- ------------ ----------------
- ----------
* Trust has no knowledge of whether all or any portion of the shares owned
of record are also owned beneficially.
E-1
EXHIBIT F
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Buyer owned 5% or more of
any class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
CLASS OF NUMBER OF PERCENT OWNED
NAME AND ADDRESS SHARES SHARES OWNED OF RECORD*
- ---------------- -------- ------------- -------------
- ----------
* Buyer has no knowledge of whether all or any portion of the shares owned
of record are also owned beneficially.
F-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
AIM PREMIER EQUITY FUND,
A SEPARATE PORTFOLIO OF
AIM FUNDS GROUP
NOVEMBER 14, 2005
TABLE OF CONTENTS
Page
----
Article 1 DEFINITIONS................................................................... 1
SECTION 1.1. Definitions........................................................ 1
Article 2 TRANSFER OF ASSETS............................................................ 5
SECTION 2.1. Reorganization of Selling Fund..................................... 5
SECTION 2.2. Computation of Net Asset Value..................................... 5
SECTION 2.3. Valuation Date..................................................... 6
SECTION 2.4. Delivery........................................................... 6
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares........ 6
SECTION 2.6. Issuance of Buying Fund Shares..................................... 6
SECTION 2.7. Investment Securities.............................................. 7
SECTION 2.8. Liabilities........................................................ 7
Article 3 REPRESENTATIONS AND WARRANTIES OF SELLER...................................... 7
SECTION 3.1. Organization; Authority............................................ 7
SECTION 3.2. Registration and Regulation of Seller.............................. 7
SECTION 3.3. Financial Statements............................................... 8
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities................ 8
SECTION 3.5. Selling Fund Shares; Business Operations........................... 8
SECTION 3.6. Accountants........................................................ 9
SECTION 3.7. Binding Obligation................................................. 9
SECTION 3.8. No Breaches or Defaults............................................ 9
SECTION 3.9. Authorizations or Consents......................................... 10
SECTION 3.10. Permits........................................................... 10
SECTION 3.11. No Actions, Suits or Proceedings.................................. 10
SECTION 3.12. Contracts......................................................... 10
SECTION 3.13. Properties and Assets............................................. 11
SECTION 3.14. Taxes............................................................. 11
SECTION 3.15. Benefit and Employment Obligations................................ 12
SECTION 3.16. Brokers........................................................... 12
SECTION 3.17. Voting Requirements............................................... 12
SECTION 3.18. State Takeover Statutes........................................... 12
SECTION 3.19. Books and Records................................................. 12
SECTION 3.20. Prospectus and Statement of Additional Information................ 12
SECTION 3.21. No Distribution................................................... 12
SECTION 3.22. Liabilities of Selling Fund....................................... 13
SECTION 3.23. Value of Shares................................................... 13
SECTION 3.24. Shareholder Expenses.............................................. 13
SECTION 3.25. Intercompany Indebtedness; Consideration.......................... 13
Article 4 REPRESENTATIONS AND WARRANTIES OF BUYER....................................... 13
SECTION 4.1. Organization; Authority............................................ 13
SECTION 4.2. Registration and Regulation of Buyer............................... 13
SECTION 4.3. Financial Statements............................................... 14
i
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities................ 14
SECTION 4.5. Registration of Buying Fund Shares................................. 14
SECTION 4.6. Accountants........................................................ 15
SECTION 4.7. Binding Obligation................................................. 15
SECTION 4.8. No Breaches or Defaults............................................ 15
SECTION 4.9. Authorizations or Consents......................................... 16
SECTION 4.10. Permits........................................................... 16
SECTION 4.11. No Actions, Suits or Proceedings.................................. 16
SECTION 4.12. Taxes............................................................. 17
SECTION 4.13. Brokers........................................................... 17
SECTION 4.14. Representations Concerning the Reorganization..................... 17
SECTION 4.15. Prospectus and Statement of Additional Information................ 18
SECTION 4.16. Value of Shares................................................... 18
SECTION 4.17. Intercompany Indebtedness; Consideration.......................... 18
Article 5 COVENANTS..................................................................... 19
SECTION 5.1. Conduct of Business................................................ 19
SECTION 5.2. Expenses........................................................... 19
SECTION 5.3. Further Assurances................................................. 19
SECTION 5.4. Notice of Events................................................... 19
SECTION 5.5. Consents, Approvals and Filings.................................... 20
SECTION 5.6. Submission of Agreement to Shareholders............................ 20
Article 6 CONDITIONS PRECEDENT TO THE REORGANIZATION.................................... 20
SECTION 6.1. Conditions Precedent of Buyer...................................... 20
SECTION 6.2. Mutual Conditions.................................................. 21
SECTION 6.3. Conditions Precedent of Seller..................................... 22
Article 7 TERMINATION OF AGREEMENT...................................................... 23
SECTION 7.1. Termination........................................................ 23
SECTION 7.2. Survival After Termination......................................... 23
Article 8 MISCELLANEOUS................................................................. 23
SECTION 8.1. Survival of Representations, Warranties and Covenants.............. 23
SECTION 8.2. Governing Law...................................................... 24
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment.................. 24
SECTION 8.4. Obligations of Buyer and Seller.................................... 24
SECTION 8.5. Amendments......................................................... 24
SECTION 8.6. Enforcement........................................................ 25
SECTION 8.7. Interpretation..................................................... 25
SECTION 8.8. Counterparts....................................................... 25
SECTION 8.9. Entire Agreement; Exhibits and Schedules........................... 25
SECTION 8.10. Notices............................................................ 25
SECTION 8.11. Representations by Investment Adviser.............................. 26
SECTION 8.12. Successors and Assigns; Assignment................................. 26
ii
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes of
Shares of Buying Fund
SCHEDULE 3.4 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.4 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.5(a) Classes of Shares of Buying Fund
SCHEDULE 4.14(b) Permitted Reorganizations of Funds
SCHEDULE 6.2(f) Tax Opinions
iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of November , 2005 (this
"Agreement"), by and among AIM Funds Group, a Delaware statutory trust
("Seller"), acting on behalf of AIM Premier Equity Fund ("Selling Fund"), a
separate series of Seller, AIM Equity Funds, a Delaware statutory trust
("Buyer"), acting on behalf of AIM Charter Fund ("Buying Fund"), a separate
series of Buyer, and A I M Advisors, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the SEC
(as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the SEC
under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Seller desires to provide for the reorganization of Selling Fund
through the transfer of all of its assets to Buying Fund in exchange for the
assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Buyer of shares of Buying Fund in the manner
set forth in this Agreement; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund and is making certain
representations, warranties and agreements set forth in this Agreement;
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller and Buyer agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together with
all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined in
Section 3(3) of ERISA) and any material bonus, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
vacation, retirement, profit sharing, welfare plans or other plan, arrangement
or understanding maintained or contributed to by Seller on behalf of Selling
Fund, or otherwise providing benefits to any current or former employee, officer
or director/trustee of Seller.
"Buyer" means AIM Equity Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in its
capacity as custodian for the assets of Buying Fund.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-1424.
"Buying Fund" means AIM Charter Fund, a separate series of Buyer.
"Buying Fund Auditors" means Ernst & Young LLP for the fiscal year ended
October 31, 2004, and PricewaterhouseCoopers LLP for the periods subsequent to
October 31, 2004.
"Buying Fund Financial Statements" means the audited financial statements
of Buying Fund for the fiscal year ended October 31, 2004, and the Buying Fund
Semiannual Report to Shareholders dated April 30, 2005.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying Fund,
the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means March 27, 2006, or such other date as the parties may
mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all rules
and regulations adopted pursuant thereto.
2
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations adopted pursuant thereto.
"Governing Documents" means the organic documents which govern the
business and operations of each of Buyer and Seller and shall include, as
applicable, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in the
condition (financial or otherwise), properties, assets or prospects of an entity
having an adverse monetary effect in an amount equal to or greater than $50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the
3
issuance by Buyer of Buying Fund Shares directly to Selling Fund Shareholders as
described in this Agreement, and the termination of Selling Fund's status as a
designated series of shares of Seller.
"Required Shareholder Vote" means, if a quorum is present, the affirmative
vote of a majority of the shares cast at the Shareholders Meeting.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means AIM Funds Group, a Delaware statutory trust.
"Seller Custodian" means State Street Bank and Trust acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Registration Statement" means the registration statement on Form
N-1A of Seller, as amended, 1940 Act Registration No. 811-1540.
"Selling Fund" means AIM Premier Equity Fund, a separate series of Seller.
"Selling Fund Auditors" means PricewaterhouseCoopers LLP.
"Selling Fund Financial Statements" means the audited financial statements
of Selling Fund for the fiscal year ended December 31, 2004 and the Selling Fund
Semiannual Report to Shareholders dated June 30, 2005.
"Selling Fund Shareholders" means the holders of record of the outstanding
shares of each class of Selling Fund as of the close of regular trading on the
NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling Fund
convened in accordance with Applicable Law and the Governing Documents of Seller
to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
4
"Termination Date" means September 30, 2006, or such later date as the
parties may mutually agree upon.
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for the
Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for Eligible
Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds Retirement
Plan for Independent Directors and the Deferred Retirement Plan Account
Agreement.
"Valuation Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all of
the assets of Selling Fund shall be delivered to Buyer Custodian for the account
of Buying Fund in exchange for the assumption by Buying Fund of all of the
Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities of
Selling Fund to be transferred to Buying Fund pursuant to this Agreement shall
be computed in accordance with the policies and procedures of Selling Fund as
described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations of
value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Agreement shall be made by agreement of Seller and Buyer. The parties agree
to use commercially reasonable efforts to resolve any
5
material pricing differences between the prices of portfolio securities
determined in accordance with their respective pricing policies and procedures.
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund will
be permanently closed as of the close of business on the Valuation Date and only
requests for the redemption of shares of Selling Fund received in proper form
prior to the close of regular trading on the NYSE on the Valuation Date shall be
accepted by Selling Fund. Redemption requests thereafter received by Selling
Fund shall be deemed to be redemption requests for Buying Fund Shares of the
corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the Closing
Date, Seller shall instruct Seller Custodian to transfer all assets held by
Selling Fund to the account of Buying Fund maintained at Buyer Custodian. Such
assets shall be delivered by Seller to Buyer Custodian on the Closing Date. The
assets so delivered shall be duly endorsed in proper form for transfer in such
condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make delivery
in the manner contemplated by Section 2.4(a) of securities held by Selling Fund
for the reason that any of such securities purchased prior to the Closing Date
have not yet been delivered to Selling Fund or its broker, then Buyer shall
waive the delivery requirements of Section 2.4(a) with respect to said
undelivered securities if Selling Fund has delivered to Buyer Custodian by or on
the Closing Date, and with respect to said undelivered securities, executed
copies of an agreement of assignment and escrow and due bills executed on behalf
of said broker or brokers, together with such other documents as may be required
by Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares.
Following receipt of the Required Shareholder Vote and as soon as reasonably
practicable after the Closing, the status of Selling Fund as a designated series
of Seller shall be terminated and Seller shall redeem the outstanding shares of
Selling Fund from Selling Fund Shareholders in accordance with its Governing
Documents and all issued and outstanding shares of Selling Fund shall thereupon
be canceled on the books of Seller.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Seller shall provide instructions
to the transfer agent of Buyer with respect to the shares of each class of
Buying Fund to be issued
6
to Selling Fund Shareholders. Buyer shall have no obligation to inquire as to
the validity, propriety or correctness of any such instruction, but shall, in
each case, assume that such instruction is valid, proper and correct. Buyer
shall record on its books the ownership of the shares of each class of Buying
Fund by Selling Fund Shareholders and shall forward a confirmation of such
ownership to Selling Fund Shareholders. No redemption or repurchase of such
shares credited to former Selling Fund Shareholders in respect of Selling Fund
Shares represented by unsurrendered share certificates shall be permitted until
such certificates have been surrendered to Buyer for cancellation, or if such
certificates are lost or misplaced, until lost certificate affidavits have been
executed and delivered to Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best efforts
to discharge all of its known liabilities, so far as may be possible, prior to
the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite trust
power and authority to enter into this Agreement and perform its obligations
hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of
7
Selling Fund Shares have been effected at the net asset value per share
calculated in such manner.
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Selling Fund Financial Statements
previously delivered to Buyer present fairly in all material respects the
financial position of Selling Fund as of the dates indicated and the results of
operations and changes in net assets for the periods then ended in accordance
with generally accepted accounting principles applied on a consistent basis for
the periods then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund or Seller. Except as set forth on Schedule 3.4, there
are no contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the most recent financial statements included in the Selling
Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any Person could acquire Selling Fund Shares, except for
the right of investors to acquire Selling Fund Shares at net asset value in the
normal course of its business as a series of an open-end management investment
company operating under the Investment Company Act.
8
(d) Except for the Senior Officer Seller is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Seller does not have, and has not had during the six (6) months prior
to the date of this Agreement, any employees, and shall not hire any employees
from and after the date of this Agreement through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported upon
the Selling Fund Financial Statements for the fiscal year ending December 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Seller on behalf of Selling Fund and, assuming this
Agreement has been duly executed and delivered by Buyer and approved by the
shareholders of Selling Fund, constitutes the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms
from and with respect to the revenues and assets of Selling Fund, except as the
enforceability hereof may be limited by bankruptcy, insolvency, reorganization
or similar laws relating to or affecting creditors rights generally, or by
general equity principles (whether applied in a court of law or a court of
equity and including limitations on the availability of specific performance or
other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Seller on behalf of Selling Fund and performance by Seller of its
obligations hereunder has been duly authorized by all necessary trust action on
the part of Seller, other than approval by the shareholders of Selling Fund, and
(i) do not, and on the Closing Date will not, result in any violation of the
Governing Documents of Seller and (ii) do not, and on the Closing Date will not,
result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Seller is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall have
been obtained or made on or prior to the Closing Date and those that must be
made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
9
SECTION 3.10. Permits. Seller has in full force and effect all approvals,
consents, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights of Governmental Authorities (collectively, "Permits")
necessary for it to conduct its business as presently conducted as it relates to
Selling Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Seller there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the
knowledge of Seller, has any litigation been overtly threatened in writing or,
if probable of assertion, orally, against Seller before any Governmental
Authority which questions the validity or legality of this Agreement or of the
actions contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions,
suits, or proceedings instituted or pending or, to the knowledge of Seller,
threatened in writing or, if probable of assertion, orally, against Seller
affecting any property, asset, interest or right of Selling Fund, that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect with respect to Selling Fund. There are not in existence on the
date hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that were entered by, filed with or issued by any
Governmental Authority relating to Seller's conduct of the business of Selling
Fund affecting in any significant respect the conduct of such business. Seller
is not, and has not been, to the knowledge of Seller, the target of any
investigation by the SEC or any state securities administrator with respect to
its conduct of the business of Selling Fund, other than as has been disclosed to
Seller's Board of Trustees. SECTION 3.12. Contracts. Seller is not in default
under any contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party and which involves or affects the
assets of Selling Fund, by which the assets, business, or operations of Selling
Fund may be bound or affected, or under which it or the assets, business or
operations of Selling Fund receives benefits, and which default could reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect, and, to the knowledge of Seller there has not occurred any event that,
with the lapse of time or the giving of notice or both, would constitute such a
default.
SECTION 3.13. Properties and Assets. Selling Fund has good and marketable
title to all properties and assets reflected in the Selling Fund Financial
Statements as owned by it, free and clear of all Liens, except as described in
the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section
10
851(g) of the Code. Since inception, Selling Fund has qualified for treatment as
a regulated investment company for each taxable year that has ended prior to the
Closing Date and will have satisfied the requirements of Part I of Subchapter M
of the Code to maintain such qualification for the period beginning on the first
day of its current taxable year and ending on the Closing Date. Selling Fund has
no earnings and profits accumulated in any taxable year in which the provisions
of Subchapter M of the Code did not apply to it. In order to (i) ensure
continued qualification of Selling Fund for treatment as a "regulated investment
company" for tax purposes and (ii) eliminate any tax liability of Selling Fund
arising by reason of undistributed investment company taxable income or net
capital gain, Seller will declare on or prior to the Valuation Date to the
shareholders of Selling Fund a dividend or dividends that, together with all
previous such dividends, shall have the effect of distributing (A) all of
Selling Fund's investment company taxable income (determined without regard to
any deductions for dividends paid) for the taxable year ended December 31, 2005
and for the short taxable year beginning on January 1, 2006 and ending on the
Closing Date and (B) all of Selling Fund's net capital gain recognized in its
taxable year ended December 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be filed
by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. Except for the Trustee
Benefit Plans, Selling Fund has no obligation to provide any post-retirement or
post-employment benefit to any Person, including but not limited to, under any
Benefit Plan, and has no obligation to provide unfunded deferred compensation or
other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has acted
for or on behalf of Seller in connection with this Agreement or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
11
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
SECTION 3.19. Books and Records. The books and records of Seller relating
to Selling Fund, reflecting, among other things, the purchase and sale of
Selling Fund Shares, the number of issued and outstanding shares owned by each
Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being acquired
for the purpose of any distribution thereof, other than in accordance with the
terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling Fund
that are to be assumed by Buying Fund in connection with the Reorganization, or
to which the assets of Selling Fund to be transferred in the Reorganization are
subject, were incurred by Selling Fund in the ordinary course of its business.
The fair market value of the assets of Selling Fund to be transferred to Buying
Fund in the Reorganization will equal or exceed the sum of the Liabilities to be
assumed by Buying Fund, plus the amount of Liabilities, if any, to which such
transferred assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal, as of the Effective Time, to the fair market value
of the shares of each corresponding class of Selling Fund to be constructively
surrendered in exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Buying Fund Financial Statements
previously delivered to Seller present fairly in all material respects the
financial position of Buying Fund as of the dates indicated and the results of
operations and changes in net assets for the periods then ended in accordance
with generally accepted accounting principles applied on a consistent basis for
the periods then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Buyer. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the most recent financial statements included in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are set
forth on Schedule 4.5(a). Under its Governing Documents, Buyer is authorized to
issue an unlimited number of shares of each such class.
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(b) Buying Fund Shares to be issued pursuant to Section 2.6 shall on
the Closing Date be duly registered under the Securities Act by a Registration
Statement on Form N-14 of Buyer then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6 are duly
authorized and on the Closing Date will be validly issued and fully paid and
non-assessable and will conform to the description thereof contained in the
Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined Proxy
Statement/Prospectus"), which forms a part of Buyer's Registration Statement on
Form N-14, shall be furnished to the shareholders of Selling Fund entitled to
vote at the Shareholders Meeting in accordance with normal market practice for
such transactions. The Combined Proxy Statement/Prospectus and related Statement
of Additional Information of Buying Fund, when they become effective, shall
conform in all material respects to the applicable requirements of the
Securities Act and the Investment Company Act and shall not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being offered
for sale (other than the Buying Fund Shares to be issued in connection with the
Reorganization) have been duly registered under the Securities Act by the Buyer
Registration Statement and have been duly registered, qualified or are exempt
from registration or qualification under the securities laws of each state or
other jurisdiction in which such shares have been or are being offered for sale,
and no action has been taken by Buyer to revoke or rescind any such registration
or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported upon
the Buying Fund Financial Statements for the fiscal year ending October 31,
2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly authorized,
executed and delivered by Buyer on behalf of Buying Fund and, assuming this
Agreement has been duly executed and delivered by Seller, constitutes the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms from and with respect to the revenues and assets of Buying Fund,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors' rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of this
Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have
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been duly authorized by all necessary trust action on the part of Buyer and (i)
do not, and on the Closing Date will not, result in any violation of the
Governing Documents of Buyer and (ii) do not, and on the Closing Date will not,
result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Buying Fund (except for
such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Buyer is a party or by which it may be bound and which
relates to the assets of Buying Fund or to which any properties of Buying Fund
may be subject; (B) any Permit; or (C) any existing applicable law, rule,
regulation, judgment, order or decree of any Governmental Authority having
jurisdiction over Buyer or any property of Buying Fund. Buyer is not under the
jurisdiction of a court in a proceeding under Title 11 of the United States Code
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall have
been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect. SECTION 4.11. No Actions,
Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to the
knowledge of Buyer, has any litigation been overtly threatened in writing or, if
probable of assertion, orally, against Buyer before any Governmental Authority
which questions the validity or legality of this Agreement or of the
transactions contemplated hereby, or which seeks to prevent the consummation of
the transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration actions,
suits, or proceedings instituted or pending or, to the knowledge of Buyer,
threatened in writing or, if probable of assertion, orally, against Buyer,
affecting any property, asset, interest or right of Buying Fund, that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect with respect to Buying Fund. There are not in existence on the
date hereof any plea agreements, judgments, injunctions, consents, decrees,
exceptions or orders that were entered by, filed with or issued by any
Governmental Authority relating to Buyer's conduct of the business of Buying
Fund affecting in any significant respect the conduct of such business.
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Buyer is not, and has not been, to the knowledge of Buyer, the target of any
investigation by the SEC or any state securities administrator with respect to
its conduct of the business of Buying Fund, other than as has been disclosed to
Buyer's Board of Trustees.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment company
under Subchapter M of the Code and is a fund that is treated as a separate
corporation under Section 851(g) of the Code. Since inception, Buying Fund has
qualified for treatment as a regulated investment company for each taxable year
that has ended prior to the Closing Date and will satisfy the requirements of
Part I of Subchapter M of the Code to maintain such qualification for its
current taxable year. Buying Fund has no earnings or profits accumulated in any
taxable year in which the provisions of Subchapter M of the Code did not apply
to it.
(b) Buying Fund has timely filed all Returns required to be filed by
it and all Taxes with respect thereto have been paid, except where the failure
so to file or so to pay, would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Adequate provision has been
made in the Buying Fund Financial Statements for all Taxes in respect of all
periods ending on or before the date of such financial statements, except where
the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Buying
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has acted
for or on behalf of Buyer in connection with this Agreement or the transactions
contemplated hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission in
connection therewith based on any agreement, arrangement or understanding with
Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) There is no plan or intention by Buyer or any person related to
Buyer to acquire or redeem any Buying Fund Shares issued in the Reorganization,
except to the extent that Buying Fund is required by the Investment Company Act
to redeem any of its shares presented for redemption at net asset value in the
ordinary course of its business as an open-end, management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code;
provided, however, that this Section 4.14(b) shall not preclude any of the
reorganizations of funds set forth on Schedule 4.14(b).
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(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations; provided, however, that this Section 4.14(c) shall not preclude any
of the reorganizations of funds set forth on Schedule 4.14(b).
(d) Prior to or in the Reorganization, neither Buying Fund nor any
person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
There is no plan or intention by Buying Fund to redeem, or by any person related
to Buying Fund to acquire any of the Buying Fund Shares issued in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of each
class of Buying Fund received by Selling Fund Shareholders in the Reorganization
will be approximately equal, as of the Effective Time, to the fair market value
of the shares of each corresponding class of Selling Fund to be constructively
surrendered in exchange therefor. The fair market value of the assets of Buying
Fund will exceed the amount of its liabilities immediately after the exchange.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
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ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the Closing
Date (or, if earlier, the date upon which this Agreement is terminated pursuant
to Article 7), Seller shall conduct the business of Selling Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Selling Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(a) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
(b) From the date of this Agreement up to and including the Closing
Date (or, if earlier, the date upon which this Agreement is terminated pursuant
to Article 7), Buyer shall conduct the business of Buying Fund only in the
ordinary course and substantially in accordance with past practices, and shall
use its reasonable best efforts to preserve intact its business organization and
material assets and maintain the rights, franchises and business and customer
relations necessary to conduct the business operations of Buying Fund in the
ordinary course in all material respects; provided, however, that this Section
5.1(b) shall not preclude any of the reorganizations of funds set forth on
Schedule 4.14(b).
SECTION 5.2. Expenses. Buying Fund shall bear all of its costs and
expenses incurred in connection with this Agreement and the Reorganization
without any reimbursement therefor. Prior to the submission of the Agreement to
the Boards of Trustees of Buyer and Seller for approval, the Investment Adviser,
in the ordinary course of its business as a registered investment advisor
operating under the Advisors Act, agreed to bear 86% of the costs and expenses
of Selling Fund incurred in connection with this Agreement and the
Reorganization and other transactions contemplated hereby; provided that any
such expenses incurred by Selling Fund shall not be reimbursed or paid for by
the Investment Advisor or any other Person unless those expenses are solely and
directly related to the Reorganization.
SECTION 5.3. Further Assurances. Each of the parties hereto shall execute
such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Notice of Events. Buyer shall give prompt notice to Seller,
and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller would be likely to result in any of the conditions specified in (i) in
the case of Seller, Sections 6.1 and 6.2 or (ii) in the case of Buyer, Sections
6.2 and 6.3, not being satisfied so as to permit the consummation of the
Reorganization
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and (b) any material failure on its part, or on the part of the other party
hereto of which it has knowledge, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.5
shall not limit or otherwise affect the remedies available hereunder to any
party.
SECTION 5.5. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Securities Act, the Exchange Act,
the Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Agreement. In addition, each of Seller and Buyer shall use its reasonable
best efforts, and shall cooperate fully with each other (i) to comply as
promptly as reasonably practicable with all requirements of Governmental
Authorities applicable to the Reorganization and the other transactions
contemplated herein and (ii) to obtain as promptly as reasonably practicable all
necessary permits, orders or other consents of Governmental Authorities and
consents of all third parties necessary for the consummation of the
Reorganization and the other transactions contemplated herein. Each of Seller
and Buyer shall use reasonable efforts to provide such information and
communications
SECTION 5.6. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Trustees, recommend to the shareholders of Selling Fund approval of this
Agreement. Seller shall use its reasonable best efforts to hold a Shareholders
Meeting as soon as practicable and advisable after the date hereof.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of
Selling Fund set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
with the same effect as though all such representations and warranties had been
made as of the Closing Date.
(b) Seller shall have complied with and satisfied in all material
respects all agreements and conditions relating to Selling Fund set forth herein
on its part to be performed or satisfied at or prior to the Closing Date.
(c) Buyer shall have received at the Closing Date (i) a certificate,
dated as of the Closing Date, from an officer of Seller, in such individual's
capacity as an officer of Seller and not as an individual, to the effect that
the conditions specified in Sections 6.1(a) and (b) have been satisfied and (ii)
a certificate, dated as of the Closing Date, from the Secretary or Assistant
Secretary (in such capacity) of Seller certifying as to the accuracy and
completeness of the attached Governing Documents of Seller, and resolutions,
consents and authorizations of or
19
regarding Seller with respect to the execution and delivery of this Agreement
and the transactions contemplated hereby.
(d) The dividend or dividends described in the last sentence of
Section 3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or other
adequate evidence as to the tax costs and holding periods of the assets and
property of Selling Fund transferred to Buying Fund in accordance with the terms
of this Agreement.
(f) To the extent applicable, the Investment Adviser shall have
terminated or waived, in either case in writing, any rights to reimbursement
from Selling Fund to which it is entitled for fees and expenses absorbed by the
Investment Adviser pursuant to voluntary and contractual fee waiver or expense
limitation commitments between the Investment Adviser and Selling Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the following further conditions, any one or more of
which may be waived in writing by Seller and Buyer, but only if and to the
extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date with,
and all consents, approvals, permits and authorizations required to be obtained
on or prior to the Closing Date from, Governmental Authorities in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated herein by Seller and Buyer shall have been made or
obtained, as the case may be; provided, however, that such consents, approvals,
permits and authorizations may be subject to conditions that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and related
matters shall have been approved and adopted at the Shareholders Meeting by the
shareholders of Selling Fund on the record date by the Required Shareholder
Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or
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parties invoking this condition shall use reasonable efforts to have any such
order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer with
respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.2(f) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the Closing
Date an opinion of Buyer Counsel in form and substance reasonably acceptable to
Seller and Buyer, as to the matters set forth on Schedule 6.2(f). In rendering
such opinion, Buyer Counsel may request and rely upon representations contained
in certificates of officers of Seller, Buyer and others, and the officers of
Seller and Buyer shall use their best efforts to make available such truthful
certificates.
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of Buying
Fund set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date with the
same effect as though all such representations and warranties had been made as
of the Closing Date.
(b) Buyer shall have complied with and satisfied in all material
respects all agreements and conditions relating to Buying Fund set forth herein
on its part to be performed or satisfied at or prior to the Closing Date.
(c) Seller shall have received on the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of Buyer, in such
individual's capacity as an officer of Buyer and not as an individual, to the
effect that the conditions specified in Sections 6.3(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary of Buyer (in such capacity) certifying as to
the accuracy and completeness of the attached Governing Documents of Buyer and
resolutions, consents and authorizations of or regarding Buyer with respect to
the execution and delivery of this Agreement and the transactions contemplated
hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior to
the Closing Date as follows:
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(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by the
delivery by the terminating party to the other party of a written notice of such
termination:
(i) if the Closing Date shall not be on or before the
Termination Date, unless the failure to consummate the Reorganization is the
result of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or any final
adjournment thereof, the Required Shareholder Vote shall not have been obtained
as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reorganization and such order, decree,
ruling or other action shall have become final and nonappealable.
SECTION 7.2. Survival After Termination. If this Agreement is terminated
in accordance with Section 7.1 hereof and the Reorganization of Selling Fund is
not consummated, this Agreement shall become void and of no further force and
effect with respect to the Reorganization and Selling Fund, except for the
provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
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SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying Fund
is a separate investment portfolio of Buyer, that Buyer is executing this
Agreement on behalf of Buying Fund, and that any amounts payable by Buyer under
or in connection with this Agreement shall be payable solely from the revenues
and assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling Fund
is a separate investment portfolio of Seller, that Seller is executing this
Agreement on behalf of Selling Fund and that any amounts payable by Seller under
or in connection with this Agreement shall be payable solely from the revenues
and assets of Selling Fund. Buyer further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Seller in his or her
capacity as an officer of Seller intending to bind Seller as provided herein,
and that no officer, trustee or shareholder of Seller shall be personally liable
for the liabilities or obligations of Seller incurred hereunder. Finally, Buyer
acknowledges and agrees that the liabilities and obligations of Selling Fund
pursuant to this Agreement shall be enforceable against the assets of Selling
Fund only and not against the assets of Seller generally or assets belonging to
any other series of Seller.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or a Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
23
SECTION 8.8. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and each of which shall constitute one
and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
(a) If to Seller:
AIM Funds Group
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
(b) If to Buyer:
AIM Equity Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Investment Adviser.
24
(a) In its capacity as investment adviser to Seller, the Investment
Adviser represents to Buyer that to the best of its knowledge the
representations and warranties of Seller and Selling Fund contained in this
Agreement are true and correct as of the date of this Agreement. For purposes of
this Section 8.11(a), the best knowledge standard shall be deemed to mean that
the officers of the Investment Adviser who have substantive responsibility for
the provision of investment advisory services to Seller do not have actual
knowledge to the contrary after due inquiry.
(b) In its capacity as investment adviser to Buyer, the Investment
Adviser represents to Seller that to the best of its knowledge the
representations and warranties of Buyer and Buying Fund contained in this
Agreement are true and correct as of the date of this Agreement. For purposes of
this Section 8.11(b), the best knowledge standard shall be deemed to mean that
the officers of the Investment Adviser who have substantive responsibility for
the provision of investment advisory services to Buyer do not have actual
knowledge to the contrary after due inquiry.
SECTION 8.12. Successors and Assigns; Assignment. This Agreement
shall be binding upon and inure to the benefit of Seller, on behalf of Selling
Fund, and Buyer, on behalf of Buying Fund, and their respective successors and
permitted assigns. The parties hereto expressly acknowledge and agree that this
Agreement shall be binding upon and inure to the benefit of those Delaware
statutory trusts that are the resulting entities in the permitted
reorganizations of funds set forth on Schedule 4.14(b).
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
AIM FUNDS GROUP, acting on behalf of
AIM PREMIER EQUITY FUND
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
AIM EQUITY FUNDS, acting on behalf of
AIM CHARTER FUND
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
AIM ADVISORS, INC.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
26
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
A-1
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
- --------------------------------- --------------------------
AIM Premier Equity Fund AIM Charter Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class C Shares Class C Shares
Class R Shares Class R Shares
Institutional Class Shares Institutional Class Shares
1
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
1
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
1
SCHEDULE 4.5(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
- --------------------------------
Class A Shares
Class B Shares
Class C Shares
Class R Shares
Institutional Shares
1
SCHEDULE 4.14(b)
PERMITTED REORGANIZATIONS OF FUNDS
AIM Aggressive Growth Fund into AIM Constellation Fund
AIM Weingarten Fund into AIM Constellation Fund
AIM Blue Chip Fund into AIM Large Cap Growth Fund
AIM Mid Cap Growth Fund into AIM Dynamics Fund
AIM Small Company Growth Fund into AIM Small Cap Growth Fund
AIM V.I. Aggressive Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Blue Chip Fund into AIM V.I. Large Cap Growth Fund
AIM V.I. Premier Equity Fund into AIM V.I. Core Equity Fund
1
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in exchange
solely for Buying Fund Shares distributed directly to Selling Fund Shareholders
and Buying Fund's assumption of the Liabilities, as provided in the Agreement,
will constitute a "reorganization" within the meaning of Section 368(a) of the
Code and Selling Fund and Buying Fund will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the
Code, no gain or loss will be recognized by Selling Fund on the transfer of its
assets to Buying Fund solely in exchange for Buying Fund Shares and Buying
Fund's assumption of the Liabilities or on the distribution of Buying Fund
Shares to Selling Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will be
recognized by Buying Fund upon the receipt of assets of Selling Fund in exchange
for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Selling Fund Shareholders on the receipt of Buying Fund
Shares in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying
Fund of the assets of Selling Fund will be the same as the basis of such assets
in the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding period
with respect to the assets of Selling Fund transferred to Buying Fund in the
Reorganization will include the holding period for such assets in the hands of
Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
1
APPENDIX II
AIM CHARTER FUND -- CLASS A, B, C AND R SHARES
Supplement dated October 31, 2005
to the Prospectus dated February 28, 2005, as
supplemented July 1, 2005
This supplement supersedes and replaces in its entirety the information
appearing in the supplement dated July 1, 2005.
The following information replaces in its entirety the information appearing
under the heading "FEE TABLE AND EXPENSE EXAMPLE" in the prospectus:
"FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
----------------------------------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C CLASS R
----------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering
price) 5.50% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds, whichever is
less) None(1),(2) 5.00% 1.00% None(3)
----------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
----------------------------------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C CLASS R
----------------------------------------------------------------------------------------------------------
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service (12b-1) Fees(5) 0.25 1.00 1.00 0.50
Other Expenses 0.34 0.34 0.34 0.34
Total Annual Fund
Operating Expenses 1.22 1.97 1.97 1.47
Fee Waiver(6) 0.01 0.01 0.01 0.01
Net Annual Fund Operating Expenses(7) 1.21 1.96 1.96 1.46
----------------------------------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
1
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) The Board of Trustees has approved a permanent reduction of the Rule 12b-1
fees applicable to Class A shares to 0.25% effective July 1, 2005.
Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective January 1, 2005 through December 31, 2009, the adviser has
contractually agreed to waive a portion of its advisory fees. The Fee
Waiver reflects this agreement. (See "Fund Management--Advisor
Compensation" following.)
(7) At the request of the Board of Trustees, AMVESCAP (as defined herein) has
agreed to reimburse the fund for expenses related to market timing matters.
Net Annual Fund Operating Expenses restated for the items in Note 5 and
Note 6 and net of this arrangement were 1.20%, 1.95%, 1.95% and 1.45% for
Class A, Class B, Class C and Class R shares, respectively, for the year
ended October 31, 2004.
If a financial institution is managing your account, you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year, that the fund's operating expenses remain the same and includes the effect
of contractual fee waivers and/or expense reimbursements, if any. To the extent
fees are waived and/or expenses are reimbursed voluntarily, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ---------- --------- -------------
Class A $ 667 $ 913 $ 1,178 $ 1,941
Class B 699 915 1,257 2,097
Class C 299 615 1,057 2,291
Class R 149 462 797 1,753
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ---------- --------- -------------
Class A $ 667 $ 913 $ 1,178 $ 1,941
Class B 199 615 1,057 2,097
Class C 199 615 1,057 2,291
Class R 149 462 797 1,753
</Table>
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information in a different format from the preceding Fee Table and
Expense Example about the effect of a fund's expenses, including
2
investment advisory fees and other fund costs, on the fund's return over a
10-year period. Because a fund's annual return when quoted is already reduced by
the fund's fees and expenses for that year, this hypothetical expense
information is intended to help you understand the annual and cumulative impact
of a fund's fees and expenses on your investment. Assuming a hypothetical
investment of $10,000 in each class of shares of the fund and a 5% return before
expenses each year, the chart shows the cumulative return before expenses, the
cumulative return after expenses, the ending balance and the estimated annual
expenses for each year one through ten. The chart also assumes that the current
annual expense ratio stays the same throughout the 10-year period. The current
annual expense ratio for each class, which is the same as stated in the Fee
Table above, is reflected in the chart and is net of any contractual fee waiver
or expense reimbursement. There is no assurance that the annual expense ratio
will be the expense ratio for the fund class. To the extent that the advisor
makes any waivers or reimbursements pursuant to a voluntary arrangement, your
actual expenses may be less. The chart does not take into account initial or
contingent deferred sales charges, if any. You should understand that this is
only a hypothetical presentation made to illustrate what expenses and returns
would be under the above scenarios; your actual returns and expenses are likely
to differ (higher or lower) from those shown below.
<Table>
<Caption>
CLASS A --
ANNUAL
EXPENSE
RATIO 1.21% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return After
Expenses 3.79% 7.72% 11.81% 16.04% 20.44% 25.01% 29.74% 34.66% 39.77% 45.06%
End of Year
Balance $10,379.00 $10,772.36 $11,180.64 $11,604.38 $12,044.19 $12,500.66 $12,974.44 $13,466.17 $13,976.54 $14,506.25
Estimated
Annual
Expenses $ 123.29 $ 127.97 $ 132.82 $ 137.85 $ 143.07 $ 148.50 $ 154.12 $ 159.97 $ 166.03 $ 172.32
</Table>
<Table>
<Caption>
CLASS B --
ANNUAL
EXPENSE
RATIO 1.96% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return After
Expenses 3.04% 6.17% 9.40% 12.73% 16.15% 19.68% 23.32% 27.07% 31.89% 36.89%
End of Year
Balance $10,304.00 $10,617.24 $10,940.01 $11,272.58 $11,615.27 $11,968.37 $12,332.21 $12,707.11 $13,188.71 $13,688.56
Estimated
Annual
Expenses $ 198.98 $ 205.03 $ 211.26 $ 217.68 $ 224.30 $ 231.12 $ 238.15 $ 245.39 $ 156.67 $ 162.61
</Table>
<Table>
<Caption>
CLASS C --
ANNUAL
EXPENSE
RATIO 1.96% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return After
Expenses 3.04% 6.17% 9.40% 12.73% 16.15% 19.68% 23.32% 27.07% 30.93% 34.91%
End of Year
Balance $10,304.00 $10,617.24 $10,940.01 $11,272.58 $11,615.27 $11,968.37 $12,332.21 $12,707.11 $13,093.41 $13,491.45
Estimated
Annual
Expenses $ 198.98 $ 205.03 $ 211.26 $ 217.68 $ 224.30 $ 231.12 $ 238.15 $ 245.39 $ 252.85 $ 260.53
</Table>
3
<Table>
<Caption>
CLASS R --
ANNUAL
EXPENSE
RATIO 1.46% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10
- ------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative
Return
Before
Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75% 55.13% 62.89%
Cumulative
Return After
Expenses 3.54% 7.21% 11.00% 14.93% 19.00% 23.21% 27.57% 32.09% 36.76% 41.61%
End of Year
Balance $10,354.00 $10,720.53 $11,100.04 $11,492.98 $11,899.83 $12,321.09 $12,757.25 $13,208.86 $13,676.45 $14,160.60
Estimated
Annual
Expenses $ 148.58 $ 153.84 $ 159.29 $ 164.93 $ 170.77 $ 176.81 $ 183.07 $ 189.55 $ 196.26 $ 203.21"
</Table>
The following replaces in its entirety the heading and the first two paragraphs
appearing under the heading "FUND MANAGEMENT -- THE ADVISORS" on page 5 of the
prospectus:
"FUND MANAGEMENT -- THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The
advisor supervises all aspects of the fund's operations and provides
investment advisory services to the fund, including obtaining and
evaluating economic, statistical and financial information to formulate and
implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or
manages over 200 investment portfolios, including the fund, encompassing a
broad range of investment objectives."
The following sentence replaces in its entirety the first sentence appearing
after the table under the heading "SHAREHOLDER INFORMATION -- CHOOSING A SHARE
CLASS" on page A-1 of the prospectus:
"Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional
Information for the Institutional Class shares for details."
The following paragraph replaces in its entirety the first paragraph appearing
under the heading "SHAREHOLDER INFORMATION -- PURCHASING SHARES -- GRANDFATHERED
INVESTORS" on page A-8 of the prospectus:
"Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in
Investor Class shares of any of the funds currently distributed by ADI (the
Grandfathered Funds) and have continuously maintained such account in
Investor Class shares since April 1, 2002; (2) any person or entity listed
in the account registration for any Grandfathered Funds, which account was
established prior to April 1, 2002 and continuously maintained since April
1, 2002, such as joint owners, trustees,
4
custodians and designated beneficiaries; (3) customers of certain financial
institutions, wrap accounts or other fee-based advisory programs, or
insurance company separate accounts, which have had relationships with ADI
and/or any Grandfathered Funds prior to April 1, 2002 and continuously
maintained such relationships since April 1, 2002; (4) defined benefit,
defined contribution and deferred compensation plans; and (5) fund
trustees, employees of AMVESCAP PLC and its subsidiaries, AMVESCAP
directors, and their immediate families."
The following information is added as Item (5) under the heading "SHAREHOLDER
INFORMATION -- EXCHANGING SHARES -- PERMITTED EXCHANGES -- EXCHANGES NOT SUBJECT
TO A SALES CHARGE" on page A-13 of the prospectus:
"(5) Investor Class shares for Class A or Class A3 shares of any fund which
does not offer Investor Class shares."
5
AIM CHARTER FUND
PROSPECTUS
FEBRUARY 28, 2005
AIM Charter Fund seeks to provide growth of capital.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Class A, B, C and R
shares of the fund. Please read it before investing and keep it for future
reference.
As with all other mutual fund securities, the Securities and Exchange Commission
has not approved or disapproved these securities or determined whether the
information in this prospectus is adequate or accurate. Anyone who tells you
otherwise is committing a crime.
An investment in the fund:
- - is not FDIC insured;
- - may lose value; and
- - is not guaranteed by a bank.
----------------
AIM CHARTER FUND
----------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
INVESTMENT OBJECTIVE AND STRATEGIES 1
- ------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
- ------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS 1
- ------------------------------------------------------
PERFORMANCE INFORMATION 2
- ------------------------------------------------------
Annual Total Returns 2
Performance Table 3
FEE TABLE AND EXPENSE EXAMPLE 4
- ------------------------------------------------------
Fee Table 4
Expense Example 4
FUND MANAGEMENT 5
- ------------------------------------------------------
The Advisors 5
Advisor Compensation 6
Portfolio Manager 6
OTHER INFORMATION 6
- ------------------------------------------------------
Sales Charges 6
Dividends and Distributions 6
FINANCIAL HIGHLIGHTS 7
- ------------------------------------------------------
SHAREHOLDER INFORMATION A-1
- ------------------------------------------------------
Choosing a Share Class A-1
Excessive Short-Term Trading Activity
Disclosures A-5
Purchasing Shares A-7
Redeeming Shares A-9
Exchanging Shares A-11
Pricing of Shares A-14
Taxes A-16
OBTAINING ADDITIONAL INFORMATION Back Cover
- ------------------------------------------------------
</Table>
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM Institutional
Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de Fondos and
Design, Invierta con DISCIPLINA, Invest with DISCIPLINE, The AIM College Savings
Plan, AIM Solo 401(k), AIM Investments and Design and Your goals. Our solutions.
are registered service marks and AIM Bank Connection, AIM Internet Connect, AIM
Private Asset Management, AIM Private Asset Management and Design, AIM Stylized
and/or Design, AIM Alternative Assets and Design, and myaim.com are service
marks of A I M Management Group Inc. AIM Trimark is a service mark of A I M
Management Group Inc. and AIM Funds Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
----------------
AIM CHARTER FUND
----------------
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is growth of capital. The investment objective
of the fund may be changed by the Board of Trustees without shareholder
approval.
The fund seeks to meet its objective by investing at least 65% of its total
assets in securities of established companies that have long-term above-average
growth in earnings and growth companies that the portfolio manager believes have
the potential for above-average growth in earnings. In selecting investments,
the portfolio manager seeks to identify those companies that are, in his view,
undervalued relative to current or projected earnings, or the current market
value of assets owned by the company. The primary emphasis of the portfolio
manager's search for undervalued equity securities is in four categories: (1)
out-of-favor cyclical growth companies; (2) established growth companies that
are undervalued compared to historical relative valuation parameters; (3)
companies where there is early but tangible evidence of improving prospects
which are not yet reflected in the value of the companies' equity securities;
and (4) companies whose equity securities are selling at prices that do not yet
reflect the current market value of their assets. The portfolio manager
considers whether to sell a particular security when any of these factors
materially changes. The fund may also invest up to 20% of its total assets in
foreign securities.
For risk management or cash management purposes, the fund may hold a portion
of its assets in cash or cash equivalents, including shares of affiliated money
market funds. Any percentage limitations with respect to assets of the fund are
applied at the time of purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
A larger position in cash or cash equivalents could detract from achieving
the fund's objective, but could also reduce the fund's exposure in the event of
a market downturn.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
There is a risk that you could lose all or a portion of your investment in the
fund. The value of your investment in the fund will go up and down with the
prices of the securities in which the fund invests. The prices of equity
securities change in response to many factors including the historical and
prospective earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions and market liquidity.
Foreign securities have additional risks, including exchange rate changes,
political and economic upheaval, the relative lack of information about these
companies, relatively low market liquidity and the potential lack of strict
financial and accounting controls and standards.
To the extent the fund holds cash or cash equivalents rather than equity
securities for risk management purposes, the fund may not achieve its investment
objective.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's Statement
of Additional Information.
1
----------------
AIM CHARTER FUND
----------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
The following bar chart shows changes in the performance of the fund's Class A
shares from year to year. The bar chart does not reflect sales loads. If it did,
the annual total returns shown would be lower.
<Table>
<Caption>
ANNUAL
YEARS ENDED TOTAL
DECEMBER 31 RETURNS
- ----------- -------
1995................................................................... 35.68%
1996................................................................... 19.58%
1997................................................................... 24.73%
1998................................................................... 26.83%
1999................................................................... 33.87%
2000................................................................... -14.69%
2001................................................................... -23.09%
2002................................................................... -16.14%
2003................................................................... 23.99%
2004................................................................... 8.67%
</Table>
During the periods shown in the bar chart, the highest quarterly return was
26.08% (quarter ended December 31, 1998) and the lowest quarterly return was
- -21.72% (quarter ended September 30, 2001).
2
----------------
AIM CHARTER FUND
----------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
(for the periods
ended December 31, SINCE INCEPTION
2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION(1) DATE
- --------------------------------------------------------------------------------
Class A 11/26/68
Return Before Taxes 2.71% (6.87)% 9.19% --
Return After Taxes
on Distributions 2.58 (7.11) 7.65 --
Return After Taxes
on Distributions
and Sale of Fund
Shares 1.93 (5.74) 7.28 --
Class B 06/26/95
Return Before Taxes 2.97 (6.82) -- 7.41%
Class C 08/04/97
Return Before Taxes 6.95 (6.48) -- 2.26
Class R(2) 11/26/68(2)
Return Before Taxes 8.37 (6.03) 9.56 --
- --------------------------------------------------------------------------------
S&P 500 Index(3) 10.87 (2.30) 12.07 --
Russell 1000 Index(4) 11.40 (1.76) 12.16 --
Lipper Large-Cap Core
Fund Index(5) 8.29 (2.98) 10.26 --
- --------------------------------------------------------------------------------
</Table>
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Class A only and after-tax returns for Class B, C and R will vary.
(1) Since Inception performance is only provided for a class with less than ten
calendar years of performance.
(2) The returns shown for the one year period are the historical returns of the
fund's Class R shares. The returns shown for the five year period and ten
year period are the blended returns of the historical performance of the
fund's Class R shares since their inception and the restated historical
performance of the fund's Class A shares (for periods prior to inception of
the Class R shares) at net asset value, adjusted to reflect the higher Rule
12b-1 fees applicable to the Class R shares. The inception date shown in the
table is that of the fund's Class A shares. The inception date of the fund's
Class R shares is June 3, 2002.
(3) The Standard & Poor's 500 Index measures the performance of the 500 most
widely held common stock and is considered one of the best indicators of
U.S. stock market performance. The fund has elected to use the Standard &
Poor's 500 Index as its broad-based index. The fund has also included the
Russell 1000(R) Index, which the fund believes more closely reflects the
performance of the types of securities in which the fund invests. In
addition, the fund has included the Lipper Large-Cap Core Fund Index (which
may or may not include the fund) for comparison to a peer group.
(4) The Russell 1000(R) Index measures the performance of the 1,000 largest
companies domiciled in the United States.
(5) The Lipper Large-Cap Core Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Large-Cap Core category. These funds
typically invest in stocks with market capitalizations greater than $5
billion at the time of purchase and have an average price-to-earnings ratio,
price-to-book ratio, and a three year sales-per-share growth value, compared
to the S&P 500 Index.
3
----------------
AIM CHARTER FUND
----------------
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
<Table>
<Caption>
SHAREHOLDER FEES
- -------------------------------------------------------------------------------
(fees paid directly from
your investment) CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of offering price) 5.50% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of
original purchase price
or redemption proceeds, whichever is
less) None(1,2) 5.00% 1.00% None(3)
- -------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES(4)
- --------------------------------------------------------------------------------
(expenses that are deducted
from fund assets) CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------
Management Fees 0.63% 0.63% 0.63% 0.63%
Distribution and/or Service (12b-1) Fees 0.30 1.00 1.00 0.50
Other Expenses 0.34 0.34 0.34 0.34
Total Annual Fund
Operating Expenses 1.27 1.97 1.97 1.47
Fee Waiver(5) 0.01 0.01 0.01 0.01
Net Annual Fund Operating Expenses(6) 1.26 1.96 1.96 1.46
- --------------------------------------------------------------------------------
</Table>
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you bought $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total redemption
of the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(4) There is no guarantee that actual expenses will be the same as those shown
in the table.
(5) Effective January 1, 2005 through December 31, 2009, the adviser has
contractually agreed to waive a portion of its advisory fees. The Fee Waiver
reflects this agreement. (See "Fund Management--Advisor Compensation"
following.)
(6) At the request of the Trustees of AIM Equity Funds, AMVESCAP (as defined
herein) has agreed to reimburse the Trust for fund expenses related to
market timing matters. Net Annual Fund Operating Expenses net of this
arrangement were 1.25%, 1.95%, 1.95% and 1.45% for Class A, Class B, Class C
and Class R shares, respectively, for the year ended October 31, 2004.
If a financial institution is managing your account you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in different
classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year, that the
fund's operating expenses remain the same and includes the effect of any
contractual fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed voluntarily, your expenses will be lower.
Although your actual returns and costs may be higher or lower, based on these
assumptions your costs would be:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $671 $928 $1,204 $1,995
Class B 699 915 1,257 2,110
Class C 299 615 1,057 2,291
Class R 149 462 797 1,753
- --------------------------------------------------------------------------------
</Table>
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A $671 $928 $1,204 $1,995
Class B 199 615 1,057 2,110
Class C 199 615 1,057 2,291
Class R 149 462 797 1,753
- --------------------------------------------------------------------------------
</Table>
4
----------------
AIM CHARTER FUND
----------------
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISORS
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor. A I M Capital Management, Inc. (the subadvisor), a wholly owned
subsidiary of the advisor, is the fund's subadvisor and is responsible for its
day-to-day management. Both the advisor and the subadvisor are located at 11
Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisors supervise all
aspects of the fund's operations and provide investment advisory services to the
fund, including obtaining and evaluating economic, statistical and financial
information to formulate and implement investment programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976, and the subadvisor has acted as an investment advisor since 1986. Today,
the advisor, together with its subsidiaries, advises or manages over 200
investment portfolios, including the fund, encompassing a broad range of
investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds) and AIM reached final settlements with certain
regulators, including without limitation the Securities and Exchange Commission
(SEC), the New York Attorney General (NYAG) and the Colorado Attorney General
(COAG), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM funds that they advised
and to the independent directors/trustees of such funds that they had entered
into certain arrangements permitting market timing of such funds, thereby
breaching their fiduciary duties to such funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. (ADI) (the distributor of the retail AIM funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the settlements, $325 million will be made available for distribution
to the shareholders of those AIM funds that IFG formerly advised that were
harmed by market timing activity, and $50 million will be made available for
distribution to the shareholders of those AIM funds advised by AIM that were
harmed by market timing activity. These settlement funds will be distributed in
accordance with a methodology to be determined by an independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
funds and acceptable to the staff of the SEC. Under the settlements with the
NYAG and the COAG, AIM has also agreed to reduce management fees on certain AIM
equity and balanced funds by $15 million per year for the next five years, based
upon effective fee rates and assets under management as of July 1, 2004, and not
to increase certain management fees during this period. In addition, as required
by the settlements, AIM is in the process of making certain governance and
compliance reforms and reviewing its policies and procedures.
At the request of the trustees of the AIM funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
funds related to market timing matters.
The independent trustees of the AIM funds have been assisted by their own
independent counsel and financial expert in their own investigation of market
timing activity in the AIM funds. A special committee, consisting of four
independent trustees, was formed to oversee this investigation. None of the
costs of this investigation will be borne by the AIM funds or by fund
shareholders.
IFG, AIM, certain related entities, certain of their current and former
officers and/or certain of the AIM funds have received regulatory inquiries in
the form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including but not limited
to revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders. Additional regulatory inquiries related to these or other
issues may be received by the AIM funds, IFG, AIM and/or related entities and
individuals in the future.
A number of civil lawsuits related to market timing, late trading and
related issues have been filed against (depending on the lawsuit) certain of the
AIM funds, IFG, AIM, AMVESCAP, certain related entities, certain of their
current and former officers and/or certain unrelated third parties. All such
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 for consolidated or coordinated pre-trial proceedings. Other civil
lawsuits have been filed against (depending on the lawsuit) IFG, AIM, ADI,
certain related entities, certain of their current and former officers and/or
certain of the AIM funds and their trustees alleging the improper use of fair
value pricing, excessive advisory and/or distribution fees, improper charging of
distribution fees on limited offering funds or share classes and improper mutual
fund sales practices and directed-brokerage arrangements and participation in
class action settlements. Additional civil lawsuits related to the above or
other issues may be filed against the AIM funds, IFG, AIM and/or related
entities and individuals in the future.
You can find more detailed information concerning all of the above matters,
including the parties to the civil lawsuits and summaries of the various
allegations and remedies sought in such lawsuits, in the fund's Statement of
Additional Information and on AIM's Internet website under the heading "Settled
Enforcement Actions and Investigations Related to Market Timing, Regulatory
Inquiries and Pending Litigation" (http://www.aiminvestments.com/regulatory).
5
----------------
AIM CHARTER FUND
----------------
As a result of the matters discussed above, investors in the AIM funds might
react by redeeming their investments. This might require the funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the funds.
ADVISOR COMPENSATION
During the fiscal year ended October 31, 2004, the advisor received compensation
of 0.63% of average daily net assets. The annual management fee payable to the
advisor pursuant to the investment advisory agreement ranges from 1.00% to
0.625% of average daily net assets, based on net asset levels. The advisor has
contractually agreed to advisory fee waivers for the period January 1, 2005 to
December 31, 2009 as part of its settlement with the Attorney General of New
York ("NYAG"). The advisor will waive advisory fees to the extent necessary so
that the advisory fee payable does not exceed the Advisory Fee Rates After
January 1, 2005. Following are the advisory fee rates before and after January
1, 2005.
<Table>
<Caption>
ADVISORY FEE RATES BEFORE ADVISORY FEE RATES AFTER
JANUARY 1, 2005 WAIVER JANUARY 1, 2005 WAIVER
- ------------------------------------------------------------
1.00% of the first $30 0.75% of the first $150
million million
0.75% of the next $120 0.615% of the next $4.85
million billion
0.625% of the next $4.85 0.57% of the next $2.5
billion billion
0.545% of the next $2.5
0.60% of the next $5 billion* billion
0.575% of amount over $10 0.52% of amount over $10
billion* billion
</Table>
* After fee waiver. This rate includes AIM's voluntary agreement to waive an
amount equal to 0.025% for each $5 billion increment in net assets over $5
billion, up to a maximum of 0.175% on net assets over $35 billion.
PORTFOLIO MANAGER
Ronald S. Sloan, Senior Portfolio Manager, is primarily responsible for the
day-to-day management of the fund's portfolio. He has been responsible for the
fund since 2002 and has been associated with the advisor and/or its affiliates
since 1998.
He is assisted by the advisor's Mid/Large Cap Core Team, which may be
comprised of portfolio managers, research analysts and other investment
professionals of the advisor. Team members provide research support and make
securities recommendations with respect to the fund's portfolio, but do not have
day-to-day management responsibilities with respect to the fund's portfolio.
Members of the team may change from time to time. More information on this
portfolio manager and the team, including biographies of other members of the
team, may be found on the advisor's website (http://www.aiminvestments.com). The
website is not a part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio manager's investments in the fund, a description
of his compensation structure, and information regarding other accounts he
manages.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Charter Fund are subject to the maximum 5.50%
initial sales charge as listed under the heading "CATEGORY I Initial Sales
Charges" in the "Shareholder Information--Choosing a Share Class" section of
this prospectus. Certain purchases of Class A shares at net asset value may be
subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section. Certain purchases of Class R shares may be
subject to the contingent deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist primarily of
capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
6
----------------
AIM CHARTER FUND
----------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
The information for the fiscal years 2004, 2003, 2002 and 2001 has been
audited by Ernst & Young LLP, whose report, along with the fund's financial
statements, is included in the fund's annual report, which is available upon
request. Information prior to fiscal year 2001 was audited by other public
accountants.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.12 $ 9.57 $ 10.46 $ 18.07 $ 17.16
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.04(a) 0.01(b) (0.03) (0.04)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.51 (0.90) (6.70) 2.30
===============================================================================================================================
Total from investment operations 1.06 1.55 (0.89) (6.73) 2.26
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.88) (1.35)
===============================================================================================================================
Total distributions (0.02) -- -- (0.88) (1.35)
===============================================================================================================================
Net asset value, end of period $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 9.58% 16.20% (8.51)% (38.75)% 13.60%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,843,623 $2,008,702 $2,096,866 $3,159,304 $5,801,869
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(d) 1.30% 1.22% 1.16% 1.06%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(d) 1.30% 1.22% 1.17% 1.08%
===============================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.54%(d) 0.39% 0.09%(b) (0.24)% (0.20)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share and the ratio of net
investment income to average net assets would have remained the same. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to November 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,961,051,091.
7
----------------
AIM CHARTER FUND
----------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.67 $ 9.24 $ 10.18 $ 17.72 $ 16.97
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.53) 2.27
=================================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.66) 2.10
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 8.81% 15.48% (9.23)% (39.14)% 12.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $885,500 $1,149,943 $1,204,617 $1,719,470 $3,088,611
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.16%)(d) (0.31)% (0.61%)(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share and the ratio of net
investment income to average net assets would have remained the same. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to November 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,054,949,073.
8
----------------
AIM CHARTER FUND
----------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.70 $ 9.27 $ 10.21 $ 17.77 $ 17.01
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.55) 2.28
=========================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.68) 2.11
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=========================================================================================================================
Net asset value, end of period $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 8.79% 15.43% (9.21)% (39.14)% 12.78%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $138,305 $163,859 $170,444 $248,533 $412,872
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.16)%(d) (0.31)% (0.61)%(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on debt securities. Had the Fund not amortized premiums
on debt securities, the net investment income per share and the ratio of net
investment income to average net assets would have remained the same. In
accordance with the AICPA Audit and Accounting Guide for Investment
Companies, per share and ratios for periods prior to November 1, 2001 have
not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $157,268,602.
9
----------------
AIM CHARTER FUND
----------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.08 $ 9.56 $ 10.94
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.02(a) 0.00
====================================================================================================
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.50 (1.38)
====================================================================================================
Total from investment operations 1.04 1.52 (1.38)
====================================================================================================
Less dividends from net investment income (0.02) -- --
====================================================================================================
Net asset value, end of period $12.10 $11.08 $ 9.56
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 9.35% 15.90% (12.61)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,534 $1,714 $ 16
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.46%(c)(d) 1.50% 1.42%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets 0.34%(c) 0.19% (0.11)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 36% 28% 103%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,239,072.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers and/or
expense reimbursements ratio of expenses to average net assets was 1.47%
(e) Annualized.
(f) Not annualized for periods less than one year.
10
-------------
THE AIM FUNDS
-------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, AIM serves as investment advisor to many other mutual
funds (the funds). The following information is about all the funds.
CHOOSING A SHARE CLASS
Most of the funds have multiple classes of shares, each class representing an
interest in the same portfolio of investments. Certain classes have higher
expenses than other classes which may lower the return on your investment
relative to a less expensive class. In deciding which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your shares, (ii) the provisions of the distribution plan, if
any, applicable to the class (iii) the eligibility requirements that apply to
purchases of a particular class, and (iv) any services you may receive in making
your investment determination. In addition, you should consider the other
factors described below. Please contact your financial advisor to assist you in
making your decision.
<Table>
<Caption>
CLASS A(1) CLASS A3 CLASS B(3) CLASS C CLASS K CLASS R INVESTOR CLASS
- -------------------------------------------------------------------------------------------------------------------------------
- - Initial sales - No initial - No initial - No initial - No initial - No initial - No initial
charge sales charge sales charge sales charge sales charge sales charge sales charge
- - Reduced or waived - No contingent - Contingent - Contingent - Generally, no - Generally, no - No contingent
initial sales deferred sales deferred sales deferred sales contingent contingent deferred sales
charge for charge charge on charge on deferred sales deferred sales charge
certain redemptions redemptions charge(2) charge(2)
purchases(2) within six within one
years year(6)
- - Generally, lower - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of - 12b-1 fee of
distribution and 0.35% 1.00% 1.00% 0.45% 0.50% 0.25%(9)
service (12b-1)
fee than Class B,
Class C, Class K
or Class R shares
(See "Fee Table
and Expense
Example")
- Does not - Converts to - Does not - Does not - Does not - Does not
convert to Class A shares convert to Class convert to convert to convert to
Class A shares at the end of A shares Class A shares Class A shares Class A shares
the month
which is eight
years after
the date on
which shares
were purchased
along with a
pro rata
portion of its
reinvested
dividends and
distributions(4)
- - Generally more - Available only - Purchase - Generally more - Generally, - Generally, - Closed to new
appropriate for for a limited orders limited appropriate only available only available investors,
long-term number of to amount less for short- to retirement to employee except as
investors funds than term investors plans, benefit described in
$100,000(5) educational plans(8) the
- Purchase savings "Purchasing
orders limited programs and Shares --
to amount less wrap programs Grandfathered
than Investors"
$1,000,000(7) section of
your
prospectus
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional Information
for details.
(1) As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
(2) A contingent deferred sales charge may apply in some cases.
(3) Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code. These plans
include 401(k) plans (including AIM Solo 401(k) plans), money purchase
pension plans and profit sharing plans. Plans that have existing accounts
invested in Class B shares will continue to be allowed to make additional
purchases.
(4) AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Equity Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another fund, the shares into which you exchanged will not convert to Class
A shares until the end of the month which is eight years after the date on
which you purchased your original shares.
(5) Any purchase order for Class B shares in an amount equal to or in excess of
$100,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
(6) A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another fund that are subject to a CDSC into AIM Short Term Bond
Fund.
(7) Any purchase order for Class C shares in an amount equal to or in excess of
$1,000,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
MCF--02/05
A-1
-------------
THE AIM FUNDS
-------------
(8) Generally, Class R shares are only available to employee benefit plans.
These may include, for example, retirement and deferred compensation plans
maintained pursuant to Sections 401, 403, 457 of the Internal Revenue Code;
nonqualified deferred compensation plans; health savings accounts maintained
pursuant to Section 223 of the Internal Revenue Code, respectively; and
voluntary employees' beneficiary arrangements maintained pursuant to Section
501(c)(9) of the Internal Revenue Code. Retirement plans maintained pursuant
to Section 401 generally include 401(k) plans, profit sharing plans, money
purchase pension plans, and defined benefit plans. Retirement plans
maintained pursuant to Section 403 must be established and maintained by
non-profit organizations operating pursuant to Section 501(c)(3) of the
Internal Revenue Code in order to purchase Class R shares. Class R shares
are generally not available for individual retirement accounts such as
traditional, Roth, SEP, SAR-SEP and SIMPLE IRAs.
(9) Investor Class shares of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio do not have a 12b-1 fee.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12b-1) FEES
Each fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares and AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio with
respect to their Investor Class shares) has adopted 12b-1 plans that allow the
fund to pay distribution fees to A I M Distributors, Inc. (ADI) for the sale and
distribution of its shares and fees for services provided to shareholders, all
or a substantial portion of which are paid to the dealer of record. Because the
fund pays these fees out of its assets on an ongoing basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
SALES CHARGES
Sales charges on the funds and classes of those funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
Certain categories of persons are permitted to purchase Class A shares of
the funds without paying an initial sales charge because their transactions
involve little expense, such as persons who have a relationship with the funds
or with AIM and certain programs for purchase. For more detailed information
regarding eligibility to purchase or redeem shares at reduced or without sales
charges, please consult the fund's website at www.aiminvestments.com and click
on the links "My Account", Service Center, or consult the fund's Statement of
Additional Information, which is available upon request free of charge.
INITIAL SALES CHARGES
The funds (except AIM Short Term Bond Fund) are grouped into three categories
with respect to initial sales charges. The "Other Information" section of your
prospectus will tell you in what category your particular fund is classified.
CATEGORY I INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY II INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- ------------------------------------------------------------------------------
</Table>
CATEGORY III INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- ------------------------------------------------------------------------------
</Table>
AIM SHORT TERM BOND FUND INITIAL SALES CHARGES
- -------------------------------------------------------------
<Table>
<Caption>
INVESTOR'S
SALES CHARGE
---------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- ------------------------------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
- ------------------------------------------------------------------------------
</Table>
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares
of any fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE SHARES
OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
MCF--02/05
A-2
-------------
THE AIM FUNDS
-------------
If you currently own Class A shares of a Category I or II fund or AIM Short
Term Bond Fund and make additional purchases at net asset value that result in
account balances of $1,000,000 or more, the additional shares purchased will be
subject to an 18-month, 1% CDSC.
Some retirement plans can purchase Class A shares at their net asset value
per share. If ADI paid a concession to the dealer of record in connection with a
Large Purchase of Class A shares by a retirement plan, the Class A shares may be
subject to a 1% CDSC at the time of redemption if all retirement plan assets are
redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
ADI may pay a dealer concession and/or a service fee for Large Purchases and
purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
<Table>
<Caption>
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- --------------------------------------------------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- --------------------------------------------------------------------------------
</Table>
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS K AND CLASS R SHARES
You can purchase Class K and Class R shares at their net asset value per share.
If ADI pays a concession to the dealer of record, however, the Class K shares
are subject to a 0.70% CDSC and the Class R shares are subject to a 0.75% CDSC
at the time of redemption if all retirement plan assets are redeemed within 12
months from the date of the retirement plan's initial purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends and
capital gains distributions. In determining whether to charge a CDSC, we will
assume that you are redeeming shares on which there is no CDSC first and, then,
shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To qualify
for these reductions or exceptions, you or your financial advisor must notify
the transfer agent at the time of purchase that your purchase qualifies for such
treatment. Certain individuals and employer-sponsored retirement plans may link
accounts for the purpose of qualifying for lower initial sales charges. You or
your financial consultant must provide other account numbers to be considered
for Rights of Accumulation, or mark the Letter of Intent section on the account
application, or provide other relevant documentation, so that the transfer agent
can verify your eligibility for the reduction or exception. Consult the fund's
Statement of Additional Information for details.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM
Floating Rate Fund and Investor Class shares of any fund will not be taken into
account in determining whether a purchase qualifies for a reduction in initial
sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of a fund with fund shares
currently owned (Class A, B, C, K or R) and investments in the AIM College
Savings Plan(SM) for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales charge
for the new purchase is based on the total of your current purchase and the
public offering price of all other shares you own. The transfer agent may
automatically link certain accounts registered in the same name, with the same
taxpayer identification number, for the purpose of qualifying you for lower
initial sales charge rates.
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar amount
of Class A shares of the funds during a 13-month period. The amount you agree to
purchase determines the initial sales charge you pay. If the full face amount of
the LOI is not invested by the end of the 13-month period, your account will be
adjusted to the higher initial sales charge level for the amount actually
invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
- - on shares purchased by reinvesting dividends and distributions;
- - when exchanging shares among certain funds; and
- - when a merger, consolidation, or acquisition of assets of a fund occurs.
MCF--02/05
A-3
-------------
THE AIM FUNDS
-------------
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
- - if you redeem Class B shares you held for more than six years;
- - if you redeem Class C shares you held for more than one year;
- - if you redeem Class C shares of a fund other than AIM Short Term Bond Fund and
you received such Class C shares by exchanging Class C shares of AIM Short
Term Bond Fund;
- - if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another fund and the
original purchase was subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class A, C, K or Class R shares held through such
plan that would otherwise be subject to a CDSC;
- - if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class A, C, K or Class R shares held through such plan
that would otherwise be subject to a CDSC;
- - if you are a participant in a qualified retirement plan and redeem Class A,
Class C, Class K or Class R shares in order to fund a distribution;
- - if you participate in the Systematic Redemption Plan and withdraw up to 12% of
the value of your shares that are subject to a CDSC in any twelve-month
period;
- - if you redeem shares to pay account fees;
- - for redemptions following the death or post-purchase disability of a
shareholder or beneficial owner;
- - if you redeem shares acquired through reinvestment of dividends and
distributions; and
- - on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
ADDITIONAL PAYMENTS TO FINANCIAL ADVISORS
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed above.
In addition to those payments, ADI or one or more of its corporate affiliates
(collectively, ADI Affiliates) may make additional cash payments to financial
advisors in connection with the promotion and sale of shares of AIM funds. These
additional cash payments may include cash revenue sharing payments and other
payments for certain administrative services, transaction processing services
and certain other marketing support services. ADI Affiliates make these payments
from their own resources, from ADI's retention of underwriting concessions and
from payments to ADI under Rule 12b-1 plans. In this context, "financial
advisors" include any broker, dealer, bank (including bank trust departments),
registered investment advisor, financial planner, retirement plan administrator
and any other financial intermediary having a selling, administration or similar
agreement with ADI Affiliates.
ADI Affiliates make revenue sharing payments as incentives to certain
financial advisors to promote and sell shares of AIM funds. The benefits ADI
Affiliates receive when they make these payments include, among other things,
placing AIM funds on the financial advisor's funds sales system, placing AIM
funds on the financial advisor's preferred or recommended fund list, and access
(in some cases on a preferential basis over other competitors) to individual
members of the financial advisor's sales force or to the financial advisor's
management. Revenue sharing payments are sometimes referred to as "shelf space"
payments because the payments compensate the financial advisor for including AIM
funds in its fund sales system (on its "sales shelf"). ADI Affiliates compensate
financial advisors differently depending typically on the level and/or type of
considerations provided by the financial advisor. The revenue sharing payments
ADI Affiliates make may be calculated on sales of shares of AIM funds
(Sales-Based Payments), in which case the total amount of such payments shall
not exceed 0.25% of the public offering price of all shares sold by the
financial advisor during the particular period. Such payments also may be
calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor (Asset-Based Payments), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of AIM funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of AIM
funds in investor accounts. ADI Affiliates may pay a financial advisor either or
both Sales-Based Payments and Asset-Based Payments.
ADI Affiliates also may make other payments to certain financial advisors
for processing certain transactions or account maintenance activities (such as
processing purchases, redemptions or exchanges or producing customer account
statements) or for providing certain other marketing support services (such as
financial assistance for conferences, seminars or sales or training programs at
which ADI Affiliates personnel may make presentations on AIM funds to the
financial advisor's sales force). Financial advisors may earn profits on these
payments for these services, since the amount of the payment may exceed the cost
of providing the service. Certain of these payments are subject to limitations
under applicable law.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of AIM fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more shares
of AIM funds or retain shares of AIM funds in their clients' accounts, ADI
Affiliates benefit from the incremental management and other fees paid to ADI
Affiliates by the AIM funds with respect to those assets.
You can find further details in the fund's Statement of Additional
Information about these payments and the services provided by financial
advisors. In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you
MCF--02/05
A-4
-------------
THE AIM FUNDS
-------------
additional fees or commissions other than those disclosed in this prospectus.
You can ask your financial advisor about any payments it receives from ADI
Affiliates or the AIM funds, as well as about fees and/or commissions it
charges.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
While the funds provide their shareholders with daily liquidity, their
investment programs are designed to serve long-term investors. Excessive
short-term trading activity in the funds' shares (i.e., a purchase of fund
shares followed shortly thereafter by a redemption of such shares, or vice
versa) may hurt the long-term performance of certain funds by requiring them to
maintain an excessive amount of cash or to liquidate portfolio holdings at a
disadvantageous time, thus interfering with the efficient management of such
funds by causing them to incur increased brokerage and administrative costs.
Where excessive short-term trading activity seeks to take advantage of arbitrage
opportunities from stale prices for portfolio securities, the value of fund
shares held by long-term investors may be diluted. The Boards of Trustees have
adopted policies and procedures designed to discourage excessive or short-term
trading of fund shares for all funds except the money market funds. However,
there is the risk that these funds' policies and procedures will prove
ineffective in whole or in part to detect or prevent excessive or short-term
trading. These funds may alter their policies at any time without prior notice
to shareholders if the advisor believes the change would be in the best
interests of long-term shareholders.
AIM and its affiliates (collectively, AIM Affiliates) currently use the
following tools designed to discourage excessive short-term trading in the
retail funds:
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) use of fair value pricing consistent with procedures approved by the Boards
of Trustees of the funds.
Each of these tools is described in more detail below. Although these tools are
designed to discourage excessive short-term trading, you should understand that
none of these tools alone nor all of them taken together eliminate the
possibility that excessive short-term trading activity in the funds will occur.
Moreover, each of these tools involves judgments that are inherently subjective.
The AIM Affiliates seek to make these judgments to the best of their abilities
in a manner that they believe is consistent with long-term shareholder
interests.
The Boards of Trustees of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio (the money market funds) have not adopted any policies and
procedures that would limit frequent purchases and redemptions of such funds'
shares. The Boards do not believe that it is appropriate to adopt any such
policies and procedures for the money market funds for the following reasons:
- - The money market funds are offered to investors as cash management vehicles.
Investors must perceive an investment in such funds as an alternative to cash,
and must be able to purchase and redeem shares regularly and frequently.
- - One of the advantages of a money market fund as compared to other investment
options is liquidity. Any policy that diminishes the liquidity of the money
market funds will be detrimental to the continuing operations of such funds.
- - The money market funds' portfolio securities are valued on the basis of
amortized cost, and such funds seeks to maintain a constant net asset value.
As a result, there are no price arbitrage opportunities.
- - Because the money market funds seek to maintain a constant net asset value,
investors expect to receive upon redemption the amount they originally
invested in such funds. Imposition of redemption fees would run contrary to
investor expectations.
The Boards considered the risks of not having a specific policy that limits
frequent purchases and redemptions, and it determined that those risks are
minimal, especially in light of the reasons for not having such a policy as
described above. Nonetheless, to the extent that the fund must maintain
additional cash and/or securities with short-term durations than may otherwise
be required, the fund's yield could be negatively impacted.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to
detect excessive short-term trading activities. If, as a result of this
monitoring, the AIM Affiliates believe that a shareholder has engaged in
excessive short-term trading, they may, in their discretion, ask the shareholder
to stop such activities or refuse to process purchases or exchanges in the
shareholder's accounts other than exchanges into a money market fund. In making
such judgments, the AIM Affiliates seek to act in a manner that they believe is
consistent with the best interests of long-term shareholders.
The ability of the AIM Affiliates to monitor trades that are placed by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts. This is one reason why this tool cannot eliminate the possibility of
excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund,
AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio) per
calendar year, or a fund or an AIM Affiliate determines, in its sole discretion,
that your short-term trading activity is excessive (regardless of whether or not
MCF--02/05
A-5
-------------
THE AIM FUNDS
-------------
you exceed such guidelines), it may, in its discretion, reject any additional
purchase and exchange orders. Each fund and the AIM Affiliates reserve the
discretion to accept exchanges in excess of these guidelines on a case-by-case
basis if they believe that granting such exceptions would be consistent with the
best interests of shareholders. An exchange is the purchase of shares in one
fund which is paid for with the proceeds from a redemption of shares of another
fund effectuated on the same day. The movement out of one fund (redemption) and
into one or more other funds (purchase) on the same day shall be counted as one
exchange. Exchanges effected as part of programs that have been determined by an
AIM Affiliate to be non-discretionary, such as dollar cost averaging, portfolio
rebalancing, or other automatic non-discretionary programs that involve
exchanges, generally will not be counted toward the trading guidelines
limitation of four exchanges out of a fund per calendar year.
The ability of the AIM Affiliates to monitor exchanges made by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to implement these trading guidelines and
may be further limited by systems limitations applicable to those types of
accounts. Additionally, the AIM Affiliates maintain certain retirement plan
accounts on a record keeping system that is currently incapable of effecting or
monitoring the trading guidelines.
Some investments in the funds are made indirectly through vehicles such as
qualified tuition plans, variable annuity and insurance contracts, and funds of
funds which use the funds as underlying investments (each a conduit investment
vehicle). If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to impose exchange
limitations on individual transactions initiated by investors who have invested
in the funds through the conduit investment vehicle.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by
exchange, shares of certain funds within 30 days of purchase. See "Redeeming
Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan accounts
and approved fee-based program accounts is severely limited or non-existent in
those instances in which the broker, retirement plan administrator or fee-based
program sponsor maintains the underlying shareholder accounts and is unwilling
or unable to assess such fees and may be further limited by systems limitations
applicable to these types of accounts. Additionally, the AIM Affiliates maintain
certain retirement plan accounts on a record keeping system that is currently
incapable of processing the redemption fee. The provider of this system is
working to enhance the system to facilitate the processing of this fee.
For additional discussion of the applicability of redemption fees on shares
of the fund held through omnibus accounts, retirement plan accounts, approved
fee-based program accounts and conduit investment vehicles, see "Redeeming
Shares -- Redemption Fee".
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair value
determined in good faith using procedures approved by the Board of Trustees of
the fund. Fair value pricing may reduce the ability of frequent traders to take
advantage of arbitrage opportunities resulting from potentially "stale" prices
of portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
See "Pricing of Shares -- Determination of Net Asset Value" for more
information.
MCF--02/05
A-6
-------------
THE AIM FUNDS
-------------
PURCHASING SHARES
If you hold your shares through a broker/dealer or other financial institution,
your eligibility to purchase those shares, the conditions for purchase and sale,
and the minimum and maximum amounts allowed may differ depending on that
institution's policies.
MINIMUM INVESTMENTS PER FUND ACCOUNT
There are no minimum investments with respect to Class K or Class R shares for
fund accounts. The minimum investments with respect to Class A, A3, B and C
shares and Investor Class shares for fund accounts are as follows:
<Table>
<Caption>
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, $ 0 ($25 per fund investment for $25
403 and salary deferrals from
457 plans, and SEP, SARSEP and SIMPLE IRA plans) Employer-Sponsored Retirement
Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 25
All other accounts 1,000 50
ADI has the discretion to accept orders for lesser amounts.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will not
be processed unless the account application and purchase payment are received in
good order. In accordance with the USA PATRIOT Act, if you fail to provide all
the required information requested in the current account application, your
purchase order will not be processed. Additionally, Federal law requires that
the fund verify and record your identifying information.
PURCHASE OPTIONS
- --------------------------------------------------------------------------------
<Table>
<Caption>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor. Same
By Mail Mail completed account application and Mail your check and the remittance slip
check to the transfer agent, AIM from your confirmation statement to the
Investment Services, Inc., P.O. Box transfer agent.
4739, Houston, TX 77210-4739.
By Wire Mail completed account application to Call the transfer agent to receive a
the transfer agent. Call the transfer reference number. Then, use the wire
agent at (800) 959-4246 to receive a instructions at left.
reference number. Then, use the
following wire instructions:
Beneficiary Bank ABA/Routing #:
113000609
Beneficiary Account Number: 00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one of the Select the AIM Bank
methods described above. Connection--Servicemark-- option on
your completed account application or
complete an AIM Bank Connection form.
Mail the application or form to the
transfer agent. Once the transfer agent
has received the form, call the
transfer agent to place your purchase
order.
Call the AIM 24-hour Automated Investor
Line at 1-800-246-5463. You may place
your order after you have provided the
bank instructions that will be
requested.
By Internet Open your account using one of the Access your account at
methods described above. www.aiminvestments.com. The proper bank
instructions must have been provided on
your account. You may not purchase
shares in retirement accounts on the
internet.
- -------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-7
-------------
THE AIM FUNDS
-------------
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by ADI (the Grandfathered
Funds) and have continuously maintained such account in Investor Class shares
since April 1, 2002; (2) any person or entity listed in the account registration
for any Grandfathered Funds, which account was established prior to April 1,
2002 and continuously maintained since April 1, 2002, such as joint owners,
trustees, custodians and designated beneficiaries; (3) customers of certain
financial institutions, wrap accounts or other fee-based advisory programs, or
insurance company separate accounts, which have had relationships with ADI
and/or any of the Grandfathered Funds prior to April 1, 2002 and continuously
maintained such relationships since April 1, 2002; and (4) fund trustees,
employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors, and their
immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the funds by authorizing the
transfer agent to withdraw the amount of your investment from your bank account
on a day or dates you specify and in an amount of at least $50. You may stop the
Systematic Purchase Plan at any time by giving the transfer agent notice ten
days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one fund account to one or more other fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this option.
Exchanges will occur on (or about) the day of the month you specify, in the
amount you specify. Dollar Cost Averaging cannot be set up for the 29th through
the 31st of the month. The minimum amount you can exchange to another fund is
$50. You may participate in a dollar cost averaging program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Dollar Cost Averaging program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same fund. You may invest
your dividends and distributions per the rules listed in the "Permitted
Exchanges" section.
You must comply with the following requirements to be eligible to invest
your dividends and distributions in shares of another fund:
(1) Your account balance (a) in the fund paying the dividend must be at least
$5,000; and (b) in the fund receiving the dividend must be at least $500;
and
(2) Both accounts must have identical registration information.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your fund holdings should be rebalanced, on a percentage basis,
between two and ten of your funds on a quarterly, semiannual or annual basis.
Your portfolio will be rebalanced through the exchange of shares in one or more
of your funds for shares of the same class of one or more other funds in your
portfolio. Rebalancing will NOT occur if your portfolio is within 2% of your
stated allocation. If you wish to participate in the Program, make changes or
cancel the Program, the transfer agent must receive your request to participate,
changes, or cancellation in good order at least five business days prior to the
next rebalancing date, which is normally the 28th day of the last month of the
period you choose. You may realize taxable gains from these exchanges. We may
modify, suspend or terminate the Program at any time on 60 days prior written
notice. You may participate in a portfolio rebalancing program hosted by your
dealer of record, your financial advisor or another financial intermediary. If
such program is the same or similar to AIM's Portfolio Rebalancing Program and
is non-discretionary, both as determined by an AIM Affiliate, exchanges made
pursuant to such program generally will not be counted toward the trading
guideline limitation of four exchanges out of a fund per calendar year.
RETIREMENT PLANS
Shares of most of the funds can be purchased through tax-sheltered retirement
plans made available to corporations, individuals and employees of non-profit
organizations and public schools. A plan document must be adopted to establish a
retirement plan. You may use AIM sponsored retirement plans, which include IRAs,
Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans, Solo 401(k) plans
and Money Purchase/Profit Sharing plans, or another sponsor's retirement plan.
AIM Investment Services, Inc. assesses certain fees associated with the
maintenance of certain types of retirement plan accounts and the provision of
specialized recordkeeping services for those plan accounts. ADI assesses certain
fees associated with the maintenance of retirement plan documents for which it
acts as the prototype sponsor. Contact your financial advisor for details.
MCF--02/05
A-8
-------------
THE AIM FUNDS
-------------
REDEEMING SHARES
REDEMPTION FEE
You may be charged a 2% redemption fee (on redemption proceeds) if you redeem,
including redeeming by exchange, shares of the following funds within 30 days of
their purchase:
<Table>
AIM Asia Pacific Growth Fund AIM Global Value Fund
AIM Developing Markets Fund AIM High Yield Fund
AIM European Growth Fund AIM International Core Equity Fund
AIM European Small Company AIM International Growth Fund
Fund AIM International Small Company Fund
AIM Global Aggressive Growth AIM S&P 500 Index Fund
Fund AIM Trimark Fund
AIM Global Equity Fund
AIM Global Growth Fund
</Table>
Currently, the redemption fee may be applied on Class A and Investor Class
shares (and Institutional Class shares of AIM S&P 500 Index Fund). The AIM
Affiliates expect the above funds to charge the redemption fee on all shares for
all of the above funds effective April 1, 2005.
The redemption fee will be retained by the fund from which you are redeeming
shares (including redemptions by exchange), and is intended to offset the
trading costs, market impact and other costs associated with short-term money
movements in and out of the fund. The redemption fee is imposed to the extent
that the number of fund shares you redeem exceeds the number of fund shares that
you have held for more than 30 days. In determining whether the minimum 30 day
holding period has been met, only the period during which you have held shares
of the fund from which you are redeeming is counted. For this purpose, shares
held longest will be treated as being redeemed first and shares held shortest as
being redeemed last.
The 2% redemption fee generally will not be charged on transactions
involving the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by
brokers that do not have the systematic capability to process the redemption
fee;
(2) total or partial redemptions of shares by approved fee-based programs that
do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans
maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal
Revenue Code (the Code) where the systematic capability to process the
redemption fee does not exist;
(4) total or partial redemptions effectuated by funds of funds, qualified
tuition plans maintained pursuant to Section 529 of the Code, and insurance
company separate accounts which use the funds as underlying investments;
(5) total or partial redemptions effectuated pursuant to an automatic
non-discretionary rebalancing program or a systematic withdrawal plan
established with the funds or a financial intermediary;
(6) total or partial redemptions requested within 30 days following the death or
post-purchase disability of (i) any registered shareholder on an account or
(ii) the settlor of a living trust which is the registered shareholder of an
account, of shares held in the account at the time of death or initial
determination of post-purchase disability;
(7) total or partial redemption of shares acquired through investment of
dividends and other distributions; or
(8) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of
shares of the above funds regardless of the type of account in which such shares
are held. This goal is not immediately achievable because of systems limitations
and marketplace resistance. Brokers that maintain omnibus accounts, sponsors of
fee-based program accounts and retirement plan administrators for accounts that
are exempt from the redemption fee pursuant to (1) through (8) above may impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than those set forth above. Lastly, the provider of AIM's
retirement plan record keeping system is working to enhance the system to
facilitate the processing of the redemption fee. Until such computer programs
are modified or alternate processes are developed, the fund's ability to assess
a redemption fee on these types of share classes and accounts is severely
limited.
Some investments in the funds are made indirectly through conduit investment
vehicles. If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment vehicle
may be considered an individual shareholder of the funds. To the extent that a
conduit investment vehicle is considered an individual shareholder of the funds,
the funds are likely to be limited in their ability to assess redemption fees on
individual transactions initiated by investors who have invested in the funds
through the conduit investment vehicle. In these cases, the applicability of
redemption fees will be determined based on the aggregate holdings and
redemptions of the conduit investment vehicle in a fund.
The funds have the discretion to waive the 2% redemption fee if a fund is in
jeopardy of losing its registered investment company qualification for tax
purposes.
Your broker or financial advisor may charge service fees for handling
redemption transactions. Your shares also may be subject to a contingent
deferred sales charge (CDSC) in addition to the redemption fee.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
If you purchase $1,000,000 or more of Class A shares of any fund, or if you make
additional purchases of Class A shares on and after
MCF--02/05
A-9
-------------
THE AIM FUNDS
-------------
October 31, 2002 at net asset value, your shares may be subject to a CDSC upon
redemption as described below.
<Table>
<Caption>
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- --------------------
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
I or II Fund or AIM Short or II Fund or AIM Short Term within 18 months of initial
Term Bond Fund Bond Fund purchase of Category I or II
- Class A shares of Category III Fund or AIM Short Term Bond
Fund(2) Fund shares
- AIM Cash Reserve Shares of AIM
Money Market Fund
- - Class A shares of Category - Class A shares of Category I - 1% if shares are redeemed
III Fund(1) or II Fund or AIM Short Term within 18 months of initial
Bond Fund purchase of Category III Fund
shares
- - Class A shares of Category - Class A shares of Category III - No CDSC
III Fund(1) Fund(2)
- Class A shares of AIM Tax-
Exempt Cash Fund
- AIM Cash Reserve Shares of AIM
Money Market
</Table>
(1) As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
(2) Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
<Table>
Through a Financial Advisor Contact your financial advisor, including
your retirement plan or program sponsor.
By Mail Send a written request to the transfer
agent. Requests must include (1) original
signatures of all registered
owners/trustees; (2) the name of the fund
and your account number; (3) if the transfer
agent does not hold your shares, endorsed
share certificates or share certificates
accompanied by an executed stock power; and
(4) signature guarantees, if necessary (see
below). The transfer agent may require that
you provide additional information, such as
corporate resolutions or powers of attorney,
if applicable. If you are redeeming from an
IRA account, you must include a statement of
whether or not you are at least 59 1/2 years
old and whether you wish to have federal
income tax withheld from your proceeds. The
transfer agent may require certain other
information before you can redeem from an
employer-sponsored retirement plan. Contact
your employer for details.
By Telephone Call the transfer agent at 1-800-959-4246 or
our AIM 24-hour Automated Investor Line at
1-800-246-5463. You will be allowed to
redeem by telephone if (1) the proceeds are
to be mailed to the address on record (if
there has been no change communicated to us
within the last 30 days) or transferred
electronically to a pre-authorized checking
account; (2) you do not hold physical share
certificates; (3) you can provide proper
identification information; (4) the proceeds
of the redemption do not exceed $250,000;
and (5) you have not previously declined the
telephone redemption privilege. Certain
retirement accounts and 403(b) plans, may
not be redeemed by telephone. For funds
other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, the transfer
agent must receive your call during the
hours of the customary trading session of
the New York Stock Exchange (NYSE) in order
to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must receive your call before
the last net asset value determination on a
business day in order to effect the
redemption at that day's closing price. You
may, with limited exceptions, redeem from an
IRA account by telephone. Redemptions from
other types of retirement accounts may be
requested in writing.
By Internet Place your redemption request at
www.aiminvestments.com. You will be allowed
to redeem by internet if (1) you do not hold
physical share certificates; (2) you can
provide proper identification information;
(3) the proceeds of the redemption do not
exceed $250,000; and (4) you have already
provided proper bank information. AIM
prototype retirement accounts may not be
redeemed on the internet. For funds other
than Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money
Portfolio, the transfer agent must confirm
your transaction during the hours of the
customary trading session of the NYSE in
order to effect the redemption at that day's
closing price. For Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the
transfer agent must confirm your transaction
before the last net asset value
determination on a business day in order to
effect the redemption at that day's closing
price.
</Table>
- --------------------------------------------------------------------------------
MCF--02/05
A-10
-------------
THE AIM FUNDS
-------------
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared. Payment may be
postponed in cases where the SEC declares an emergency or normal trading is
halted.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you a
check in the amount of the redemption proceeds to the address on record with us.
If your request is not in good order, you may have to provide us with additional
documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit them
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by telephone are genuine, but we are
not liable for telephone instructions that are reasonably believed to be
genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable procedures
to confirm that instructions communicated by internet are genuine, but we are
not liable for internet instructions that are reasonably believed to be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A shares.
We will redeem enough shares from your account to cover the amount withdrawn.
You must have an account balance of at least $5,000 to establish a Systematic
Redemption Plan. You can stop this plan at any time by giving ten days prior
notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on the
next business day.
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND, AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND AND INVESTOR CLASS SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND, PREMIER PORTFOLIO, PREMIER TAX-EXEMPT PORTFOLIO AND
PREMIER U.S. GOVERNMENT MONEY PORTFOLIO ONLY)
You may redeem shares of these funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that changed
in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information. Some
institutions have transaction amount maximums for these guarantees. Please check
with the guarantor institution.
REDEMPTIONS IN KIND
Although the funds generally intend to pay redemption proceeds solely in cash,
the funds reserve the right to satisfy redemption requests by making payment in
securities or other property (known as a redemption in kind).
REDEMPTIONS BY THE FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the
funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class shares)
or by utilizing the Automatic Investment Plan.
If the fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, or the fund is not able to
verify your identity as required by law, the fund may, at its discretion, redeem
the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one fund for those of
another fund. An exchange is the purchase of shares in one fund which is paid
for with the proceeds from a redemption of shares of another fund effectuated on
the same day. Before requesting an exchange, review the prospectus of the fund
you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
You may be charged a redemption fee on certain redemptions, including
exchanges. See "Redeeming Shares -- Redemption Fee."
MCF--02/05
A-11
-------------
THE AIM FUNDS
-------------
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another fund.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Class A Shares of AIM Limited
Maturity Treasury Fund, AIM X
Tax-Exempt Cash Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class
A3 Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B, C, K, R, Institutional
Class Shares or Shares of the X
AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class A, A3, Investor Class, or
AIM Cash Reserve Shares.
Exceptions are:
- Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund
cannot be exchanged for Class X
A Shares of those funds.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
Class A3 Class B, C, K, R, Institutional
Class Shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class B. Exceptions are:
- Class B Shares of other funds
cannot be exchanged for Class X
B Shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class B Class A, A3, C, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class Shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class C. Exceptions are:
- Class C shares of other funds
cannot be exchanged for Class X
C shares of AIM Floating Rate
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class C Class A, A3, B, K, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class K X
- ---------------------------------------------------------------------------------------------------------------------------------
Class K Class A, A3, B, C, R, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class R X
- ---------------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, K, AIM Cash
Reserve Shares, Institutional,
Investor Class shares, or shares X
of AIM Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class A, A3, B, C, R, or
Investor Class shares.
Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- Shares to be exchanged for X
Class B, C or R shares must
not have been acquired by
exchange from Class A shares
of any fund.
- Investor Class Shares of all
funds are currently offered to
new investors only on a
limited basis.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class K, Institutional Class
shares, or shares of AIM Summit X
Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
MCF--02/05
A-12
-------------
THE AIM FUNDS
-------------
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO ALLOWED PROHIBITED
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, K, R, AIM
Cash Reserve Shares, Investor
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class A, A3, or Investor Class.
Exceptions are:
- Investor Class shares cannot
be exchanged for Class A
shares of any fund which
offers Investor Class shares. X
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class Class B, C, K, R, AIM Cash
Reserve Shares, Institutional
Class shares, or shares of AIM X
Summit Fund.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class A, A3, or AIM Cash Reserve
Shares. Exceptions are:
- Class A shares of AIM Limited
Maturity Treasury Fund and AIM X
Tax-Free Intermediate Fund are
currently closed to new
investors.
- ---------------------------------------------------------------------------------------------------------------------------------
AIM Summit Fund Class B, C, K, R, Institutional
or Investor Class shares. X
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
You may be required to pay an initial sales charge when exchanging from a
fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of
an exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of a fund subject to an initial sales charge (excluding
Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to
an initial sales charge (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class K shares for other Class K shares;
(5) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III funds purchased at net asset value for Class
A shares of a Category I or II fund, Class A shares of AIM Short Term Bond
Fund;
(3) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
MCF--02/05
A-13
-------------
THE AIM FUNDS
-------------
(1) Class A shares of Category I or II fund, Class A shares of AIM Short Term
Bond Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash
Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
fund (i) subject to an initial sales charge or (ii) purchased at net asset
value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money
Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any fund or for Class A shares of any fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I or
II fund or AIM Short Term Bond Fund, and exchanged those shares for AIM Cash
Reserve Shares of AIM Money Market Fund, you may further exchange the AIM
Cash Reserve Shares for Class A shares of a Category I or II fund or AIM
Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
- - Shares of the fund you wish to acquire must be available for sale in your
state of residence;
- - Exchanges must be made between accounts with identical registration
information;
- - The account you wish to exchange from must have a certified tax identification
number (or the Fund has received an appropriate Form W-8 or W-9);
- - Shares must have been held for at least one day prior to the exchange with the
exception of dividends that are reinvested; and
- - If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
TERMS OF EXCHANGE
Under unusual market conditions, a fund may delay the purchase of shares being
acquired in an exchange for up to five business days if it determines that it
would be materially disadvantaged by the immediate transfer of exchange
proceeds. The exchange privilege is not an option or right to purchase shares.
Any of the participating funds or the distributor may modify or terminate this
privilege at any time. The fund or the distributor will provide you with notice
of such modification or termination whenever it is required to do so by
applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures of
each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the funds from which and into which the exchange is
to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating contingent
deferred sales charges (CDSC) if you later redeem the exchanged shares. If you
redeem Class B or Class C shares acquired by exchange via a tender offer by AIM
Floating Rate Fund, you will be credited with the time period you held the Class
B or Class C shares of AIM Floating Rate Fund for the purpose of computing the
early withdrawal charge applicable to those shares.
- --------------------------------------------------------------------------------
EACH FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
- REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
- MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY FUND;
- REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
- SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
- --------------------------------------------------------------------------------
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each fund's shares is the fund's net asset value per share. The
funds value portfolio securities for which market quotations are readily
available at market value. The funds value all other securities and assets for
which market quotations are not readily available at their fair value in good
faith using procedures approved by the Boards of Trustees of the funds.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific events
occurred after the security ceased trading or because of the passage of time
between the close of the market on which the security trades and the close of
the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last
MCF--02/05
A-14
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THE AIM FUNDS
-------------
market quotation to be unreliable. Such events may include a merger or
insolvency, events which affect a geographical area or an industry segment, such
as political events or natural disasters, or market events, such as a
significant movement in the U.S. market. Where market quotations are not readily
available, including where AIM determines that the closing price of the security
is unreliable, AIM will value the security at fair value in good faith using
procedures approved by the Boards of Trustees. Fair value pricing may reduce the
ability of frequent traders to take advantage of arbitrage opportunities
resulting from potentially "stale" prices of portfolio holdings. However, it
cannot eliminate the possibility of frequent trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of all
appropriate factors, including indications of fair value available from pricing
services. A fair value price is an estimated price and may vary from the prices
used by other mutual funds to calculate their net asset values.
AIM may use indications of fair value from pricing services approved by the
Boards of Trustees. In other circumstances, the AIM valuation committee may fair
value securities in good faith using procedures approved by the Boards of
Trustees. As a means of evaluating its fair value process, AIM routinely
compares closing market prices, the next day's opening prices for the security
in its primary market if available, and indications of fair value from other
sources. Fair value pricing methods and pricing services can change from time to
time as approved by the Boards of Trustees.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If market
quotations are not available or are unreliable, AIM will value the security at
fair value in good faith using procedures approved by the Boards of Trustees.
Foreign Securities: 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 an
issuer specific event has occurred that AIM determines, in its judgment, is
likely to have affected the closing price of a foreign security, it will price
the security at fair value. AIM also relies on a screening process from a
pricing vendor to indicate the degree of certainty, based on historical data,
that the closing price in the principal market where a foreign security trades
is not the current market value as of the close of the NYSE. For foreign
securities where AIM believes, at the approved degree of certainty, that the
price is not reflective of current market value, AIM will use the indication of
fair value from the pricing service to determine the fair value of the security.
The pricing vendor, pricing methodology or degree of certainty may change from
time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares is
determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, are valued
on the basis of prices provided by independent pricing services. Prices provided
by the pricing services 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 special securities,
dividend rate, maturity and other market data. Prices received from pricing
services are fair value prices. In addition, if the price provided by the
pricing service is unreliable, the AIM valuation committee may fair value the
security using procedures approved by the Boards of Trustees.
Short-term Securities: The funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio value all their securities
at amortized cost. AIM High Income Municipal Fund, AIM Municipal Bond Fund and
AIM Tax-Free Intermediate Fund value variable rate securities that have an
unconditional demand or put feature exercisable within seven days or less at
par, which reflects the market value of such securities.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent a fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
The funds disclose portfolio holdings at different times and with different
lag times on www.aiminvestments.com and in annual, semi-annual and quarterly
shareholder reports. Refer to such reports or the website to determine the types
of securities in which a fund has invested. You may also refer to the Statement
of Additional Information to determine what types of securities in which a fund
may invest. You may obtain copies of these reports or of the Statement of
Additional Information from AIM as described on the back cover of this
prospectus.
Each fund determines the net asset value of its shares on each day the NYSE
is open for business (a business day), as of the close of the customary trading
session, or earlier NYSE closing time that day. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each business
day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio determine the net asset value of their shares every fifteen
minutes on each business day, beginning at 8:00 a.m. Eastern Time. The last net
asset value determination on any business day for Premier Portfolio and Premier
U.S. Government Money Portfolio will generally occur at 5:30 p.m. Eastern Time,
and the last net asset
MCF--02/05
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THE AIM FUNDS
-------------
value determination on any business day for Premier Tax-Exempt Portfolio will
generally occur at 4:30 p.m. Eastern Time. Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio are authorized not to open
for trading on a day that is otherwise a business day if the Bond Market
Association recommends that government securities dealers not open for trading
and any such day will not be considered a business day. Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio also
may close early on a business day if the Bond Market Association recommends that
government securities dealers close early. If Premier Portfolio, Premier
Tax-Exempt Portfolio or Premier U.S. Government Money Portfolio uses its
discretion to close early on a business day, the last net asset value
calculation will occur as of the time of such closing.
TIMING OF ORDERS
For funds other than Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, you can purchase or redeem shares on each
business day prior to the close of the customary trading session or any earlier
NYSE closing time that day. For funds other than Premier Portfolio, Premier
Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio, purchase
orders that are received and accepted before the close of the customary trading
session or any earlier NYSE closing time on a business day generally are
processed that day and settled on the next business day.
For Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, you can purchase or redeem shares on each business
day, prior to the last net asset value determination on such business day;
however, if your order is received and accepted after the close of the customary
trading session or any earlier NYSE closing time that day, your order generally
will be processed on the next business day and settled on the second business
day following the receipt and acceptance of your order.
For all funds, you can exchange shares on each business day, prior to the
close of the customary trading session or any earlier NYSE closing time that
day. Shareholders of Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio therefore cannot exchange their shares after the
close of the customary trading session or any earlier NYSE closing time on a
particular day, even though these funds remain open after such closing time.
The funds price purchase, exchange and redemption orders at the net asset
value calculated after the transfer agent receives an order in good order. Any
applicable sales charges are applied at the time an order is processed. A fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term capital
gain distributions. Every year, you will be sent information showing the amount
of dividends and distributions you received from each fund during the prior
year.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax. Exchanges of shares for shares of
another fund are treated as a sale, and any gain realized on the transaction
will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in fund shares
may differ materially from the federal income tax consequences described above.
In addition, the preceding discussion concerning the taxability of fund
dividends and distributions and of redemptions and exchanges of fund shares is
inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401, 403, 408, 408A
and 457 of the Internal Revenue Code, individual retirement accounts (IRAs) and
Roth IRAs. You should consult your tax advisor before investing.
MCF--02/05
A-16
OBTAINING ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of the
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. Beginning with
fiscal periods ending after July 9, 2004, the fund also files its complete
schedule of portfolio holdings with the SEC for the 1st and 3rd quarters of each
fiscal year on Form N-Q.
If you have questions about this fund, another fund in The AIM Family of
Funds--Registered Trademark-- or your account, or wish to obtain free copies of
the fund's current SAI or annual or semiannual reports, please contact us by
mail at AIM Investment Services, Inc., P.O. Box 4739, Houston, TX 77210-4739 or
<Table>
BY TELEPHONE: (800) 959-4246
ON THE INTERNET: You can send us a request by
e-mail or download
prospectuses, SAIs, annual or
semiannual reports via our
website:
http://www.aiminvestments.com
THE FUND'S MOST RECENT PORTFOLIO HOLDINGS, AS FILED
ON FORM N-Q, ARE ALSO AVAILABLE AT
WWW.AIMINVESTMENTS.COM.
</Table>
You can also review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter to
the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
- ----------------------------------------
AIM Charter Fund
SEC 1940 Act file number: 811-1424
- ----------------------------------------
AIMinvestments.com CHT-PRO-1
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
APPENDIX III
AIM CHARTER FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE MARKET CONDITIONS AND YOUR FUND
========================================
PERFORMANCE SUMMARY FUND VS. INDEXES After three quarters subdued by
uncertainty, the final quarter of 2004
For the six-month period ended April 30, TOTAL RETURNS, 10/31/04-4/30/05, was characterized by a sense of optimism
2005, the Fund outperformed its peer EXCLUDING APPLICABLE SALES CHARGES. IF in the financial markets. Forecasts for
group index, it tracked the broad market SALES CHARGES WERE INCLUDED, RETURNS 2005 were optimistic, gross domestic
index and it underperformed its WOULD BE LOWER. product growth had been consistently
style-specific, bench-mark index. The strong, and the uncertainty that
Fund's overweight position in energy Class A Shares 3.27% preceded the U.S. presidential election
helped it outperform its peers. The had been resolved. The year ended on a
underperformance of its stocks in the Class B Shares 2.83 high note for investors.
health care and consumer discretionary
sectors caused its performance to lag Class C Shares 2.82 Despite solid growth and optimistic
the Russell 1000 Index. We do not manage forecasts, equity markets have failed to
the Fund to exceed the return of the Class R Shares 3.06 gain consistent traction so far this
benchmark in the short term; we manage year. Investors have worried that
to provide less volatile returns over S&P 500 Index (Broad Market Index) 3.28 climbing energy prices and rising
time. The Fund seeks to provide interest rates would have a negative
reliable, positive returns during Russell 1000 Index impact on economic growth and inflation.
favorable market cycles and less drastic (Style-specific Index) 4.04 Also, higher commodity prices exerted
lows during difficult market cycles. negative pressure on the profit margins
Lipper Large-Cap Core Fund Index of many corporations.
Throughout the period (Peer Group Index) 2.29
the Fund was Accordingly, year-to-date numbers as
positioned slightly more SOURCE: LIPPER,INC. of April 30, 2005, found all major
defensively than the ======================================== equity indexes in negative territory,
Russell 1000 Index. with all market sectors except energy
HOW WE INVEST and utilities producing muted or
negative returns. Declines were broad
This Fund is managed as a "core" across capitalization and investment
fund--one that seeks to provide style.
consistency so as to complement other
equity funds--to provide stability to an The Fund's holdings in energy, health
investor's portfolio of more aggressive care and consumer staples provided the
investments. most significant contribution to Fund
performance. The returns of stocks in
We invest in companies with strong the energy sector were of particular
fundamental characteristics that are importance because, for almost the
experiencing some near-term price entire period, we chose to keep the Fund
weakness due to temporary setbacks or overweight in that sector. We increased
market trends. We look for companies our exposure to the energy sector in the
with consistent free cash flow profiles fall of 2004 following a short-term
and management teams that effectively pull-back in oil prices. For the
allocate excess cash to the benefit of six-month period, our overweight
shareholders. We believe these companies position in the sector was the greatest
are best positioned to weather temporary single contributor to Fund performance.
setbacks and therefore provide the
potential for both long-term capital
appreciation and lower downside risk.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION
By sector TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
[PIE CHART] 1. Pharmaceuticals 12.3% 1. Microsoft Corp. 3.2%
Industrials 10.3% 2. Packaged Foods & Meats 7.4 2. Merck & Co. Inc. 3.2
Consumer Discretionary 6.0%
Materials 2.8% 3. Integrated Oil & Gas 6.9 3. General Mills, Inc. 3.1
Utilities 2.5%
Telecommunication Services 1.3% 4. Property & Casualty Insurance 6.4 4. GlaxoSmithKline PLC-ADR
Money Market Funds Plus (United Kingdom) 2.8
Other Assets Less Liabilities 6.7% 5. Systems Software 4.7
Information Technology 17.1% 5. Berkshire Hathaway Inc.-Class A 2.3
Energy 13.9% 6. Semiconductors 4.6
Financials 13.6% 6. Waste Management, Inc. 2.2
Consumer Staples 13.5% 7. Industrial Conglomerates 3.8
Health Care 12.3% 7. General Electric Co. 2.0
8. Oil & Gas Equipment & Services 3.8
8. Kohl's Corp. 1.9
The Fund's holdings are subject to 9. Publishing 2.7
change, and there is no assurance that 9. Tyco International Ltd.
the Fund will continue to hold any 10. Oil & Gas Drilling 2.3 (Bermuda) 1.8
particular security.
10. Teva Pharmaceutical
*Excluding money market fund holdings. TOTAL NET ASSETS $2.6 BILLION Industries Ltd.-ADR (Israel) 1.8
TOTAL NUMBER OF HOLDINGS* 62
======================================== ======================================== ========================================
</Table>
2
<Table>
Energy-sector holding Amerada Hess The Fund's holdings in the consumer IN CLOSING
illustrates our investment strategy of discretionary sector were the biggest
carefully studying management teams' detractor to fund performance. The We are pleased that for the six-month
past performance and strengths. The sector was the second-worst performing period ended April 30, 2005, the Fund
company had suffered under family sector in the Russell 1000 Index. Though outperformed its large-cap core fund
management because potentially higher we had reduced our exposure to this more peer group.
return-on-capital opportunities had been economically sensitive sector during
ignored. We became interested in the prior periods, our remaining holdings At the end of the period, we
company when a new management team with suffered. continued to believe that equity market
specialized financial savvy was performance would be muted for the
installed. Upon seeing strong indicators Individual stocks that detracted for intermediate term. This has been our
that the team would turn the business the six-month period included Xerox and view for some time, and it has enabled
around, we added the stock to the Fund's Forest Labs. us to position the portfolio to navigate
portfolio. That investment provided in such an environment. We believe that
significant benefit in first-quarter o According to our investment strategy, the role of a core fund is to provide
2005. we seek out leading companies in mature lower risk during difficult periods. The
industries. It is more difficult for Fund's portfolio of carefully researched
We have kept the newcomers to compete in mature and attractively priced holdings was
Fund's portfolio industries than in an industry wherein chosen to meet that goal, and it is a
underweight in the the technology is newly emerging. Xerox goal to which we are strongly committed.
financials sector for has long been a leader in the office Thank you for your continued investment
some time. equipment industry. Several years ago, in AIM Charter Fund.
Xerox's mounting debt forced management
Throughout the period, the Fund was to begin making the right The views and opinions expressed in
positioned slightly more defensively cash-allocation decisions. management's discussion of Fund
than its benchmark, the Russell 1000 performance are those of A I M Advisors,
Index. Consumer staples and health care We took advantage of Xerox's distress Inc. These views and opinions are
are considered less economically to add it to the Fund's portfolio. The subject to change at any time based on
sensitive, hence more defensive, company has paid down debt and factors such as market and economic
sectors. The Fund benefited from our maintained its leadership in color print conditions. These views and opinions may
decision to be overweight relative to production, resulting in escalating not be relied upon as investment advice
the benchmark in consumer staples. share prices in 2003 and 2004. However, or recommendations, or as an offer for a
CAMPBELL and GENERAL MILLS were among though its earnings report issued in particular security. The information is
companies in the sector providing January 2005 announced a 15% increase in not a complete analysis of every aspect
positive contributions to Fund color equipment sales, declining sales of any market, country, industry,
performance. in its older products disappointed security or the Fund. Statements of fact
investors. At period end, we remained are from sources considered reliable,
In health care, generic prescription confident in this holding. but A I M Advisors, Inc. makes no
drug manufacturer TEVA was among several representation or warranty as to their
pharmaceutical companies that helped o The Fund acquired its interest in completeness or accuracy. Although
Fund performance for the period. Teva's Forest Labs during this reporting historical performance is no guarantee
multiple sclerosis drug period. Along with other companies in of future results, these insights may
Copaxone--Registered Trademark-- became the pharmaceutical industry, Forest help you understand our investment
the U.S. market leader in terms of new Labs' stock price declined in 2004. More management philosophy.
prescriptions for the second half of recently, the company reported
2004. Also during the period, the diminished sales of Celexa--Registered See important Fund and index
company announced an expansion of its Trademark--, one of its top-selling disclosures inside front cover.
share buyback program authorizing antidepressants. Our choice of this
repurchase of more than 3% of holding was based in part on our
outstanding shares. confidence in management's decision RONALD S. SLOAN,
making regarding capital allocation, a [SLOAN Chartered Financial
We have kept the Fund's portfolio confidence that was reinforced by the PHOTO] Analyst, senior
underweight in the financials sector company's recent repurchase of 7.8 portfolio manager, is
for some time. By investing in million shares. At period end, we lead portfolio manager
industries within the sector that are continued to view the stock as of AIM Charter Fund. Mr. Sloan has 34
less sensitive to interest rates, our undervalued. years of experience in the investment
holdings in financials outperformed the industry. He joined AIM in 1998. Mr.
financials stocks in the Russell 1000 ... our holdings in Sloan attended the University of
Index for the period. financials outperformed Missouri, where he received both a B.S.
the financials in business administration and an M.B.A.
stocks in the
Russell 1000 Index... Assisted by the Mid/Large Cap Core Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM CHARTER FUND,
AIM CONSTELLATION FUND AND
AIM LARGE CAP GROWTH FUND
EACH A PORTFOLIO OF AIM EQUITY FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
AIM PREMIER EQUITY FUND,
A PORTFOLIO OF AIM FUNDS GROUP,
AIM AGGRESSIVE GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS,
AIM WEINGARTEN FUND,
A PORTFOLIO OF AIM EQUITY FUNDS AND
AIM BLUE CHIP FUND
A PORTFOLIO OF AIM EQUITY FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
STATEMENT OF ADDITIONAL INFORMATION
(February 28, 2006 Special Meetings of Shareholders of AIM Premier Equity Fund,
AIM Aggressive Growth Fund, AIM Weingarten Fund and AIM Blue Chip Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
January ___, 2006 of each of AIM Charter Fund, AIM Constellation Fund and AIM
Large Cap Growth Fund for use in connection with the Special Meetings of
Shareholders of AIM Premier Equity Fund, AIM Aggressive Growth Fund, AIM
Weingarten Fund and AIM Blue Chip Fund to be held on February 28, 2006. Copies
of each Combined Proxy Statement and Prospectus may be obtained at no charge by
writing A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173 or by calling 1 800-959-4246. Unless otherwise indicated, capitalized
terms used herein and not otherwise defined have the same meanings as are given
to them in each Combined Proxy Statement and Prospectus.
A Statement of Additional Information for AIM Equity Funds dated
October 25, 2005, has been filed with the Securities and Exchange Commission and
is attached hereto as Appendix I which is incorporated herein by this reference.
The date of this Statement of Additional Information is January ___,
2006.
TABLE OF CONTENTS
<Table>
<Caption>
THE TRUST.........................................................................................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS..............................................................................S-3
TRUSTEES AND OFFICERS OF THE TRUST................................................................................S-3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...............................................................S-3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION.....................................S-3
PORTFOLIO TRANSACTIONS............................................................................................S-3
DESCRIPTION OF SHARES.............................................................................................S-4
DETERMINATION OF NET ASSET VALUE..................................................................................S-4
TAXES.............................................................................................................S-4
PERFORMANCE DATA..................................................................................................S-4
FINANCIAL INFORMATION.............................................................................................S-4
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of AIM Premier Equity Fund (12/31/04)
Appendix III - Unaudited Financial Statements of AIM Premier Equity Fund (6/30/05)
Appendix IV - Pro Forma Financial Statements of AIM Charter Fund
Appendix V - Pro Forma Financial Statements of AIM Constellation Fund
Appendix VI - Pro Forma Financial Statements of AIM Large Cap Growth Fund
</Table>
S-2
THE TRUST
This Statement of Additional Information relates to AIM Equity Funds (the
"Trust") and its investment portfolios, AIM Charter Fund, AIM Constellation Fund
and AIM Large Cap Growth Fund (collectively, the "Funds"). The Trust is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Funds are separate series
of shares of beneficial interest of the Trust. For additional information about
the Trust, see heading "General Information About the Trust" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Funds adopted by the Trust's Board of Trustees, see heading "Description of
the Funds and Their Investments and Risks" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Trust" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Funds, the principal holders of
shares of the Funds and the ownership by officers and trustees of the Funds, see
heading "Control Persons and Principal Holders of Securities" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Investment Advisory and
Other Services" and "Distribution of Securities" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
S-3
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of AIM Charter Fund, and the report thereon by
Ernst & Young LLP, are set forth under the heading "Financial Statements" in the
Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM Charter Fund are set forth under the
heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Constellation Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Constellation Fund are set forth under
the heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Large Cap Growth Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
S-4
The unaudited financial statements of AIM Large Cap Growth Fund are set forth
under the heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Aggressive Growth Fund, and the report
thereon by Ernst & Young LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The unaudited financial statements of AIM Aggressive Growth Fund set forth under
the heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Weingarten Fund, and the report thereon
by Ernst & Young LLP, are set forth under the heading "Financial Statements" in
the Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM Weingarten Fund are set forth under
the heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Blue Chip Fund, and the report thereon
by Ernst & Young LLP, are set forth under the heading "Financial Statements" in
the Trust's Statement of Additional Information attached hereto as Appendix I.
The unaudited financial statements of AIM Blue Chip Fund are set forth under the
heading "Financial Statements" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
The audited financial statements of AIM Premier Equity Fund, and the report
thereon by PricewaterhouseCoopers LLP, are set forth as Appendix II.
The unaudited financial statements of AIM Premier Equity Fund are set forth as
Appendix III.
The pro forma financial statements of AIM Charter Fund are set forth as Appendix
IV.
The pro forma financial statements of AIM Constellation Fund are set forth as
Appendix V.
The pro forma financial statements of AIM Large Cap Growth Fund are set forth as
Appendix VI.
S-5
APPENDIX I
AIM AGGRESSIVE GROWTH FUND
AIM BLUE CHIP FUND
AIM CAPITAL DEVELOPMENT FUND
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM DIVERSIFIED DIVIDEND FUND
AIM LARGE CAP BASIC VALUE FUND
AIM LARGE CAP GROWTH FUND
AIM MID CAP GROWTH FUND
AIM SELECT BASIC VALUE FUND
AIM WEINGARTEN FUND
(SERIES PORTFOLIOS OF AIM EQUITY FUNDS)
Supplement dated November 2, 2005
to the Statement of Additional Information dated October 25, 2005 as
supplemented October 25, 2005 and October 31, 2005
This supplement supercedes and replaces in its entirety the supplement dated
October 25, 2005.
For the period of time determined pursuant to the Order for Exemptive Relief,
clients of Edward D. Jones & Co., L.P. that are Eligible Customers for a Free
Switch, each as defined in Edward D. Jones & Co., L.P.'s Amendment No. 1 to
Application Pursuant to Section 6(c) of the Investment Company Act of 1940 for
an Order of Exemption from the provisions of Section 22(d) of such act and
certain disclosure requirements of Items 7(a)(2) and 18(a) of Form N-1A adopted
under such act and the Securities Act of 1933, which was granted on May 25, 2005
by the Securities and Exchange Commission, may purchase Class A Shares of the
Funds at net asset value.
1
AIM AGGRESSIVE GROWTH FUND
AIM BLUE CHIP FUND
AIM CAPITAL DEVELOPMENT FUND
AIM CHARTER FUND
AIM CONSTELLATION FUND
AIM DIVERSIFIED DIVIDEND FUND
AIM LARGE CAP BASIC VALUE FUND
AIM LARGE CAP GROWTH FUND
AIM MID CAP GROWTH FUND
AIM SELECT BASIC VALUE FUND
AIM WEINGARTEN FUND
(SERIES PORTFOLIOS OF AIM EQUITY FUNDS)
Supplement dated October 31, 2005
to the Statement of Additional Information dated October 25, 2005
as supplemented October 25, 2005
Effective October 31, 2005, A I M Advisors, Inc. ("AIM") terminated the
Sub-Advisory Agreement with A I M Capital Management, Inc. relating to the
provision of investment sub-advisory services to AIM Charter Fund, AIM
Constellation Fund and AIM Weingarten Fund. AIM is responsible for the
day-to-day management of these Funds.
1
STATEMENT OF
ADDITIONAL INFORMATION
AIM EQUITY FUNDS
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TEXAS 77046-1173
(713) 626-1919
THIS STATEMENT OF ADDITIONAL INFORMATION RELATES TO THE CLASS A, CLASS B, CLASS
C, CLASS R AND INVESTOR CLASS SHARES, AS APPLICABLE, OF EACH PORTFOLIO (EACH A
"FUND," COLLECTIVELY THE "FUNDS") OF AIM EQUITY FUNDS LISTED BELOW. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUSES FOR THE CLASS A, CLASS B, CLASS C, CLASS R
AND INVESTOR CLASS SHARES, AS APPLICABLE, OF THE FUNDS LISTED BELOW. YOU MAY
OBTAIN A COPY OF ANY PROSPECTUS FOR ANY FUND LISTED BELOW FROM AN AUTHORIZED
DEALER OR BY WRITING TO:
AIM INVESTMENT SERVICES, INC.
P.O. BOX 4739
HOUSTON, TEXAS 77210-4739
OR BY CALLING (800) 959-4246
THIS STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 25, 2005, RELATES TO THE
CLASS A, CLASS B, CLASS C, CLASS R AND INVESTOR CLASS SHARES, AS APPLICABLE, OF
THE FOLLOWING PROSPECTUSES:
<Table>
<Caption>
FUND DATED
---- -----
AIM AGGRESSIVE GROWTH FUND FEBRUARY 28, 2005
AIM BLUE CHIP FUND FEBRUARY 28, 2005
AIM CAPITAL DEVELOPMENT FUND FEBRUARY 28, 2005
AIM CHARTER FUND FEBRUARY 28, 2005
AIM CONSTELLATION FUND FEBRUARY 28, 2005
AIM DIVERSIFIED DIVIDEND FUND OCTOBER 25, 2005
AIM LARGE CAP BASIC VALUE FUND FEBRUARY 28, 2005
AIM LARGE CAP GROWTH FUND FEBRUARY 28, 2005
AIM MID CAP GROWTH FUND FEBRUARY 28, 2005
AIM SELECT BASIC VALUE FUND FEBRUARY 28, 2005
AIM WEINGARTEN FUND FEBRUARY 28, 2005
</Table>
AIM EQUITY FUNDS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
GENERAL INFORMATION ABOUT THE TRUST............................................................................... 1
Fund History............................................................................................. 1
Shares of Beneficial Interest............................................................................ 1
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS.......................................................... 4
Classification........................................................................................... 4
Investment Strategies and Risks.......................................................................... 4
Equity Investments.............................................................................. 7
Foreign Investments............................................................................. 7
Debt Investments................................................................................ 9
Other Investments.............................................................................. 10
Investment Techniques.......................................................................... 10
Derivatives.................................................................................... 15
Additional Securities or Investment Techniques................................................. 21
Fund Policies........................................................................................... 22
Temporary Defensive Positions........................................................................... 25
Portfolio Turnover...................................................................................... 25
Policies and Procedures for Disclosure of Fund Holdings................................................. 25
MANAGEMENT OF THE TRUST.......................................................................................... 28
Board of Trustees....................................................................................... 28
Management Information.................................................................................. 28
Trustee Ownership of Fund Shares............................................................... 31
Approval of Investment Advisory Agreements and Summary of Independent Written Fee Evaluation... 31
Compensation............................................................................................ 67
Retirement Plan For Trustees................................................................... 68
Deferred Compensation Agreements............................................................... 68
Purchases of Class A Shares of the Funds at Net Asset Value.................................... 68
Codes of Ethics......................................................................................... 69
Proxy Voting Policies................................................................................... 69
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.............................................................. 69
INVESTMENT ADVISORY AND OTHER SERVICES........................................................................... 69
Investment Advisor...................................................................................... 69
Investment Sub-Advisor......................................................................... 73
Portfolio Managers............................................................................. 73
Securities Lending Arrangements................................................................ 73
Service Agreements...................................................................................... 74
Administrative Services Agreement.............................................................. 74
Other Service Providers................................................................................. 74
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................................................... 75
Brokerage Transactions.................................................................................. 75
Commissions............................................................................................. 75
Broker Selection........................................................................................ 76
Directed Brokerage (Research Services).................................................................. 79
Regular Brokers......................................................................................... 79
Allocation of Portfolio Transactions.................................................................... 79
Allocation of Equity Initial Public Offering ("IPO") Transactions....................................... 79
</Table>
i
<Table>
<Caption>
PAGE
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................................................... 79
Transactions through financial intermediaries........................................................... 79
Purchase and Redemption of Shares....................................................................... 80
Offering Price.......................................................................................... 99
Redemptions In Kind.................................................................................... 100
Backup Withholding..................................................................................... 101
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS........................................................................ 102
Dividends and Distributions............................................................................ 102
Tax Matters............................................................................................ 102
DISTRIBUTION OF SECURITIES...................................................................................... 110
Distribution Plans..................................................................................... 110
Distributor............................................................................................ 112
CALCULATION OF PERFORMANCE DATA................................................................................. 113
PENDING LITIGATION.............................................................................................. 119
APPENDICES:
RATINGS OF DEBT SECURITIES...................................................................................... A-1
EXAMPLES OF PERSONS TO WHOM AIM PROVIDES NON-PUBLIC PORTFOLIO HOLDINGS
ON AN ONGOING BASIS........................................................................................... B-1
TRUSTEES AND OFFICERS........................................................................................... C-1
TRUSTEE COMPENSATION TABLE...................................................................................... D-1
PROXY POLICIES AND PROCEDURES................................................................................... E-1
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............................................................. F-1
MANAGEMENT FEES................................................................................................. G-1
PORTFOLIO MANAGERS ............................................................................................. H-1
ADMINISTRATIVE SERVICES FEES.................................................................................... I-1
BROKERAGE COMMISSIONS........................................................................................... J-1
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF SECURITIES OF
REGULAR BROKERS OR DEALERS.................................................................................... K-1
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS......................................... L-1
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS................................................... M-1
TOTAL SALES CHARGES............................................................................................. N-1
PERFORMANCE DATA................................................................................................ O-1
PENDING LITIGATION.............................................................................................. P-1
FINANCIAL STATEMENTS............................................................................................ FS
</Table>
ii
GENERAL INFORMATION ABOUT THE TRUST
FUND HISTORY
AIM Equity Funds (the "Trust") is a Delaware statutory trust which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company. The Trust currently
consists of eleven separate portfolios: AIM Aggressive Growth Fund, AIM Blue
Chip Fund, AIM Capital Development Fund, AIM Charter Fund, AIM Constellation
Fund, AIM Diversified Dividend Fund, AIM Large Cap Basic Value Fund, AIM Large
Cap Growth Fund, AIM Mid Cap Growth Fund, AIM Select Basic Value Fund (which is
not currently offered to the public), and AIM Weingarten Fund (each a "Fund" and
collectively, the "Funds"). Under an Amended and Restated Agreement and
Declaration of Trust, dated September 14, 2005, as amended (the "Trust
Agreement"), the Board of Trustees of the Trust (the "Board") is authorized to
create new series of shares without the necessity of a vote of shareholders of
the Trust.
The Trust was originally organized on May 19, 1988 as a Maryland
corporation. The Trust reorganized as a Delaware business trust on June 21,
2000. The following Funds were included in the reorganization: AIM Aggressive
Growth Fund, AIM Blue Chip Fund, AIM Capital Development Fund, AIM Charter Fund,
AIM Constellation Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth
Fund, AIM Mid Cap Growth Fund and AIM Weingarten Fund. All historical and other
information contained in this Statement of Additional Information for periods
prior to June 21, 2000 relating to the Funds (or a class thereof) is that of the
predecessor funds (or the corresponding class thereof). AIM Core Strategies
Fund, AIM Diversified Dividend Fund, AIM Select Basic Value Fund and AIM U.S.
Growth Fund commenced operations as series of the Trust. Prior to May 2, 2003,
AIM Diversified Dividend Fund was known as AIM Large Cap Core Equity Fund. Prior
to September 15, 2004, AIM Select Basic Value Fund was known as AIM Basic Value
II Fund. As of March 15, 2005, AIM Core Strategies Fund and AIM U.S. Growth Fund
were liquidated. On July 18, 2005, AIM Aggressive Growth Fund acquired all the
assets of AIM Emerging Growth Fund and AIM Weingarten Fund acquired all the
assets of AIM Dent Demographic Trends Fund. In addition, on July 18, 2005, AIM
Aggressive Growth Fund acquired the assets of AIM Libra Fund, a portfolio of AIM
Investments Funds.
SHARES OF BENEFICIAL INTEREST
Shares of beneficial interest of the Trust are redeemable at their net
asset value (subject, in certain circumstances, to a contingent deferred sales
charge or redemption fee) at the option of the shareholder or at the option of
the Trust in certain circumstances.
The Trust allocates moneys and other property it receives from the
issue or sale of shares of each of its series of shares, and all income,
earnings and profits from such issuance and sales, subject only to the rights of
creditors, to the appropriate Fund. These assets constitute the underlying
assets of each Fund, are segregated on the Trust's books of account, and are
charged with the expenses of such Fund and its respective classes. The Trust
allocates any general expenses of the Trust not readily identifiable as
belonging to a particular Fund by or under the direction of the Board, primarily
on the basis of relative net assets, or other relevant factors.
Each share of each Fund represents an equal proportionate interest in
that Fund with each other share and is entitled to such dividends and
distributions out of the income belonging to such Fund as are declared by the
Board.
1
Each Fund offers separate classes of shares as follows:
<Table>
<Caption>
INSTITUTIONAL INVESTOR
FUND CLASS A CLASS B CLASS C CLASS R CLASS CLASS
---- ------- ------- ------- ------- ------------- --------
AIM Aggressive Growth Fund X X X X X
AIM Blue Chip Fund X X X X X X
AIM Capital Development Fund X X X X X X
AIM Charter Fund X X X X X
AIM Constellation Fund X X X X X
AIM Diversified Dividend Fund X X X X X X
AIM Large Cap Basic Value Fund X X X X X X
AIM Large Cap Growth Fund X X X X X X
AIM Mid Cap Growth Fund X X X X X
AIM Select Basic Value Fund X X X
AIM Weingarten Fund X X X X X
</Table>
This Statement of Additional Information relates solely to the Class A,
Class B, Class C, Class R and Investor Class shares, if applicable, of the
Funds. The Institutional Class shares of the Funds are intended for use by
certain eligible institutional investors, are discussed in a separate Statement
of Additional Information and are available to the following:
o banks and trust companies acting in a fiduciary or similar
capacity;
o bank and trust company common and collective trust funds;
o banks and trust companies investing for their own account;
o entities acting for the account of a public entity (e.g.
Taft-Hartley funds, states, cities or government agencies);
o retirement plans;
o platform sponsors with which A I M Distributors, Inc. ("AIM
Distributors") has entered into an agreement; and
o proprietary asset allocation funds.
Each class of shares represents an interest in the same portfolio of
investments. Differing sales charges and expenses will result in differing net
asset values and dividends and distributions. Upon any liquidation of the Trust,
shareholders of each class are entitled to share pro rata in the net assets
belonging to the applicable Fund allocable to such class available for
distribution after satisfaction of outstanding liabilities of the Fund allocable
to such class.
2
Each share of a Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of a Fund is subject
to different sales loads, conversion features, exchange privileges and
class-specific expenses. Only shareholders of a specific class may vote on
matters relating to that class' distribution plan.
Because Class B shares automatically convert to Class A shares at
month-end eight years after the date of purchase, the Funds' distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act requires that Class B
shareholders must also approve any material increase in distribution fees
submitted to Class A shareholders of that Fund. A pro rata portion of shares
from reinvested dividends and distributions convert along with the Class B
shares.
Except as specifically noted above, shareholders of each Fund are
entitled to one vote per share (with proportionate voting for fractional
shares), irrespective of the relative net asset value of the shares of a Fund.
However, on matters affecting an individual Fund or class of shares, a separate
vote of shareholders of that Fund or class is required. Shareholders of a Fund
or class are not entitled to vote on any matter which does not affect that Fund
or class but that requires a separate vote of another Fund or class. An example
of a matter that would be voted on separately by shareholders of each Fund is
the approval of the advisory agreement with A I M Advisors, Inc. ("AIM"), and an
example of a matter that would be voted on separately by shareholders of each
class of shares is approval of the distribution plans. When issued, shares of
each Fund are fully paid and nonassessable, have no preemptive or subscription
rights, and are freely transferable. Other than the automatic conversion of
Class B shares to Class A shares, there are no conversion rights. Shares do not
have cumulative voting rights, which means that in situations in which
shareholders elect trustees, holders of more than 50% of the shares voting for
the election of trustees can elect all of the trustees of the Trust, and the
holders of less than 50% of the shares voting for the election of trustees will
not be able to elect any trustees.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of such
Fund held liable on account of being or having been a shareholder. Thus, the
risk of a shareholder incurring financial loss due to shareholder liability is
limited to circumstances in which a Fund is unable to meet its obligations and
the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act,
omission or obligation of the Trust or any trustee or officer; however, a
trustee or officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust's Bylaws generally provide for indemnification
by the Trust of the trustees, the officers and employees or agents of the Trust,
provided that such persons have not engaged in Disabling Conduct.
Indemnification does not extend to judgments or amounts paid in settlement in or
actions by or in the right of the Trust. The Trust's Bylaws provide for the
advancement of payments to current and former trustees, officers and employees
or agents of the Trust, or anyone serving at their request, in connection with
the preparation and presentation of a defense to any claim, action, suit or
proceeding, expenses for which such person would be entitled to indemnification;
provided that any advancement of payments would be reimbursed unless it is
ultimately determined that such person is entitled to indemnification for such
expenses.
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to
demand or require the Trust to issue share certificates.
3
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS
CLASSIFICATION
The Trust is an open-end management investment company. Each of the
Funds are "diversified" for purposes of the 1940 Act.
INVESTMENT STRATEGIES AND RISKS
The table on the following pages identifies various securities and
investment techniques used by AIM in managing The AIM Family of Funds(R). The
table has been marked to indicate those securities and investment techniques
that AIM may use to manage a Fund. A Fund may not use all of these techniques at
any one time. A Fund's transactions in a particular security or use of a
particular technique is subject to limitations imposed by a Fund's investment
objective, policies and restrictions described in that Fund's Prospectus and/or
this Statement of Additional Information, as well as federal securities laws.
The Funds' investment objectives, policies, strategies and practices are
non-fundamental unless otherwise indicated. A more detailed description of the
securities and investment techniques, as well as the risks associated with those
securities and investment techniques that the Funds utilize, follows the table.
The descriptions of the securities and investment techniques in this section
supplement the discussion of principal investment strategies contained in each
Fund's Prospectus; where a particular type of security or investment technique
is not discussed in a Fund's Prospectus, that security or investment technique
is not a principal investment strategy.
4
AIM EQUITY FUNDS
SUMMARY OF SECURITIES AND INVESTMENT TECHNIQUES
<Table>
<Caption>
AIM
FUND LARGE AIM AIM AIM
- ---- AIM AIM AIM AIM CAP LARGE MID SELECT
SECURITY/ AGGRESSIVE BLUE CAPITAL AIM AIM DIVERSIFIED BASIC CAP CAP BASIC AIM
INVESTMENT GROWTH CHIP DEVELOPMENT CHARTER CONSTELLATION DIVIDEND VALUE GROWTH GROWTH VALUE WEINGARTEN
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- --------- ---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
EQUITY INVESTMENTS
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Common Stock X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Preferred Stock X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Convertible
Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Alternative Entity
Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
FOREIGN SECURITIES
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Foreign Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Foreign Government
Obligations X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Foreign Exchange
Transactions X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
DEBT INVESTMENTS FOR EQUITY FUNDS
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
U.S. Government
Obligations X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Liquid Assets X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Investment Grade
Corporate Debt
Obligations X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Junk Bonds
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
OTHER INVESTMENTS
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
REITs X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Other Investment
Companies X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Defaulted Securities
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Municipal Forward
Contracts
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Variable or Floating
Rate Instruments
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Indexed Securities
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Zero-Coupon and
Pay-in-Kind Securities
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Synthetic Municipal
Instruments
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
INVESTMENT TECHNIQUES
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Delayed Delivery
Transactions X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
When-Issued
Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Short Sales X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Margin Transactions
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Swap Agreements X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Interfund Loans X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Borrowing X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Lending Portfolio
Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
</Table>
5
<Table>
<Caption>
AIM
FUND LARGE AIM AIM AIM
- ---- AIM AIM AIM AIM CAP LARGE MID SELECT
SECURITY/ AGGRESSIVE BLUE CAPITAL AIM AIM DIVERSIFIED BASIC CAP CAP BASIC AIM
INVESTMENT GROWTH CHIP DEVELOPMENT CHARTER CONSTELLATION DIVIDEND VALUE GROWTH GROWTH VALUE WEINGARTEN
TECHNIQUE FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
- --------- ---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Repurchase
Agreements X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Reverse Repurchase
Agreements X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Dollar Rolls X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Illiquid Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Rule 144A Securities X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Unseasoned Issuers X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Sale of Money Market
Securities
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Standby Commitments
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
DERIVATIVES
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Equity-Linked
Derivatives X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Put Options X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Call Options X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Straddles X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Warrants X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Futures Contracts
and Options on
Futures
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Contracts X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Forward Currency
Contracts X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Cover X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
ADDITIONAL SECURITIES OR INVESTMENT TECHNIQUES
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Special Situations X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Privatizations X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Commercial Bank
Obligations X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Master Limited
Partnerships X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
Investments in
Entities with
Relationships
with the
Funds/Advisor X X X X X X X X X X X
---------- ---- ----------- ------- ------------- ----------- ----- ------ ----- ------- ----------
</Table>
6
Equity Investments
COMMON STOCK. Common stock is issued by companies principally to raise
cash for business purposes and represents a residual interest in the issuing
company. A Fund participates in the success or failure of any company in which
it holds stock. The prices of equity securities change in response to many
factors including the historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
PREFERRED STOCK. Preferred stock, unlike common stock, often offers a
stated dividend rate payable from a corporation's earnings. If interest rates
rise, the fixed dividend on preferred stocks may be less attractive, causing the
price of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred stock
may be "cumulative," requiring all or a portion of prior unpaid dividends to be
paid before dividends are paid on the issuer's common stock. Preferred stock
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. In some cases an issuer may offer auction rate
preferred stock, which means that the interest to be paid is set by auction and
will often be reset at stated intervals. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
CONVERTIBLE SECURITIES. Convertible securities include bonds,
debentures, notes, preferred stocks and other securities that may be converted
into a prescribed amount of common stock or other equity securities at a
specified price and time. The holder of convertible securities is entitled to
receive interest paid or accrued on debt, or dividends paid or accrued on
preferred stock, until the security matures or is converted.
The value of a convertible security depends on interest rates, the
yield of similar nonconvertible securities, the financial strength of the issuer
and the seniority of the security in the issuer's capital structure. Convertible
securities may be illiquid, and may be required to convert at a time and at a
price that is unfavorable to the Fund. AIM Blue Chip Fund does not intend to
invest more than 10% of its total assets in convertible securities.
ALTERNATIVE ENTITY SECURITIES. Companies that are formed as limited
partnerships, limited liability companies, business trusts or other
non-corporate entities may issue equity securities that are similar to common or
preferred stock of corporations.
Foreign Investments
FOREIGN SECURITIES. Foreign securities are equity or debt securities
issued by issuers outside the United States, and include securities in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
or other securities representing underlying securities of foreign issuers.
Depositary receipts are typically issued by a bank or trust company and evidence
ownership of underlying securities issued by foreign corporations.
Each Fund may invest up to 25% of its total assets in foreign
securities, except that each of AIM Charter Fund, AIM Constellation Fund and AIM
Weingarten Fund may invest up to 20% of its total assets in foreign securities.
Investments by a Fund in foreign securities, whether denominated in
U.S. dollars or foreign currencies, may entail all of the risks set forth below.
Investments by a Fund in ADRs, EDRs or similar securities also may entail some
or all of the risks described below.
Currency Risk. The value of the Funds' foreign investments will be
affected by changes in currency exchange rates. The U.S. dollar value of a
foreign security decreases when the value of the
7
U.S. dollar rises against the foreign currency in which the security is
denominated, and increases when the value of the U.S. dollar falls against such
currency.
Political and Economic Risk. The economies of many of the countries in
which the Funds may invest may not be as developed as the United States' economy
and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the
removal of funds or other assets could also adversely affect the value of the
Funds' investments.
Regulatory Risk. Foreign companies are not registered with the
Securities and Exchange Commission ("SEC") and are generally not subject to the
regulatory controls imposed on United States issuers and, as a consequence,
there is generally less publicly available information about foreign securities
than is available about domestic securities. Foreign companies are not subject
to uniform accounting, auditing and financial reporting standards, corporate
governance practices and requirements comparable to those applicable to domestic
companies. Income from foreign securities owned by the Funds may be reduced by a
withholding tax at the source, which tax would reduce dividend income payable to
the Funds' shareholders.
Market Risk. The securities markets in many of the countries in which
the Funds invest will have substantially less trading volume than the major
United States markets. As a result, the securities of some foreign companies may
be less liquid and experience more price volatility than comparable domestic
securities. Increased custodian costs as well as administrative costs (such as
the need to use foreign custodians) may be associated with the maintenance of
assets in foreign jurisdictions. There is generally less government regulation
and supervision of foreign stock exchanges, brokers and issuers which may make
it difficult to enforce contractual obligations. In addition, transaction costs
in foreign securities markets are likely to be higher, since brokerage
commission rates in foreign countries are likely to be higher than in the United
States.
Risks of Developing Countries. Each Fund may invest up to 5% of their
respective total assets in securities of companies located in developing
countries. Developing countries are those countries which are not included in
the MSCI World Index. The Funds consider various factors when determining
whether a company is in a developing country, including whether (1) it is
organized under the laws of a developing country; (2) it has a principal office
in a developing country; (3) it derives 50% or more of its total revenues from
business in a developing country; or (4) its securities are traded principally
on a stock exchange, or in an over-the-counter market, in a developing country.
Investments in developing countries present risks greater than, and in addition
to, those presented by investments in foreign issuers in general. A number of
developing countries restrict, to varying degrees, foreign investment in stocks.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
developing countries. A number of the currencies of developing countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investments in these currencies by the
Funds. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain emerging market countries. Many of the developing securities markets are
relatively small or less diverse, have low trading volumes, suffer periods of
relative illiquidity, and are characterized by significant price volatility.
There is a risk in developing countries that a future economic or political
crisis could lead to price controls, forced mergers of companies, expropriation
or confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on the Fund's
investments.
FOREIGN GOVERNMENT OBLIGATIONS. Debt securities issued by foreign
governments are often, but not always, supported by the full faith and credit of
the foreign governments, or their subdivisions, agencies or instrumentalities,
that issue them. These securities involve the risks discussed above with respect
to foreign securities. Additionally, the issuer of the debt or the governmental
authorities that control repayment of the debt may be unwilling or unable to pay
interest or repay principal when due. Political or economic changes or the
balance of trade may affect a country's willingness or ability to service its
debt obligations. Periods of economic uncertainty may result in the volatility
of market prices of sovereign debt obligations, especially debt obligations
issued by the governments of developing
8
countries. Foreign government obligations of developing countries, and some
structures of emerging market debt securities, both of which are generally below
investment grade, are sometimes referred to as "Brady Bonds".
FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange transactions include
direct purchases of futures contracts with respect to foreign currency, and
contractual agreements to purchase or sell a specified currency at a specified
future date (up to one year) at a price set at the time of the contract. Such
contractual commitments may be forward currency contracts entered into directly
with another party or exchange traded futures contracts.
Each Fund has authority to deal in foreign exchange between currencies
of the different countries in which it will invest as a hedge against possible
variations in the foreign exchange rates between those currencies. A Fund may
commit the same percentage of its assets to foreign exchange hedges as it can
invest in foreign securities.
The Funds may utilize either specific transactions ("transaction
hedging") or portfolio positions ("position hedging") to hedge foreign currency
exposure through foreign exchange transactions. Transaction hedging is the
purchase or sale of foreign currency with respect to specific receivables or
payables of a Fund accruing in connection with the purchase or sale of its
portfolio securities, the sale and redemption of shares of the Fund, or the
payment of dividends and distributions by the Fund. Position hedging is the
purchase or sale of foreign currency with respect to portfolio security
positions (or underlying portfolio security positions, such as in an ADR)
denominated or quoted in a foreign currency. Additionally, foreign exchange
transactions may involve some of the risks of investments in foreign securities.
Debt Investments
U.S. GOVERNMENT OBLIGATIONS. Obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities include bills, notes and
bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S.
Treasury obligations representing future interest or principal payments on U.S.
Treasury notes or bonds. Stripped securities are sold at a discount to their
"face value," and may exhibit greater price volatility than interest-bearing
securities since investors receive no payment until maturity. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as the
Government National Mortgage Association ("GNMA"), are supported by the full
faith and credit of the U.S. Treasury; others, such as those of the Federal
National Mortgage Association ("FNMA"), are supported by the right of the issuer
to borrow from the U.S. Treasury; others, such as those of the Student Loan
Marketing Association ("SLMA"), are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, though
issued by an instrumentality chartered by the U.S. Government, like the Federal
Farm Credit Bureau ("FFCB"), are supported only by the credit of the
instrumentality. The U.S. Government may choose not to provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not legally
obligated to do so, in which case, if the issuer were to default, the Funds
holding securities of such issuer might not be able to recover their investment
from the U.S. Government.
LIQUID ASSETS. Cash equivalents include money market instruments (such
as certificates of deposit, time deposits, bankers' acceptances from U.S. or
foreign banks, and repurchase agreements), shares of affiliated money market
funds or high-quality debt obligations (such as U.S. Government obligations,
commercial paper, master notes and other short-term corporate instruments, and
municipal obligations).
INVESTMENT GRADE CORPORATE DEBT OBLIGATIONS. Each Fund may invest in
U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures and variable rate demand notes. In choosing corporate debt securities
on behalf of a Fund, its investment adviser may consider (i) general economic
and financial conditions; (ii) the specific issuer's (a)
9
business and management, (b) cash flow, (c) earnings coverage of interest and
dividends, (d) ability to operate under adverse economic conditions, (e) fair
market value of assets, and (f) in the case of foreign issuers, unique
political, economic or social conditions applicable to such issuer's country;
and, (iii) other considerations deemed appropriate. AIM Blue Chip Fund will not
invest in non convertible corporate debt securities rated below investment grade
by Standard and Poor's ratings Services ("S&P") and Moody's Investors Services
("Moody's") or in unrated non-convertible corporate debt securities believed by
the Fund's Investment advisor to be below investment grade quality.
Descriptions of debt securities ratings are found in Appendix A.
Other Investments
REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs are trusts that sell
equity or debt securities to investors and use the proceeds to invest in real
estate or interests therein. A REIT may focus on particular projects, such as
apartment complexes, or geographic regions, such as the southeastern United
States, or both.
To the extent consistent with their respective investment objectives
and policies, each Fund may invest up to 15% of its total assets in equity
and/or debt securities issued by REITs.
To the extent that a Fund has the ability to invest in REITs, the Fund
could conceivably own real estate directly as a result of a default on the
securities it owns. A Fund, therefore, may be subject to certain risks
associated with the direct ownership of real estate including difficulties in
valuing and trading real estate, declines in the value of real estate, risks
related to general and local economic conditions, adverse changes in the climate
for real estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, equity REITs may be affected
by any changes in the value of the underlying property owned by the trusts,
while mortgage REITs may be affected by the quality of any credit extended.
Equity and mortgage REITs are dependent upon management skill, are not
diversified, and are therefore subject to the risk of financing single or a
limited number of projects. Such trusts are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation, and the possibility of
failing to maintain an exemption from the 1940 Act. Changes in interest rates
may also affect the value of debt securities held by a Fund. By investing in
REITs indirectly through a Fund, a shareholder will bear not only his/her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OTHER INVESTMENT COMPANIES. With respect to a Fund's purchase of shares
of another investment company, including Affiliated Money Market Funds (defined
below), the Fund will indirectly bear its proportionate share of the advisory
fees and other operating expenses of such investment company. The Funds have
obtained an exemptive order from the SEC allowing them to invest in money market
funds that have AIM or an affiliate of AIM as an investment advisor (the
"Affiliated Money Market Funds"), provided that investments in Affiliated Money
Market Funds do not exceed 25% of the total assets of the investing Fund.
The following restrictions apply to investments in other investment
companies other than Affiliated Money Market Funds: (i) a Fund may not purchase
more than 3% of the total outstanding voting stock of another investment
company; (ii) a Fund may not invest more than 5% of its total assets in
securities issued by another investment company; and (iii) a Fund may not invest
more than 10% of its total assets in securities issued by other investment
companies.
Investment Techniques
DELAYED DELIVERY TRANSACTIONS. Delayed delivery transactions, also
referred to as forward commitments, involve commitments by a Fund to dealers or
issuers to acquire or sell securities at a
10
specified future date beyond the customary settlement for such securities. These
commitments may fix the payment price and interest rate to be received or paid
on the investment. A Fund may purchase securities on a delayed delivery basis to
the extent it can anticipate having available cash on settlement date. Delayed
delivery agreements will not be used as a speculative or leverage technique
except for AIM Constellation Fund.
Investment in securities on a delayed delivery basis may increase a
Fund's exposure to market fluctuation and may increase the possibility that the
Fund will incur short-term gains subject to federal taxation or short-term
losses if the Fund must engage in portfolio transactions in order to honor a
delayed delivery commitment. Until the settlement date, a Fund will segregate
liquid assets of a dollar value sufficient at all times to make payment for the
delayed delivery transactions. Such segregated liquid assets will be
marked-to-market daily, and the amount segregated will be increased if necessary
to maintain adequate coverage of the delayed delivery commitments. No additional
delayed delivery agreements or when-issued commitments (as described below) will
be made by a Fund if, as a result, more than 25% of the Fund's total assets
would become so committed.
The delayed delivery securities, which will not begin to accrue
interest or dividends until the settlement date, will be recorded as an asset of
a Fund and will be subject to the risk of market fluctuation. The purchase price
of the delayed delivery securities is a liability of a Fund until settlement.
Absent extraordinary circumstances, a Fund will not sell or otherwise transfer
the delayed delivery basis securities prior to settlement.
A Fund may enter into buy/sell back transactions (a form of delayed
delivery agreement). In a buy/sell back transaction, a Fund enters a trade to
sell securities at one price and simultaneously enters a trade to buy the same
securities at another price for settlement at a future date.
WHEN-ISSUED SECURITIES. Purchasing securities on a "when-issued" basis
means that the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued. The payment
obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. A Fund
will only make commitments to purchase such securities with the intention of
actually acquiring such securities, but the Fund may sell these securities
before the settlement date if it is deemed advisable.
Securities purchased on a when-issued basis and the securities held in
a Fund's portfolio are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and, if applicable,
changes in the level of interest rates. Therefore, if a Fund is to remain
substantially fully invested at the same time that it has purchased securities
on a when-issued basis, there will be a possibility that the market value of the
Fund's assets will fluctuate to a greater degree. Furthermore, when the time
comes for the Fund to meet its obligations under when-issued commitments, the
Fund will do so by using then available cash flow, by sale of the segregated
liquid assets, by sale of other securities or, although it would not normally
expect to do so, by directing the sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation).
Investment in securities on a when-issued basis may increase a Fund's
exposure to market fluctuation and may increase the possibility that the Fund
will incur short-term gains subject to federal taxation or short-term losses if
the Fund must sell another security in order to honor a when-issued commitment.
If a Fund purchases a when-issued security, the Fund will segregate liquid
assets in an amount equal to the when-issued commitment. If the market value of
such segregated assets declines, additional liquid assets will be segregated on
a daily basis so that the market value of the segregated assets will equal the
amount of the Fund's when-issued commitments. No additional delayed delivery
agreements (as described above) or when-issued commitments will be made by a
Fund if, as a result, more than 25% of the Fund's total assets would become so
committed.
SHORT SALES. In a short sale, a Fund does not immediately deliver the
securities sold and does not receive the proceeds from the sale. A Fund is said
to have a short position in the securities sold until
11
it delivers the securities sold, at which time it receives the proceeds of the
sale. A Fund will make a short sale, as a hedge, when it believes that the price
of a security may decline, causing a decline in the value of a security owned by
the Fund or a security convertible into or exchangeable for such security, or
when the Fund does not want to sell the security it owns, because it wishes to
defer recognition of gain or loss for federal income tax purposes. In such case,
any future losses in a Fund's long position should be reduced by a gain in the
short position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which such gains or losses are reduced
will depend upon the amount of the security sold short relative to the amount a
Fund owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium. In determining the
number of shares to be sold short against a Fund's position in a convertible
security, the anticipated fluctuation in the conversion premium is considered. A
Fund may also make short sales to generate additional income from the investment
of the cash proceeds of short sales.
A Fund will only make short sales "against the box," meaning that at
all times when a short position is open, the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and in an amount
equal to, the securities sold short. To secure its obligation to deliver the
securities sold short, a Fund will segregate with its custodian an equal amount
to the securities sold short or securities convertible into or exchangeable for
such securities. A Fund may pledge no more than 10% of its total assets as
collateral for short sales against the box.
MARGIN TRANSACTIONS. None of the Funds will purchase any security on
margin, except that each Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities. The
payment by a Fund of initial or variation margin in connection with futures or
related options transactions will not be considered the purchase of a security
on margin.
SWAP AGREEMENTS. Each Fund may enter into interest rate, index and
currency exchange rate swap agreements for purposes of attempting to obtain a
particular desired return at a lower cost to the Fund than if it had invested
directly in an instrument that yielded that desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Commonly used swap agreements include: (i)
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; (ii) interest rate floors, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
fall below a specified level, or "floor"; and (iii) interest rate collars, under
which a party sells a cap and purchases a floor or vice versa in an attempt to
protect itself against interest rate movements exceeding given minimum or
maximum levels.
The "notional amount" of the swap agreement is only a fictitious basis
on which to calculate the obligations that the parties to a swap agreement have
agreed to exchange. Most swap agreements entered into by a Fund would calculate
the obligations on a "net basis." Consequently, a Fund's obligations (or rights)
under a swap agreement will generally be equal only to the net amount to be paid
or received under the agreement based on the relative values of the positions
held by each party to the agreement (the "net amount"). Obligations under a swap
agreement will be accrued daily (offset against amounts owing to the Fund) and
any accrued but unpaid net amounts owed to a swap counterparty will be covered
by segregating liquid assets to avoid any potential leveraging of the Fund. A
Fund will not enter into a swap agreement with any single party if the net
amount owed to or to be received under existing contracts with that party would
exceed 5% of the Fund's total assets. For a discussion of the tax considerations
relating to swap agreements, see "Dividends, Distributions and Tax Matters -
Swap Agreements."
12
INTERFUND LOANS. Each Fund may lend uninvested cash up to 15% of its
net assets to other Funds advised by AIM (the "AIM Funds") and each Fund may
borrow from other AIM Funds to the extent permitted under such Fund's investment
restrictions. During temporary or emergency periods, the percentage of a Fund's
net assets that may be loaned to other AIM Funds may be increased as permitted
by the SEC. If any interfund borrowings are outstanding, a Fund cannot make any
additional investments. If a Fund has borrowed from other AIM Funds and has
aggregate borrowings from all sources that exceed 10% of such Fund's total
assets, such Fund will secure all of its loans from other AIM Funds. The ability
of a Fund to lend its securities to other AIM Funds is subject to certain other
terms and conditions.
BORROWING. Each Fund may borrow money to a limited extent for temporary
or emergency purposes. If there are unusually heavy redemptions because of
changes in interest rates or for any other reason, a Fund may have to sell a
portion of its investment portfolio at a time when it may be disadvantageous to
do so. Selling fund securities under these circumstances may result in a lower
net asset value per share or decreased dividend income, or both. The Trust
believes that, in the event of abnormally heavy redemption requests, a Fund's
borrowing ability would help to mitigate any such effects and could make the
forced sale of their portfolio securities less likely.
LENDING PORTFOLIO SECURITIES. The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less than
the market value, determined daily, of the loaned securities. Such collateral
will be cash, letters of credit, or debt securities issued or guaranteed by the
U.S. Government or any of its agencies. Each Fund may lend portfolio securities
to the extent of one-third of its total assets.
A Fund will not have the right to vote securities while they are being
lent, but it can call a loan in anticipation of an important vote. The Fund
would receive income in lieu of dividends on loaned securities and would, at the
same time, earn interest on the loan collateral or on the investment of any cash
collateral. Lending securities entails a risk of loss to the Fund if and to the
extent that the market value of the loaned securities increases and the
collateral is not increased accordingly, or in the event of a default by the
borrower. The Fund could also experience delays and costs in gaining access to
the collateral.
Any cash received as collateral for loaned securities will be invested,
in accordance with a Fund's investment guidelines, in short-term money market
instruments or Affiliated Money Market Funds. For purposes of determining
whether a Fund is complying with its investment policies, strategies and
restrictions, the Fund will consider the loaned securities as assets of the
Fund, but will not consider any collateral received as a Fund asset.
REPURCHASE AGREEMENTS. Repurchase agreements are agreements under which
a Fund acquires ownership of a security from a broker-dealer or bank that agrees
to repurchase the security at a mutually agreed upon time and price (which is
higher than the purchase price), thereby determining the yield during a Fund's
holding period. A Fund may, however, enter into a "continuing contract" or
"open" repurchase agreement under which the seller is under a continuing
obligation to repurchase the underlying obligation from the Fund on demand and
the effective interest rate is negotiated on a daily basis. Each of the Funds
may engage in repurchase agreement transactions involving the types of
securities in which it is permitted to invest.
If the seller of a repurchase agreement fails to repurchase the
security in accordance with the terms of the agreement, a Fund might incur
expenses in enforcing its rights, and could experience losses, including a
decline in the value of the underlying security and loss of income. The
securities underlying a repurchase agreement will be marked-to-market every
business day so that the value of such securities is at least equal to the
investment value of the repurchase agreement, including any accrued interest
thereon.
The Funds may invest their cash balances in joint accounts with other
AIM Funds for the purpose of investing in repurchase agreements with maturities
not to exceed 60 days, and in certain other money
13
market instruments with remaining maturities not to exceed 90 days. Repurchase
agreements are considered loans by a Fund under the 1940 Act.
AIM Charter Fund may enter into repurchase agreements (at any time up
to 50% of its total net assets), using only U.S. Government securities, for the
sole purpose of increasing its yield on idle cash.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements are
agreements that involve the sale of securities held by a Fund to financial
institutions such as banks and broker-dealers, with an agreement that the Fund
will repurchase the securities at an agreed upon price and date. A Fund may
employ reverse repurchase agreements (i) for temporary emergency purposes, such
as to meet unanticipated net redemptions so as to avoid liquidating other
portfolio securities during unfavorable market conditions; (ii) to cover
short-term cash requirements resulting from the timing of trade settlements; or
(iii) to take advantage of market situations where the interest income to be
earned from the investment of the proceeds of the transaction is greater than
the interest expense of the transaction. At the time it enters into a reverse
repurchase agreement, a Fund will segregate liquid assets having a dollar value
equal to the repurchase price, and will subsequently continually monitor the
account to ensure that such equivalent value is maintained at all times. Reverse
repurchase agreements involve the risk that the market value of securities to be
purchased by the Fund may decline below the price at which it is obligated to
repurchase the securities, or that the other party may default on its
obligation, so that the Fund is delayed or prevented from completing the
transaction. Reverse repurchase agreements are considered borrowings by a Fund
under the 1940 Act.
DOLLAR ROLLS. A dollar roll involves the sale by a Fund of a mortgage
security to a financial institution such as a broker-dealer or a bank, with an
agreement to repurchase a substantially similar (i.e., same type, coupon and
maturity) security at an agreed upon price and date. The mortgage securities
that are purchased will bear the same interest rate as those sold, but will
generally be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, a Fund
will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for a Fund exceeding the
yield on the sold security.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities under a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of
the securities may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. At the time the Fund enters into a dollar roll, it will
segregate liquid assets having a dollar value equal to the repurchase price, and
will monitor the account to ensure that such equivalent value is maintained. The
Fund typically enters into dollar roll transactions to enhance the Fund's return
either on an income or total return basis or to manage pre-payment risk. Dollar
rolls are considered borrowings by a Fund under the 1940 Act.
ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
disposed of within seven days in the normal course of business at the price at
which they are valued. Illiquid securities may include securities that are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). Restricted securities may, in
certain circumstances, be resold pursuant to Rule 144A under the 1933 Act, and
thus may or may not constitute illiquid securities.
Each Fund may invest up to 15% of its net assets in securities that are
illiquid. Limitations on the resale of restricted securities may have an adverse
effect on their marketability, which may prevent a Fund from disposing of them
promptly at reasonable prices. A Fund may have to bear the expense of
registering such securities for resale, and the risk of substantial delays in
effecting such registrations.
RULE 144A SECURITIES. Rule 144A securities are securities which, while
privately placed, are eligible for purchase and resale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain
14
qualified institutional buyers, such as the Funds, to trade in privately placed
securities even though such securities are not registered under the 1933 Act.
AIM, under the supervision of the Board, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Funds'
restriction on investment in illiquid securities. Determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination AIM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, AIM could consider the (i) frequency of trades and quotes; (ii) number
of dealers and potential purchasers; (iii) dealer undertakings to make a market;
and (iv) nature of the security and of market place trades (for example, the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer). AIM will also monitor the liquidity of Rule 144A
securities and, if as a result of changed conditions, AIM determines that a Rule
144A security is no longer liquid, AIM will review a Fund's holdings of illiquid
securities to determine what, if any, action is required to assure that such
Fund complies with its restriction on investment in illiquid securities.
Investing in Rule 144A securities could increase the amount of each Fund's
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
UNSEASONED ISSUERS. Investments in the equity securities of companies
having less than three years' continuous operations (including operations of any
predecessor) involve more risk than investments in the securities of more
established companies because unseasoned issuers have only a brief operating
history and may have more limited markets and financial resources. As a result,
securities of unseasoned issuers tend to be more volatile than securities of
more established companies.
Derivatives
The Funds may each invest in forward currency contracts, futures
contracts, options on securities, options on indices, options on currencies, and
options on futures contracts to attempt to hedge against the overall level of
investment and currency risk normally associated with each Fund's investments.
The Funds may also invest in equity-linked derivative products designed to
replicate the composition and performance of particular indices. These
instruments are often referred to as "derivatives," which may be defined as
financial instruments whose performance is derived, at least in part, from the
performance of another asset (such as a security, currency or an index of
securities).
EQUITY-LINKED DERIVATIVES. Equity-Linked Derivatives are interests in a
securities portfolio designed to replicate the composition and performance of a
particular index. Equity-Linked Derivatives are exchange traded. The performance
results of Equity-Linked Derivatives will not replicate exactly the performance
of the pertinent index due to transaction and other expenses, including fees to
service providers, borne by the Equity-Linked Derivatives. Examples of such
products include S&P Depositary Receipts ("SPDRs"), World Equity Benchmark
Series ("WEBs"), NASDAQ 100 tracking shares ("QQQs"), Dow Jones Industrial
Average Instruments ("DIAMONDS") and Optimised Portfolios As Listed Securities
("OPALS"). Investments in Equity-Linked Derivatives involve the same risks
associated with a direct investment in the types of securities included in the
indices such products are designed to track. There can be no assurance that the
trading price of the Equity-Linked Derivatives will equal the underlying value
of the basket of securities purchased to replicate a particular index or that
such basket will replicate the index. Investments in Equity-Linked Derivatives
may constitute investments in other investment companies and, therefore, a Fund
may be subject to the same investment restrictions with Equity-Linked
Derivatives as with other investment companies. See "Other Investment
Companies."
PUT AND CALL OPTIONS. A call option gives the purchaser the right to
buy the underlying security, contract or foreign currency at the stated exercise
price at any time prior to the expiration of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If the purchaser exercises the call option, the writer
of a call option is obligated to sell the underlying security, contract or
foreign currency. A put option gives the purchaser the right to sell the
underlying security, contract or foreign currency at the stated exercise price
at any time prior to the expiration date of the option (or on a specified date
if the option is a European style option), regardless of the market price or
exchange rate of the security, contract or foreign currency, as the case may be
at the time of exercise. If
15
the purchaser exercises the put option, the writer of a put option is obligated
to buy the underlying security, contract or foreign currency. The premium paid
to the writer is consideration for undertaking the obligations under the option
contract. Until an option expires or is offset, the option is said to be "open."
When an option expires or is offset, the option is said to be "closed."
A Fund will not write (sell) options if, immediately after such sale,
the aggregate value of securities or obligations underlying the outstanding
options exceeds 20% of the Fund's total assets. A Fund will not purchase options
if, at the time of the investment, the aggregate premiums paid for the options
will exceed 5% of the Fund's total assets.
Pursuant to federal securities rules and regulations, if a Fund writes
options, it may be required to set aside assets to reduce the risks associated
with using those options. This process is described in more detail below in the
section "Cover."
Writing Options. A Fund may write put and call options in an attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying security, contract, or foreign currency alone. A Fund
may only write a call option on a security if it owns an equal amount of such
securities or securities convertible into, or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities subject to the call option. In return for the premium
received for writing a call option, the Fund foregoes the opportunity for profit
from a price increase in the underlying security, contract, or foreign currency
above the exercise price so long as the option remains open, but retains the
risk of loss should the price of the security, contract, or foreign currency
decline.
A Fund may write a put option without owning the underlying security if
it covers the option as described in the section "Cover." A Fund may only write
a put option on a security as part of an investment strategy and not for
speculative purposes. In return for the premium received for writing a put
option, the Fund assumes the risk that the price of the underlying security,
contract, or foreign currency will decline below the exercise price, in which
case the put would be exercised and the Fund would suffer a loss.
If an option that a Fund has written expires, it will realize a gain in
the amount of the premium; however, such gain may be offset by a decline in the
market value of the underlying security, contract or currency during the option
period. If a call option is exercised, a Fund will realize a gain or loss from
the sale of the underlying security, contract or currency, which will be
increased or offset by the premium received. A Fund would write a put option at
an exercise price that, reduced by the premium received on the option, reflects
the price it is willing to pay for the underlying security, contract or
currency. The obligation imposed upon the writer of an option is terminated upon
the expiration of the option, or such earlier time at which a Fund effects a
closing purchase transaction by purchasing an option (put or call as the case
may be) identical to that previously sold.
Writing call options can serve as a limited hedge because declines in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. Closing transactions may be effected in order
to realize a profit on an outstanding call option, to prevent an underlying
security, contract or currency from being called or to permit the sale of the
underlying security, contract or currency. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security, contract or currency with either a different exercise price or
expiration date, or both.
Purchasing Options. A Fund may purchase a call option for the purpose
of acquiring the underlying security, contract or currency for its portfolio.
The Fund is not required to own the underlying security in order to purchase a
call option, and may only cover the transaction with cash, liquid assets and/or
short-term debt securities. Utilized in this fashion, the purchase of call
options would enable a Fund to acquire the security, contract
16
or currency at the exercise price of the call option plus the premium paid. So
long as it holds such a call option, rather than the underlying security or
currency itself, the Fund is partially protected from any unexpected increase in
the market price of the underlying security, contract or currency. If the market
price does not exceed the exercise price, the Fund could purchase the security
on the open market and could allow the call option to expire, incurring a loss
only to the extent of the premium paid for the option. Each of the Funds may
also purchase call options on underlying securities, contracts or currencies
against which it has written other call options. For example, where a Fund has
written a call option on an underlying security, rather than entering a closing
transaction of the written option, it may purchase a call option with a
different exercise strike and/or expiration date that would eliminate some or
all of the risk associated with the written call. Used in combinations, these
strategies are commonly referred to as "call spreads."
A Fund may only purchase a put option on an underlying security,
contract or currency ("protective put") owned by the Fund in order to protect
against an anticipated decline in the value of the security, contract or
currency. Such hedge protection is provided only during the life of the put
option. The premium paid for the put option and any transaction costs would
reduce any profit realized when the security, contract or currency is delivered
upon the exercise of the put option. Conversely, if the underlying security,
contract or currency does not decline in value, the option may expire worthless
and the premium paid for the protective put would be lost. A Fund may also
purchase put options on underlying securities, contracts or currencies against
which it has written other put options. For example, where a Fund has written a
put option on an underlying security, rather than entering a closing transaction
of the written option, it may purchase a put option with a different exercise
price and/or expiration date that would eliminate some or all of the risk
associated with the written put. Used in combinations, these strategies are
commonly referred to as "put spreads." Likewise, a Fund may write call options
on underlying securities, contracts or currencies against which it has purchased
protective put options. This strategy is commonly referred to as a "collar."
Over-The-Counter Options. Options may be either listed on an exchange
or traded in over-the-counter ("OTC") markets. Listed options are third-party
contracts (i.e., performance of the obligations of the purchaser and seller is
guaranteed by the exchange or clearing corporation) and have standardized strike
prices and expiration dates. OTC options are two-party contracts with negotiated
strike prices and expiration dates. A Fund will not purchase an OTC option
unless it believes that daily valuations for such options are readily
obtainable. OTC options differ from exchange-traded options in that OTC options
are transacted with dealers directly and not through a clearing corporation
(which guarantees performance). Consequently, there is a risk of non-performance
by the dealer. Since no exchange is involved, OTC options are valued on the
basis of an average of the last bid prices obtained from dealers, unless a
quotation from only one dealer is available, in which case only that dealer's
price will be used. In the case of OTC options, there can be no assurance that a
liquid secondary market will exist for any particular option at any specific
time. Because purchased OTC options in certain cases may be difficult to dispose
of in a timely manner, the Fund may be required to treat some or all of these
options (i.e., the market value) as illiquid securities. Although a Fund will
enter into OTC options only with dealers that are expected to be capable of
entering into closing transactions with it, there is no assurance that the Fund
will in fact be able to close out an OTC option position at a favorable price
prior to expiration. In the event of insolvency of the dealer, a Fund might be
unable to close out an OTC option position at any time prior to its expiration.
Index Options. Index options (or options on securities indices) are
similar in many respects to options on securities, except that an index option
gives the holder the right to receive, upon exercise, cash instead of
securities, if the closing level of the securities index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. The amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
call or put times a specified multiple (the "multiplier"), which determines the
total dollar value for each point of such difference.
The risks of investment in index options may be greater than options on
securities. Because index options are settled in cash, when a Fund writes a call
on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. A Fund can
offset some of the risk of writing a call index option position by holding a
diversified portfolio of securities similar to those on which the underlying
index is based. However, the Fund cannot, as a practical matter,
17
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will not be perfectly correlated with the value of the index.
Pursuant to federal securities rules and regulations, if a Fund writes
index options, it may be required to set aside assets to reduce the risks
associated with writing those options. This process is described in more detail
below in the section "Cover".
STRADDLES. The Funds, for hedging purposes, may write straddles
(combinations of put and call options on the same underlying security) to adjust
the risk and return characteristics of the Funds' overall position. A possible
combined position would involve writing a covered call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written covered call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
WARRANTS. Warrants are, in effect, longer-term call options. They give
the holder the right to purchase a given number of shares of a particular
company at specified prices within certain periods of time. The purchaser of a
warrant expects that the market price of the security will exceed the purchase
price of the warrant plus the exercise price of the warrant, thus giving him a
profit. Since the market price may never exceed the exercise price before the
expiration date of the warrant, the purchaser of the warrant risks the loss of
the entire purchase price of the warrant. Warrants generally trade in the open
market and may be sold rather than exercised. Warrants are sometimes sold in
unit form with other securities of an issuer. Units of warrants and common stock
may be employed in financing young, unseasoned companies. The purchase price of
a warrant varies with the exercise price of the warrant, the current market
value of the underlying security, the life of the warrant and various other
investment factors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Futures Contract
is a two party agreement to buy or sell a specified amount of a specified
security or currency (or delivery of a cash settlement price, in the case of an
index future) for a specified price at a designated date, time and place
(collectively, "Futures Contracts"). A stock index Futures Contract provides for
the delivery, at a designated date, time and place, of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of trading on the contract and the price agreed upon in the Futures
Contract; no physical delivery of stocks comprising the index is made. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times when a Futures Contract is outstanding.
A Fund will enter into Futures Contracts for hedging purposes only;
that is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts will
be purchased to protect the Fund against an increase in the price of securities
or currencies it has committed to purchase or expects to purchase. A Fund's
hedging may include sales of Futures Contracts as an offset against the effect
of expected increases in interest rates, and decreases in currency exchange
rates and stock prices, and purchases of Futures Contracts as an offset against
the effect of expected declines in interest rates, and increases in currency
exchange rates or stock prices.
The Funds currently may not invest in any security (including futures
contracts or options thereon) that is secured by physical commodities.
The Funds will only enter into Futures Contracts that are traded
(either domestically or internationally) on futures exchanges and are
standardized as to maturity date and underlying financial instrument. Futures
exchanges and trading thereon in the United States are regulated under the
Commodity Exchange Act and by the Commodity Futures Trading Commission ("CFTC").
Foreign futures exchanges and trading thereon are not regulated by the CFTC and
are not subject to the same regulatory controls. For a further discussion of the
risks associated with investments in foreign securities, see "Foreign
Investments" in this Statement of Additional Information.
18
Closing out an open Futures Contract is effected by entering into an
offsetting Futures Contract for the same aggregate amount of the identical
financial instrument or currency and the same delivery date. There can be no
assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If a Fund is not able to enter into an offsetting transaction, it will continue
to be required to maintain the margin deposits on the Futures Contract.
"Margin" with respect to Futures Contracts is the amount of funds that
must be deposited by a Fund in order to initiate Futures Contracts trading and
maintain its open positions in Futures Contracts. A margin deposit made when the
Futures Contract is entered ("initial margin") is intended to ensure the Fund's
performance under the Futures Contract. The margin required for a particular
Futures Contract is set by the exchange on which the Futures Contract is traded
and may be significantly modified from time to time by the exchange during the
term of the Futures Contract.
Subsequent payments, called "variation margin," received from or paid
to the futures commission merchant through which a Fund entered into the Futures
Contract will be made on a daily basis as the price of the underlying security,
currency or index fluctuates making the Futures Contract more or less valuable,
a process known as marking-to-market.
If a Fund were unable to liquidate a Futures Contract or an option on a
Futures Contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the Futures Contract or option or to maintain cash or
securities in a segregated account.
Options on Futures Contracts. Options on Futures Contracts are similar
to options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures Contract position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the
writer's Futures Contract margin account. The Funds currently may not invest in
any security (including futures contracts or options thereon) that is secured by
physical commodities.
Limitations on Futures Contracts and Options on Futures Contracts and
on Certain Options on Currencies. To the extent that a Fund enters into Futures
Contracts, options on Futures Contracts and options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money") will not exceed 5% of the total assets of the Fund, after taking
into account unrealized profits and unrealized losses on any contracts it has
entered into. This guideline may be modified by the Board, without a shareholder
vote. This limitation does not limit the percentage of the Fund's assets at risk
to 5%.
Pursuant to federal securities rules and regulations, a Fund's use of
Futures Contracts and options on Futures Contracts may require that Fund to set
aside assets to reduce the risks associated with using Futures Contracts and
options on Futures Contracts. This process is described in more detail below in
the section "Cover."
FORWARD CURRENCY CONTRACTS. A forward currency contract is an
obligation, usually arranged with a commercial bank or other currency dealer, to
purchase or sell a currency against another currency at a future date and price
as agreed upon by the parties. A Fund either may accept or make delivery of the
currency at the maturity of the forward currency contract. A Fund may also, if
its contra party agrees prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Forward currency
contracts are traded over-the-counter, and not on organized commodities or
securities
19
exchanges. As a result, it may be more difficult to value such contracts, and it
may be difficult to enter into closing transactions.
Each of the Funds may engage in forward currency transactions in
anticipation of, or to protect itself against, fluctuations in exchange rates. A
Fund may enter into forward currency contracts with respect to a specific
purchase or sale of a security, or with respect to its portfolio positions
generally. When a Fund purchases a security denominated in a foreign currency
for settlement in the near future, it may immediately purchase in the forward
market the currency needed to pay for and settle the purchase. By entering into
a forward currency contract with respect to the specific purchase or sale of a
security denominated in a foreign currency, the Fund can secure an exchange rate
between the trade and settlement dates for that purchase or sale transaction.
This practice is sometimes referred to as "transaction hedging." Position
hedging is the purchase or sale of foreign currency with respect to portfolio
security positions denominated or quoted in a foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. The use of forward currency contracts does not eliminate fluctuations
in the prices of the underlying securities a Fund owns or intends to acquire,
but it does establish a rate of exchange in advance. In addition, while forward
currency contract sales limit the risk of loss due to a decline in the value of
the hedged currencies, they also limit any potential gain that might result
should the value of the currencies increase.
Pursuant to federal securities rules and regulations, a Fund's use of
forward currency contracts may require that Fund to set aside assets to reduce
the risks associated with using forward currency contracts. This process is
described in more detail below in the section "Cover."
COVER. Transactions using forward currency contracts, futures contracts
and options (other than options purchased by a Fund) expose a Fund to an
obligation to another party. A Fund will not enter into any such transactions
unless, in addition to complying with all the restrictions noted in the
disclosure above, it owns either (1) an offsetting ("covered") position in
securities, currencies, or other options, forward currency contracts or futures
contracts or (2) cash, liquid assets and/or short-term debt securities with a
value sufficient at all times to cover its potential obligations not covered as
provided in (1) above. Each Fund will comply with SEC guidelines regarding cover
for these instruments and, if the guidelines so require, set aside cash or
liquid securities. To the extent that a futures contract, forward currency
contract or option is deemed to be illiquid, the assets used to "cover" a Fund's
obligation will also be treated as illiquid for purposes of determining the
Fund's maximum allowable investment in illiquid securities.
Even though options purchased by the Funds do not expose the Funds to
an obligation to another party, but rather provide the Funds with a right to
exercise, the Funds intend to "cover" the cost of any such exercise. To the
extent that a purchased option is deemed illiquid, a Fund will treat the market
value of the option (i.e., the amount at risk to the Fund) as illiquid, but will
not treat the assets used as cover on such transactions as illiquid.
Assets used as cover cannot be sold while the position in the
corresponding forward currency contract, futures contract or option is open,
unless they are replaced with other appropriate assets. If a large portion of a
Fund's assets is used for cover or otherwise set aside, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
GENERAL RISKS OF OPTIONS, FUTURES AND CURRENCY STRATEGIES. The use by
the Funds of options, futures contracts and forward currency contracts involves
special considerations and risks, as described below. Risks pertaining to
particular strategies are described in the sections that follow.
(1) Successful use of hedging transactions depends upon AIM's ability
to correctly predict the direction of changes in the value of the applicable
markets and securities, contracts and/or currencies.
20
While AIM is experienced in the use of these instruments, there can be no
assurance that any particular hedging strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between the price movements of an instrument (such as an option contract) and
the price movements of the investments being hedged. For example, if a
"protective put" is used to hedge a potential decline in a security and the
security does decline in price, the put option's increased value may not
completely offset the loss in the underlying security. Such a lack of
correlation might occur due to factors unrelated to the value of the investments
being hedged, such as changing interest rates, market liquidity, and speculative
or other pressures on the markets in which the hedging instrument is traded.
(3) Hedging strategies, if successful, can reduce risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments.
(4) There is no assurance that a liquid secondary market will exist for
any particular option, futures contract or option thereon or forward currency
contract at any particular time.
(5) As described above, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in instruments involving obligations to third parties. If a Fund were
unable to close out its positions in such instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. The requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
(6) There is no assurance that a Fund will use hedging transactions.
For example, if a Fund determines that the cost of hedging will exceed the
potential benefit to the Fund, the Fund will not enter into such transaction.
Additional Securities or Investment Techniques
SPECIAL SITUATIONS. AIM Constellation Fund may invest in "special
situations." A special situation arises when, in the opinion of the Fund's
management, the securities of a particular company will, within a reasonably
estimated period of time, be accorded market recognition at an appreciated value
solely by reason of a development applicable to that company, and regardless of
general business conditions or movements of the market as a whole. Developments
creating special situations might include, among others: liquidations,
reorganizations, recapitalizations, mergers, material litigation, technical
breakthroughs, and new management or management policies. Although large and
well-known companies may be involved, special situations more often involve
comparatively small or unseasoned companies. Investments in unseasoned companies
and special situations often involve much greater risk than in ordinary
investment securities.
PRIVATIZATIONS. AIM Select Basic Value Fund may invest in
privatizations. The governments of some foreign countries have been engaged in
programs of selling part or all of their stakes in government owned or
controlled enterprises ("privatizations"). AIM believes that privatizations may
offer opportunities for significant capital appreciation and intend to invest in
privatizations in appropriate circumstances. In certain foreign countries, the
ability of foreign entities to participate in privatizations may be limited by
local law, or the terms on which a Fund may be permitted to participate may be
less advantageous than those for local investors. There can be no assurance that
foreign governments will continue to sell companies currently owned or
controlled by them or that privatization programs will be successful.
COMMERCIAL BANK OBLIGATIONS. For the purpose of AIM Select Basic Value
Fund's investment policies with respect to bank obligations, obligations of
foreign branches of U.S. banks and of foreign banks are obligations of the
issuing bank and may be general obligations of the parent bank. Such
21
obligations, however, may be limited by the terms of a specific obligation and
by government regulation. As with investment in non-U.S. securities in general,
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the Fund to investment risks that are different in some
respects from those of investments in obligations of domestic issuers. Although
the Fund typically will acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase of $1
billion or more, this $1 billion figure is not an investment policy or
restriction of the Fund. For the purposes of calculation with respect to the $1
billion figure, the assets of a bank will be deemed to include the assets of its
U.S. and non-U.S. branches.
MASTER LIMITED PARTNERSHIPS ("MLPS"). AIM Diversified Dividend Fund may
invest in MLPs. MLPs are securities through which the operating results of
businesses are passed on to unitholders of MLPs. Operating earnings flow
directly to the unitholders in the form of cash distributions. Although the
characteristics of MLPs closely resemble a traditional limited partnership, a
major difference is that MLPs may trade on a public exchange or in the
over-the-counter market. The ability to trade on a public exchange or in the
over-the-counter market provides a certain amount of liquidity not found in many
limited partnership investments.
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUNDS/ADVISOR. Each
Fund may invest in securities issued, sponsored or guaranteed by the following
types of entities or their affiliates: (i) entities that sell shares of the AIM
Funds; (ii) entities that rate or rank the AIM Funds; (iii) exchanges on which
the AIM Funds buy or sell securities; and (iv) entities that provide services to
the AIM Funds (e.g., custodian banks). The Funds will decide whether to invest
in or sell securities issued by these entities based on the merits of the
specific investment opportunity.
FUND POLICIES
FUNDAMENTAL RESTRICTIONS. Each Fund is subject to the following
investment restrictions, which may be changed only by a vote of such Fund's
outstanding shares. Fundamental restrictions may be changed only by a vote of
the lesser of (i) 67% or more of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares.
Any investment restriction that involves a maximum or minimum percentage of
securities or assets (other than with respect to borrowing) shall not be
considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Fund.
(1) The Fund is a "diversified company" as defined in the 1940 Act. The
Fund will not purchase the securities of any issuer if, as a result, the Fund
would fail to be a diversified company within the meaning of the 1940 Act, and
the rules and regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from time to time
by the SEC staff (collectively, the "1940 Act Laws and Interpretations") or
except to the extent that the Fund may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act Laws and Interpretations, the
"1940 Act Laws, Interpretations and Exemptions"). In complying with this
restriction, however, the Fund may purchase securities of other investment
companies to the extent permitted by the 1940 Act Laws, Interpretations and
Exemptions.
(2) The Fund may not borrow money or issue senior securities, except as
permitted by the 1940 Act Laws, Interpretations and Exemptions.
(3) The Fund may not underwrite the securities of other issuers. This
restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, regardless
of whether the Fund may be considered to be an underwriter under the 1933 Act.
(4) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act Laws,
Interpretations and Exemptions) of its investments in the securities of issuers
primarily engaged in the same industry. This restriction does not limit the
Fund's
22
investments in (i) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or (ii) tax-exempt obligations issued by
governments or political subdivisions of governments. In complying with this
restriction, the Fund will not consider a bank-issued guaranty or financial
guaranty insurance as a separate security.
(5) The Fund may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments. This
restriction does not prevent the Fund from investing in issuers that invest,
deal, or otherwise engage in transactions in real estate or interests therein,
or investing in securities that are secured by real estate or interests therein.
(6) The Fund may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Fund from engaging in
transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities.
(7) The Fund may not make personal loans or loans of its assets to
persons who control or are under common control with the Fund, except to the
extent permitted by 1940 Act Laws, Interpretations and Exemptions. This
restriction does not prevent the Fund from, among other things, purchasing debt
obligations, entering into repurchase agreements, loaning its assets to
broker-dealers or institutional investors, or investing in loans, including
assignments and participation interests.
(8) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and restrictions as the Fund.
The investment restrictions set forth above provide each of the Funds
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of the change. Even though each of the Funds has this flexibility, the
Board has adopted non-fundamental restrictions for each of the Funds relating to
certain of these restrictions which AIM and certain Funds' sub-advisor must
follow in managing the Funds. Any changes to these non-fundamental restrictions,
which are set forth below, require the approval of the Board.
NON-FUNDAMENTAL RESTRICTIONS. The following non-fundamental investment
restrictions apply to each of the Funds. They may be changed for any Fund
without approval of that Fund's voting securities.
(1) In complying with the fundamental restriction regarding issuer
diversification, the Fund will not, with respect to 75% of its total assets,
purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities),
if, as a result, (i) more than 5% of the Fund's total assets would be invested
in the securities of that issuer, or (ii) the Fund would hold more than 10% of
the outstanding voting securities of that issuer. The Fund may (i) purchase
securities of other investment companies as permitted by Section 12(d)(1) of the
1940 Act and (ii) invest its assets in securities of other money market funds
and lend money to other AIM Funds, subject to the terms and conditions of any
exemptive orders issued by the SEC.
(2) In complying with the fundamental restriction regarding borrowing
money and issuing senior securities, the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). The Fund may borrow from banks,
broker-dealers or an AIM Fund. Other than AIM Constellation Fund, the Fund may
not borrow for leveraging, but may borrow for temporary or emergency purposes,
in anticipation of or in response to adverse market conditions, or for cash
management purposes. AIM Constellation Fund may not purchase additional
securities when any borrowings from an AIM Advised Fund are outstanding. Each
other Fund may not purchase additional securities when any borrowings from banks
exceed 5% of the Fund's total assets or when any borrowings from an AIM Fund are
outstanding.
23
(3) In complying with the fundamental restriction regarding industry
concentration, the Fund may invest up to 25% of its total assets in the
securities of issuers whose principal business activities are in the same
industry.
(4) In complying with the fundamental restriction with regard to making
loans, the Fund may lend up to 33 1/3% of its total assets and may lend money to
an AIM Fund, on such terms and conditions as the SEC may require in an exemptive
order.
(5) Notwithstanding the fundamental restriction with regard to
investing all assets in an open-end fund, the Fund may not invest all of its
assets in the securities of a single open-end management investment company with
the same fundamental investment objectives, policies and restrictions as the
Fund.
(6) Notwithstanding the fundamental restriction with regard to engaging
in transactions involving futures contracts and options thereon or investing in
securities that are secured by physical commodities, the Fund currently may not
invest in any security (including futures contracts or options thereon) that is
secured by physical commodities.
(7) The Fund may not acquire any securities of registered open-end
investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
ADDITIONAL NON-FUNDAMENTAL POLICIES. As non-fundamental policies:
(1) AIM Blue Chip Fund normally invests at least 80% of its assets in
securities of blue chip companies. For purposes of the foregoing sentence,
"assets" means net assets, plus the amount of any borrowings for investment
purposes. The Fund will provide written notice to its shareholders prior to any
change to this policy, as required by the 1940 Act Laws, Interpretations and
Exemptions.
(2) AIM Mid Cap Growth Fund normally invests at least 80% of its assets
in securities of mid-capitalization companies. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions.
(3) AIM Large Cap Basic Value Fund normally invests at least 80% of its
assets in securities of large-capitalization companies that offer potential for
capital growth, and may offer potential for current income. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(4) AIM Large Cap Growth Fund normally invests at least 80% of its
assets in securities of large-capitalization companies. For purposes of the
foregoing sentence, "assets" means net assets, plus the amount of any borrowings
for investment purposes. The Fund will provide written notice to its
shareholders prior to any change to this policy, as required by the 1940 Act
Laws, Interpretations and Exemptions.
(5) AIM Diversified Dividend Fund normally invests at least 80% of its
assets in dividend-paying equity securities. For purposes of the foregoing
sentence, "assets" means net assets, plus the amount of any borrowings for
investment purposes. The Fund will provide written notice to its shareholders
prior to any change to this policy, as required by the 1940 Act Laws,
Interpretations and Exemptions.
(6) The amount AIM Constellation Fund may borrow will also be limited
by the applicable margin limitations imposed by the Federal Reserve Board. If at
any time the value of AIM Constellation Fund's assets should fail to meet the
300% asset coverage requirement, the Fund will, within three days, reduce its
borrowings to the extent necessary. AIM Constellation Fund may be required to
eliminate partially or totally its outstanding borrowings at times when it may
not be desirable for it to do so. Any investment
24
gains made by AIM Constellation Fund with the borrowed monies in excess of
interest paid by the Fund will cause the net asset value of AIM Constellation
Fund's shares to rise faster than would otherwise be the case. On the other
hand, if the investment performance of the additional securities purchased with
the proceeds of such borrowings fails to cover the interest paid on the money
borrowed by AIM Constellation Fund, the net asset value of AIM Constellation
Fund will decrease faster than would otherwise be the case. This speculative
factor is known as "leveraging."
TEMPORARY DEFENSIVE POSITIONS
In anticipation of or in response to adverse market or other
conditions, or atypical circumstances such as unusually large cash inflows or
redemptions, the Funds may temporarily hold all or a portion of their assets in
cash, cash equivalents or high-quality debt instruments. Each of the Funds may
also invest up to 25% of its total assets in Affiliated Money Market Funds for
these purposes.
PORTFOLIO TURNOVER
The variations in the portfolio turnover rates for AIM Charter Fund for
the fiscal year 2004 as compared to the prior two fiscal years were due to the
repositioning of the Funds in 2002, resulting in decreased portfolio turnover
and decreased commissions. The variations in the portfolio turnover rates for
AIM Weingarten Fund for the fiscal year 2004 as compared to fiscal year 2002 was
due to the repositioning of the Fund in 2002, resulting in decreased portfolio
turnover.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND HOLDINGS
The Board has adopted policies and procedures with respect to the
disclosure of the Funds' portfolio holdings (the "Holdings Disclosure Policy").
AIM and the Board may amend the Holdings Disclosure Policy at any time without
prior notice. Details of the Holdings Disclosure Policy and a description of the
basis on which employees of AIM and its affiliates may release information about
portfolio securities in certain contexts are provided below.
PUBLIC RELEASE OF PORTFOLIO HOLDINGS. The Funds disclose the following
portfolio holdings information on www.aiminvestments.com(1):
<Table>
<Caption>
APPROXIMATE DATE OF INFORMATION REMAINS
INFORMATION WEBSITE POSTING POSTED ON WEBSITE
- ----------- ------------------- -------------------
Top ten holdings as of month end 15 days after month end Until replaced with the
following month's top ten
holdings
- -------------------------------- ---------------------------------- -----------------------------
Select holdings included in the 29 days after calendar quarter end Until replaced with the
Fund's Quarterly Performance following quarter's Quarterly
Update Performance Update
- -------------------------------- ---------------------------------- -----------------------------
Complete portfolio holdings as 30 days after calendar quarter end For one year
of calendar quarter end
- -------------------------------- ---------------------------------- -----------------------------
Complete portfolio holdings as 60-70 days after fiscal quarter end For one year
of fiscal quarter end
</Table>
These holdings are listed along with the percentage of the Fund's net
assets they represent. Generally, employees of AIM and its affiliates may not
disclose such portfolio holdings until one day after they have been posted on
http://www.aiminvestments.com. You may also obtain the publicly available
portfolio holdings information described above by contacting us at
1-800-959-4246.
- ----------------
(1) To locate the Fund's portfolio holdings information on
http://www.aiminvestments.com, click on the Products and Performance tab, then
click on the Mutual Funds link, then click on the Fund Overview link and select
the Fund from the drop down menu. Links to the Fund's portfolio holdings are
located in the upper right side of this website page.
25
SELECTIVE DISCLOSURE OF PORTFOLIO HOLDINGS PURSUANT TO NON-DISCLOSURE
AGREEMENT. Employees of AIM and its affiliates may disclose non-public full
portfolio holdings on a selective basis only if the Internal Compliance Controls
Committee (the "ICCC") of A I M Management Group Inc. ("AIM Management")
approves the parties to whom disclosure of non-public full portfolio holdings
will be made. The ICCC must determine that the proposed selective disclosure
will be made for legitimate business purposes of the applicable Fund and address
any perceived conflicts of interest between shareholders of such Fund and AIM or
its affiliates as part of granting its approval.
The Board exercises continuing oversight of the disclosure of Fund
portfolio holdings by (1) overseeing the implementation and enforcement of the
Holdings Disclosure Policy and the AIM Funds Code of Ethics by the Chief
Compliance Officer (or her designee) of AIM and the AIM Funds and (2)
considering reports and recommendations by the Chief Compliance Officer
concerning any material compliance matters (as defined in Rule 38a-1 under the
1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940, as
amended) that may arise in connection with the Holdings Disclosure Policy.
Pursuant to the Holdings Disclosure Policy, the Board reviews the types of
situations in which AIM provides selective disclosure and approves situations
involving perceived conflicts of interest between shareholders of the applicable
Fund and AIM or its affiliates brought to the Board's attention by AIM.
AIM discloses non-public full portfolio holdings information to the
following persons in connection with the day-to-day operations and management of
the AIM Funds:
o Attorneys and accountants;
o Securities lending agents;
o Lenders to the AIM Funds;
o Rating and rankings agencies;
o Persons assisting in the voting of proxies;
o AIM Funds' custodians;
o The AIM Funds' transfer agent(s) (in the event of a redemption
in kind);
o Pricing services, market makers, or other persons who provide
systems or software support in connection with AIM Funds'
operations (to determine the price of securities held by an
AIM Fund);
o Financial printers;
o Brokers identified by the AIM Funds' portfolio management team
who provide execution and research services to the team; and
o Analysts hired to perform research and analysis to the AIM
Funds' portfolio management team.
In many cases, AIM will disclose current portfolio holdings on a daily basis to
these persons. In these situations, AIM has entered into non-disclosure
agreements which provide that the recipient of the portfolio holdings will
maintain the confidentiality of such portfolio holdings and will not trade on
such information ("Non-disclosure Agreements"). Please refer to Appendix B for a
list of examples of persons to whom AIM provides non-public portfolio holdings
on an ongoing basis.
AIM will also disclose non-public portfolio holdings information if
such disclosure is required by applicable laws, rules or regulations, or by
regulatory authorities having jurisdiction over AIM and its affiliates or the
Funds.
The Holdings Disclosure Policy provides that AIM will not request,
receive or accept any compensation (including compensation in the form of the
maintenance of assets in any Fund or other mutual fund or account managed by AIM
or one of its affiliates) for the selective disclosure of portfolio holdings
information.
DISCLOSURE OF CERTAIN PORTFOLIO HOLDINGS AND RELATED INFORMATION
WITHOUT NON-DISCLOSURE AGREEMENT. AIM and its affiliates that provide services
to the Funds, and the Funds' subadvisors, if
26
applicable, and each of their employees may receive or have access to portfolio
holdings as part of the day to day operations of the Funds.
From time to time, employees of AIM and its affiliates may express
their views orally or in writing on one or more of the Funds' portfolio
securities or may state that a Fund has recently purchased or sold, or continues
to own, one or more securities. The securities subject to these views and
statements may be ones that were purchased or sold since a Fund's most recent
quarter-end and therefore may not be reflected on the list of the Fund's most
recent quarter-end portfolio holdings disclosed on the website. Such views and
statements may be made to various persons, including members of the press,
brokers and other financial intermediaries that sell shares of the Funds,
shareholders in the applicable Fund, persons considering investing in the
applicable Fund or representatives of such shareholders or potential
shareholders, such as fiduciaries of a 401(k) plan or a trust and their
advisers, and other entities for which AIM or its affiliates provides or may
provide investment advisory services. The nature and content of the views and
statements provided to each of these persons may differ.
From time to time, employees of AIM and its affiliates also may provide
oral or written information ("portfolio commentary") about a Fund, including,
but not limited to, how the Fund's investments are divided among various
sectors, industries, countries, investment styles and capitalization sizes, and
among stocks, bonds, currencies and cash, security types, bond maturities, bond
coupons and bond credit quality ratings. This portfolio commentary may also
include information on how these various weightings and factors contributed to
Fund performance. AIM may also provide oral or written information ("statistical
information") about various financial characteristics of a Fund or its
underlying portfolio securities including, but not limited to, alpha, beta,
R-squared, coefficient of determination, duration, maturity, information ratio,
sharpe ratio, earnings growth, payout ratio, price/book value, projected
earnings growth, return on equity, standard deviation, tracking error, weighted
average quality, market capitalization, percent debt to equity, price to cash
flow, dividend yield or growth, default rate, portfolio turnover, and risk and
style characteristics. This portfolio commentary and statistical information
about a Fund may be based on the Fund's portfolio as of the most recent
quarter-end or the end of some other interim period, such as month-end. The
portfolio commentary and statistical information may be provided to various
persons, including those described in the preceding paragraph. The nature and
content of the information provided to each of these persons may differ.
DISCLOSURE OF PORTFOLIO HOLDINGS BY TRADERS. Additionally, employees of
AIM and its affiliates may disclose one or more of the portfolio securities of a
Fund when purchasing and selling securities through broker-dealers, requesting
bids on securities, obtaining price quotations on securities, or in connection
with litigation involving the Funds' portfolio securities. AIM does not enter
into formal Non-disclosure Agreements in connection with these situations;
however, the Funds would not continue to conduct business with a person who AIM
believed was misusing the disclosed information.
DISCLOSURE OF PORTFOLIO HOLDINGS OF OTHER AIM-MANAGER PRODUCTS. AIM and
its affiliates manage products sponsored by companies other than AIM, including
investment companies, offshore funds, and separate accounts. In many cases,
these other products are managed in a similar fashion to certain AIM Funds (as
defined herein) and thus have similar portfolio holdings. The sponsors of these
other products managed by AIM and its affiliates may disclose the portfolio
holdings of their products at different times than AIM discloses portfolio
holdings for the AIM Funds.
AIM provides portfolio holdings information for portfolios of AIM
Variable Insurance Funds (the "Insurance Funds") to insurance companies whose
variable annuity and variable life insurance accounts invest in the Insurance
Funds ("Insurance Companies"). AIM may disclose portfolio holdings information
for the Insurance Funds to Insurance Companies with which AIM has entered into
Non-disclosure Agreements up to five days prior to the scheduled dates for AIM's
disclosure of similar portfolio holdings information for other AIM Funds on
http://www.aiminvestments.com. AIM provides portfolio holdings information for
the Insurance Funds to such Insurance Companies to allow them to disclose this
information on their websites at approximately the same time that AIM discloses
portfolio holdings information for the other AIM Funds on its website. AIM
manages the Insurance Funds in a similar fashion to certain other AIM Funds and
thus the Insurance Funds and such other AIM Funds have similar
27
portfolio holdings. AIM does not disclose the portfolio holdings information for
the Insurance Funds on its website, and not all Insurance Companies disclose
this information on their websites.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the
Trust is vested in the Board. The Board approves all significant agreements
between the Trust, on behalf of one or more of the Funds, and persons or
companies furnishing services to the Funds. The day-to-day operations of each
Fund are delegated to the officers of the Trust and to AIM, subject always to
the objective(s), restrictions and policies of the applicable Fund and to the
general supervision of the Board. Certain trustees and officers of the Trust are
affiliated with AIM and A I M Management, the parent corporation of AIM. All of
the Trust's executive officers hold similar offices with some or all of the
other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations
during the last five years and certain other information concerning them are set
forth in Appendix C.
The standing committees of the Board are the Audit Committee, the
Compliance Committee, the Governance Committee, the Investments Committee, the
Valuation Committee and the Special Market Timing Litigation Committee.
The members of the Audit Committee are Bob R. Baker, James T. Bunch,
Edward K. Dunn, Jr. (Chair), Lewis F. Pennock, Dr. Larry Soll, Raymond Stickel,
Jr., Dr. Prema Mathai-Davis and Ruth H. Quigley (Vice Chair). The Audit
Committee's primary purposes are to: (i) assist the Board in oversight of the
independent auditor's qualifications, independence and performance; (ii) appoint
independent auditors for the Funds; (iii) to the extent required by Section
10A(h) and (i) of the Exchange Act, to pre-approve all permissible non-audit
services that are provided to Funds by their independent auditors; (iv)
pre-approve, in accordance with Rule 2-01(c)(7)(ii) of Regulation S-X, certain
non-audit services provided by the Funds' independent auditors to the Funds'
investment adviser and certain other affiliated entities; (v) to oversee the
financial reporting process for the Funds; (vi) the extent required by
Regulation 14A under the Exchange Act, to prepare an audit committee report for
inclusion in any proxy statement issued by a Fund; (vii) assist the Board's
oversight of the performance of the Funds' internal audit function to the extent
an internal audit function exists; (viii) assist the Board's oversight of the
integrity of the Funds' financial statements; and (ix) assist the Board's
oversight of the Funds' compliance with legal and regulatory requirements.
During the fiscal year ended October 31, 2004, the Audit Committee held eight
meetings.
The members of the Compliance Committee are Frank S. Bayley, Bruce L.
Crockett (Chair), Albert R. Dowden (Vice Chair) and Mr. Dunn. The Compliance
Committee is responsible for: (i) recommending to the Board and the independent
trustees the appointment, compensation and removal of the Funds' Chief
Compliance Officer; (ii) recommending to the independent trustees the
appointment, compensation and removal of the Funds' Senior Officer appointed
pursuant to the terms of the Assurances of Discontinuance entered into by the
New York Attorney General, AIM and INVESCO Funds Group, Inc. ("IFG"); (iii)
recommending to the independent trustees the appointment and removal of AIM's
independent Compliance Consultant (the "Compliance Consultant") and reviewing
the report prepared by the Compliance Consultant upon its compliance review of
AIM (the "Report") and any objections made by AIM with respect to the Report;
(iv) reviewing any report prepared by a third party who is not an interested
person of AIM, upon the conclusion by such third party of a compliance review of
AIM; (v) reviewing all reports on compliance matters from the Funds' Chief
Compliance Officer, (vi) reviewing all recommendations made by the Senior
Officer regarding AIM's compliance procedures, (vii) reviewing all reports from
the Senior Officer of any violations of state and federal securities laws, the
Colorado Consumer Protection Act, or breaches of AIM's fiduciary duties to Fund
shareholders and of AIM's Code
28
of Ethics; (viii) overseeing all of the compliance policies and procedures of
the Funds and their service providers adopted pursuant to Rule 38a-1 of the 1940
Act; (ix) from time to time, reviewing certain matters related to redemption fee
waivers and recommending to the Board whether or not to approve such matters;
(x) receiving and reviewing quarterly reports on the activities of AIM's
Internal Compliance Controls Committee; (xi) reviewing all reports made by AIM's
Chief Compliance Officer; (xii) reviewing and recommending to the independent
trustees whether to approve procedures to investigate matters brought to the
attention of AIM's ombudsman; (xiii) risk management oversight with respect to
the Funds and, in connection therewith, receiving and overseeing risk management
reports from AMVESCAP PLC that are applicable to the Funds or their service
providers; and (xiv) overseeing potential conflicts of interest that are
reported to the Compliance Committee by the AIM, the Chief Compliance Officer,
the Senior Officer and/or the Compliance Consultant. During the fiscal year
ended October 31, 2004, the Compliance Committee held one meeting.
The members of the Governance Committee are Messrs. Bayley, Crockett,
Dowden (Chair), Jack M. Fields (Vice Chair) and Gerald J. Lewis. The Governance
Committee is responsible for: (i) nominating persons who will qualify as
independent trustees for (a) election as trustees in connection with meetings of
shareholders of the Funds that are called to vote on the election of trustees,
(b) appointment by the Board as trustees in connection with filling vacancies
that arise in between meetings of shareholders; (ii) reviewing the size of the
Board, and recommending to the Board whether the size of the Board shall be
increased or decreased; (iii) nominating the Chair of the Board; (iv) monitoring
the composition of the Board and each committee of the Board, and monitoring the
qualifications of all trustees; (v) recommending persons to serve as members of
each committee of the Board (other than the Compliance Committee), as well as
persons who shall serve as the chair and vice chair of each such committee; (vi)
reviewing and recommending the amount of compensation payable to the independent
trustees; (vii) overseeing the selection of independent legal counsel to the
independent trustees; (viii) reviewing and approving the compensation paid to
independent legal counsel and other advisers, if any, to the Audit Committee of
the Board; (ix) reviewing and approving the compensation paid to counsel and
other advisers, if any, to the Audit Committee of the Board; and (x) reviewing
as they deem appropriate administrative and/or logistical matters pertaining to
the operations of the Board.
The Governance Committee will consider nominees recommended by a
shareholder to serve as trustees, provided: (i) that such person is a
shareholder of record at the time he or she submits such names and is entitled
to vote at the meeting of shareholders at which trustees will be elected; and
(ii) that the Governance Committee or the Board, as applicable, shall make the
final determination of persons to be nominated. During the fiscal year ended
October 31, 2004, the Governance Committee held seven meetings.
Notice procedures set forth in the Trust's bylaws require that any
shareholder of the Fund desiring to nominate a trustee for election at a
shareholder meeting must submit to the Trust's Secretary the nomination in
writing not later than the close of business on the later of the 90th day prior
to such shareholder meeting or the tenth day following the day on which public
announcement is made of the shareholder meeting and not earlier than the close
of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Messrs. Baker (Vice
Chair), Bayley (Chair), Bunch, Crockett, Dowden, Dunn, Fields, Lewis, Pennock,
Soll, and Carl Frischling, and Dr. Mathai-Davis (Vice Chair) and Miss Quigley
(Vice Chair). The Investments Committee's primary purposes are to: (i) assist
the Board in its oversight of the investment management services provided by AIM
as well as any sub-advisers; and (ii) review all proposed and existing advisory,
sub-advisory and distribution arrangements for the Funds, and to recommend what
action the full Boards and the independent trustees take regarding the approval
of all such proposed arrangements and the continuance of all such existing
arrangements. During the fiscal year ended October 31, 2004, the Investments
Committee held seven meetings.
The Investments Committee has established three Sub-Committees. The
Sub-Committees are responsible for: (i) reviewing the performance, fees and
expenses of the Funds that have been assigned
29
to a particular Sub-Committee (for each Sub-Committee, the "Designated Funds"),
unless the Investments Committee takes such action directly; (ii) reviewing with
the applicable portfolio managers from time to time the investment objective(s),
policies, strategies and limitations of the Designated Funds; (iii) evaluating
the investment advisory, sub-advisory and distribution arrangements in effect or
proposed for the Designated Funds, unless the Investments Committee takes such
action directly; (iv) being familiar with the registration statements and
periodic shareholder reports applicable to their Designated Funds; and (v) such
other investment-related matters as the Investments Committee may delegate to
the Sub-Committee from time to time.
The members of the Valuation Committee are Messrs. Bunch, Pennock (Vice
Chair), Soll, and Mark Williamson (Chair) and Miss Quigley. The Valuation
Committee is responsible for: (i) developing a sufficient knowledge of the
valuation process and of AIM's Procedures for Valuing Securities (Pricing
Procedures) (the "Pricing Procedures") in order to carry out their
responsibilities; (ii) periodically reviewing information provided by AIM or
other advisers regarding industry developments in connection with valuation and
pricing, and making recommendations to the Board with respect to the Pricing
Procedures based upon such review; (iii) reviewing the reports described in the
Pricing Procedures and other information from AIM regarding fair value
determinations made pursuant to the Pricing Procedures by AIM's internal
valuation committee, and reporting to and making recommendations to the Board in
connection with such reports; (iv) receiving the reports of AIM's internal
valuation committee requesting approval of any changes to pricing vendors or
pricing methodologies as required by the Pricing Procedures, receiving the
annual report of AIM evaluating the pricing vendors, and approving changes to
pricing vendors and pricing methodologies as provided in the Pricing Procedures
and recommending the pricing vendors for approval by the Board annually; (v)
upon request of AIM, assisting AIM's internal valuation committee and/or the
Board in resolving particular fair valuation issues; (vi) receiving any reports
of concerns by AIM's internal valuation committee regarding actual or potential
conflicts of interest by investment personnel or others that could color their
input or recommendations regarding pricing issues, and receiving information
from AIM disclosing differences between valuation and pricing procedures used
for the Funds and private funds, if any, advised by AIM for which AIM Fund
Administration has exclusive accounting responsibility, and the reasons for such
differences; and (vii) in each of the foregoing areas, making regular reports to
the Board. During the fiscal year ended October 31, 2004, the Valuation
Committee held one meeting.
The members of the Special Market Timing Litigation Committee are
Messrs. Crockett, Dowden (Vice Chair), Dunn and Lewis (Chair). The Special
Market Timing Litigation Committee is responsible: (i) for receiving reports
from time to time from management, counsel for management, counsel for the AIM
Funds and special counsel for the independent trustees, as applicable, related
to (a) the civil lawsuits, including purported class action and shareholder
derivative suits, that have been filed against the AIM Funds concerning alleged
excessive short term trading in shares of the AIM Funds ("market timing") and
(b) the civil enforcement actions and investigations related to market timing
activity in the AIM Funds that were settled with certain regulators, including
without limitation the SEC, the New York Attorney General and the Colorado
Attorney General, and for recommending to the independent trustees what actions,
if any, should be taken by the AIM Funds in light of all such reports; (ii) for
overseeing the investigation(s) on behalf of the independent trustees by special
counsel for the independent trustees and the independent trustees' financial
expert of market timing activity in the AIM Funds, and for recommending to the
independent trustees what actions, if any, should be taken by the AIM Funds in
light of the results of such investigation(s); (iii) for (a) reviewing the
methodology developed by AIM's Independent Distribution Consultant (the
"Distribution Consultant") for the monies ordered to be paid under the
settlement order with the SEC, and making recommendations to the independent
trustees as to the acceptability of such methodology and (b) recommending to the
independent trustees whether to consent to any firm with which the Distribution
Consultant is affiliated entering into any employment, consultant,
attorney-client, auditing or other professional relationship with AIM, or any of
its present or former affiliates, directors, officers, employees or agents
acting in their capacity as such for the period of the Distribution Consultant's
engagement and for a period of two years after the engagement; and (iv) for
taking reasonable steps to ensure that any AIM Fund which the Special Market
Timing Litigation Committee determines was harmed by improper market timing
activity receives what the Special Market
30
Timing Litigation Committee deems to be full restitution. During the fiscal year
ended October 31, 2004, the Special Market Timing Litigation Committee held
eight meetings.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each
trustee (i) in the Funds and (ii) on an aggregate basis, in all registered
investment companies overseen by the trustee within the AIM Funds complex is set
forth in Appendix C.
Approval of Investment Advisory Agreements and Summary of Independent Written
Fee Evaluation
The Board oversees the management of each Fund and, as required by law,
determines annually whether to approve the continuance of each Fund's advisory
agreement with AIM. Based upon the recommendation of the Investments Committee
of the Board, which is comprised solely of independent trustees, at a meeting
held on June 30, 2005, the Board, including all of the independent trustees,
approved the continuance of the advisory agreement (the "Advisory Agreement")
between each Fund and AIM for another year, effective July 1, 2005.
The Board considered the factors discussed below in evaluating the
fairness and reasonableness of each Fund's Advisory Agreement at the meeting on
June 30, 2005 and as part of the Board's ongoing oversight of each Fund. In
their deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
One of the responsibilities of the Senior Officer of the Funds, who is
independent of AIM and AIM's affiliates, is to manage the process by which the
Funds' proposed management fees are negotiated to ensure that they are
negotiated in a manner which is at arm's length and reasonable. To that end, the
Senior Officer must either supervise a competitive bidding process or prepare an
independent written evaluation. The Senior Officer has recommended an
independent written evaluation in lieu of a competitive bidding process and,
upon the direction of the Board, has prepared such an independent written
evaluation. Such written evaluation also considered certain of the factors
discussed below. In addition, as discussed below, the Senior Officer made
certain recommendations to the Board in connection with such written evaluation.
The discussion below serves as a summary of the Senior Officer's
independent written evaluation and recommendations to the Board in connection
therewith, as well as a discussion of the material factors and the conclusions
with respect thereto that formed the basis for the Board's approval of each
Fund's Advisory Agreement. After consideration of all of the factors below and
based on its informed business judgment, the Board determined that each Fund's
Advisory Agreement is in the best interests of the Fund and its shareholders and
that the compensation to AIM under each Fund's Advisory Agreement is fair and
reasonable and would have been obtained through arm's length negotiations.
AIM AGGRESSIVE GROWTH FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM
31
and AIM's equity and fixed income trading operations. Based on the
review of these and other factors, the Board concluded that the quality
of services to be provided by AIM was appropriate and that AIM
currently is providing satisfactory services in accordance with the
terms of the Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance in such periods was below
the median performance of such comparable funds. The Board noted that
AIM has recently made changes to the Fund's portfolio management team,
which appear to be producing encouraging early results but need more
time to be evaluated before a conclusion can be made that the changes
have addressed the Fund's under-performance. Based on this review, the
Board concluded that no changes should be made to the Fund and that it
was not necessary to change the Fund's portfolio management team at
this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Mid-Cap Growth Index. The
Board noted that the Fund's performance was below the performance of
such Index for the one year period, comparable to such Index for the
three year period, and above such Index for the five year period. The
Board noted that AIM has recently made changes to the Fund's portfolio
management team, which appear to be producing encouraging early results
but need more time to be evaluated before a conclusion can be made that
the changes have addressed the Fund's under-performance. Based on this
review, the Board concluded that no changes should be made to the Fund
and that it was not necessary to change the Fund's portfolio management
team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was the same
as the advisory fee rates for a variable insurance fund advised by AIM
and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; and (ii) was higher than
the sub-advisory fee rates for four unaffiliated mutual funds for which
an AIM affiliate serves as sub-advisor, although the total management
fees paid by such unaffiliated mutual funds were higher than the
advisory fee rate for the Fund. The Board noted that AIM has agreed to
waive advisory fees of the Fund, as discussed below. Based on this
review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
32
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board considered the
effect this fee waiver would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the
Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes one breakpoint. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes a breakpoint. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board concluded that the Fund's fee levels under the Advisory Agreement
therefore reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee
schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
33
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM BLUE CHIP FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds
34
advised by other advisors with investment strategies comparable to
those of the Fund. The Board noted that the Fund's performance in such
periods was below the median performance of such comparable funds. The
Board noted that, effective July 1, 2005, AIM will change the Fund's
portfolio management team, which change will need time to be evaluated
before a conclusion can be made that the change has addressed the
Fund's under-performance. Based on this review, the Board concluded
that no changes should be made to the Fund and that it was not
necessary to further change the Fund's portfolio management team at
this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large Cap Core Index. The
Board noted that the Fund's performance in such periods was below the
performance of such Index. The Board noted that, effective July 1,
2005, AIM will change the Fund's portfolio management team, which
change will need time to be evaluated before a conclusion can be made
that the change has addressed the Fund's under-performance. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to further change the Fund's
portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was the same
as the advisory fee rates for a variable insurance fund advised by AIM
and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; and (ii) was higher than
the sub-advisory fee rates for three unaffiliated mutual funds for
which an AIM affiliate serves as sub-advisor, although the total
management fees paid by such unaffiliated mutual funds were higher than
the advisory fee rate for the Fund. The Board noted that AIM has agreed
to waive advisory fees of the Fund, as discussed below. Based on this
review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was comparable
to the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of
the Fund, as discussed below. Based on this review, the Board concluded
that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board considered the contractual nature of this fee waiver
and noted that it remains in effect until December 31, 2009. The Board
considered the effect this fee waiver would have on the Fund's
estimated expenses and concluded that the levels of fee waivers/expense
limitations for the Fund were fair and reasonable.
35
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes one breakpoint. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes a breakpoint. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board concluded that the Fund's fee levels under the
Advisory Agreement therefore reflect economies of scale and that it was
not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable. The Board noted that, effective July 1, 2005, AIM will
change the Fund's portfolio management team, which change will need
time to be evaluated before a conclusion can be made that the change
has addressed the Fund's under-performance. The Board also considered
the Senior Officer's recommendation that the Board consider an
additional advisory fee waiver for the Fund due to the Fund's
under-performance. The Board concluded that such a fee waiver was not
appropriate for the Fund at this time and that, rather than requesting
such a fee waiver from AIM, the Board should closely monitor the Fund's
performance under the new portfolio management team.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
36
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM CAPITAL DEVELOPMENT FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds
37
advised by other advisors with investment strategies comparable to
those of the Fund. The Board noted that the Fund's performance in such
periods was above the median performance of such comparable funds.
Based on this review, the Board concluded that no changes should be
made to the Fund and that it was not necessary to change the Fund's
portfolio management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Mid-Cap Growth Index. The
Board noted that the Fund's performance was comparable to the
performance of such Index for the one year period and above such Index
for the three and five year periods. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this
time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate was the same as
the advisory fee rates for a variable insurance fund advised by AIM and
offered to insurance company separate accounts with investment
strategies comparable to those of the Fund. The Board noted that AIM
has agreed to waive advisory fees of the Fund, as discussed below.
Based on this review, the Board concluded that the advisory fee rate
for the Fund under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board considered the
effect this fee waiver would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the
Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes one breakpoint. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes a breakpoint. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes
38
breakpoints and is based on net asset levels. The Board concluded that
the Fund's fee levels under the Advisory Agreement therefore reflect
economies of scale.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by
39
AIM and its affiliates, such as administrative, transfer agency and
distribution services, and the fees received by AIM and its affiliates
for performing such services. In addition to reviewing such services,
the trustees also considered the organizational structure employed by
AIM and its affiliates to provide those services. Based on the review
of these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM CHARTER FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was below the median
performance of such comparable funds for the one and five year periods
and above such median performance for the three year period. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Core Index. The
Board noted that the Fund's performance was comparable to the
performance of such Index for the one year period, above such Index for
the three year period, and below such Index for the five year period.
Based on this review, the Board concluded that no changes should be
made to the Fund and that it was not necessary to change the Fund's
portfolio management team at this time.
40
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that, based on the Fund's
current assets and taking account of the breakpoints in the Fund's
advisory fee schedule, this rate (i) was comparable to the advisory fee
rates for a variable insurance fund advised by AIM and offered to
insurance company separate accounts with investment strategies
comparable to those of the Fund; and (ii) was higher than the
sub-advisory fee rates for an unaffiliated mutual fund for which an AIM
affiliate serves as sub-advisor, although the total management fees
paid by such unaffiliated mutual fund were higher than the advisory fee
rate for the Fund. The Board noted that AIM has agreed to waive
advisory fees of the Fund, as discussed below. Based on this review,
the Board concluded that the advisory fee rate for the Fund under the
Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was above the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board considered the contractual nature of this fee waiver
and noted that it remains in effect until December 31, 2009. The Board
considered the effect this fee waiver would have on the Fund's
estimated expenses and concluded that the levels of fee waivers/expense
limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board concluded that the Fund's fee levels under the
Advisory Agreement therefore reflect economies of scale and that it was
not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also
41
found that the Fund will not receive reduced services if it invests its
cash balances in such money market funds. The Board noted that, to the
extent the Fund invests in affiliated money market funds, AIM has
voluntarily agreed to waive a portion of the advisory fees it receives
from the Fund attributable to such investment. The Board further
determined that the proposed securities lending program and related
procedures with respect to the lending Fund is in the best interests of
the lending Fund and its respective shareholders. The Board therefore
concluded that the investment of cash collateral received in connection
with the securities lending program in the money market funds according
to the procedures is in the best interests of the lending Fund and its
respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
42
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
Approval of Sub-Advisory Agreement
The Board oversees the management of the Fund and, as required by law,
determines annually whether to approve the continuance of the Fund's
sub-advisory agreement. Based upon the recommendation of the Investments
Committee of the Board, which is comprised solely of independent trustees, at a
meeting held on June 30, 2005, the Board, including all of the independent
trustees, approved the continuance of the sub-advisory agreement (the
"Sub-Advisory Agreement") between A I M Capital Management, Inc. (the
"Sub-Advisor") and AIM with respect to the Fund for another year, effective July
1, 2005.
The Board considered the factors discussed below in evaluating the
fairness and reasonableness of the Sub-Advisory Agreement at the meeting on June
30, 2005 and as part of the Board's ongoing oversight of the Fund. In their
deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
The discussion below serves as a discussion of the material factors and
the conclusions with respect thereto that formed the basis for the Board's
approval of the Sub-Advisory Agreement. After consideration of all of the
factors below and based on its informed business judgment, the Board determined
that the Sub-Advisory Agreement is in the best interests of the Fund and its
shareholders.
o The nature and extent of the advisory services to be provided by the
Sub-Advisor. The Board reviewed the services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement. Based on such review, the
Board concluded that the range of services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement was appropriate and that
the Sub-Advisor currently is providing services in accordance with the
terms of the Sub-Advisory Agreement.
o The quality of services to be provided by the Sub-Advisor. The Board
reviewed the credentials and experience of the officers and employees
of the Sub-Advisor who will provide investment advisory services to the
Fund. Based on the review of these and other factors, the Board
concluded that the quality of services to be provided by the
Sub-Advisor was appropriate, and that the Sub-Advisor currently is
providing satisfactory services in accordance with the terms of the
Sub-Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was below the median
performance of such comparable funds for the one and five year periods
and above such median performance for the three year period. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper
43
Large-Cap Core Index. The Board noted that the Fund's performance was
comparable to the performance of such Index for the one year period,
above such Index for the three year period, and below such Index for
the five year period. Based on this review, the Board concluded that no
changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o Meetings with the Fund's portfolio managers and investment personnel.
The Board is meeting periodically with the Fund's portfolio managers
and/or other investment personnel and believes that such individuals
are competent and able to continue to carry out their responsibilities
under the Sub-Advisory Agreement.
o Overall performance of the Sub-Advisor. The Board considered the
overall performance of the Sub-Advisor in providing investment advisory
services to the Fund and concluded that such performance was
satisfactory.
o Advisory fees, expense limitations and fee waivers, and breakpoints and
economies of scale. In reviewing these factors, the Board considered
only the advisory fees charged to the Fund by AIM and did not consider
the sub-advisory fees paid by AIM to the Sub-Advisor. The Board
believes that this approach is appropriate because the sub-advisory
fees have no effect on the Fund or its shareholders, as they are paid
by AIM rather than the Fund. Furthermore, AIM and the Sub-Advisor are
affiliates and the Board believes that the allocation of fees between
them is a business matter, provided that the advisory fees charged to
the Fund are fair and reasonable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o The Sub-Advisor's financial soundness in light of the Fund's needs. The
Board considered whether the Sub-Advisor is financially sound and has
the resources necessary to perform its obligations under the
Sub-Advisory Agreement, and concluded that the Sub-Advisor has the
financial resources necessary to fulfill its obligations under the
Sub-Advisory Agreement.
AIM CONSTELLATION FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
44
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was below the median
performance of such comparable funds for the one year period and above
such median performance for the three and five year periods. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Growth Index. The
Board noted that the Fund's performance was below the performance of
such Index for the one year period and above such Index for the three
and five year periods. Based on this review, the Board concluded that
no changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that, based on the Fund's
current assets and taking account of the breakpoints in the Fund's
advisory fee schedule, this rate (i) was comparable to the advisory fee
rates for a variable insurance fund advised by AIM and offered to
insurance company separate accounts with investment strategies
comparable to those of the Fund; (ii) was lower than the advisory fee
rates for an offshore fund advised by an AIM affiliate with investment
strategies comparable to those of the Fund; (iii) was higher than the
sub-advisory fee rates for three unaffiliated mutual funds for which an
AIM affiliate serves as sub-advisor, although the total management fees
paid by such unaffiliated mutual funds were higher than the advisory
fee rate for the Fun; and (iv) was higher than the advisory fee rates
for three separately managed wrap accounts managed by an AIM affiliate
with investment strategies comparable to those of the Fund. The Board
noted that AIM has agreed to waive advisory fees of the Fund, as
discussed below. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was comparable
to the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of
the Fund, as discussed below. Based on this review, the Board concluded
that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board considered the contractual nature of this fee waiver
and noted that it remains in effect until December 31, 2009. The Board
considered the effect this fee waiver would have on the Fund's
estimated expenses
45
and concluded that the levels of fee waivers/expense limitations for
the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through
December 31, 2009 to the extent necessary so that the advisory fees
payable by the Fund do not exceed a specified maximum advisory fee
rate, which maximum rate includes breakpoints and is based on net asset
levels. The Board concluded that the Fund's fee levels under the
Advisory Agreement therefore reflect economies of scale and that it was
not necessary to change the advisory fee breakpoints in the Fund's
advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
46
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
Approval of Sub-Advisory Agreement
The Board oversees the management of the Fund and, as required by law,
determines annually whether to approve the continuance of the Fund's
sub-advisory agreement. Based upon the recommendation of the Investments
Committee of the Board, which is comprised solely of independent trustees, at a
meeting held on June 30, 2005, the Board, including all of the independent
trustees, approved the continuance of the sub-advisory agreement (the
"Sub-Advisory Agreement") between A I M Capital Management, Inc. (the
"Sub-Advisor") and AIM with respect to the Fund for another year, effective July
1, 2005.
The Board considered the factors discussed below in evaluating the
fairness and reasonableness of the Sub-Advisory Agreement at the meeting on June
30, 2005 and as part of the Board's ongoing oversight of the Fund. In their
deliberations, the Board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
The discussion below serves as a discussion of the material factors and
the conclusions with respect thereto that formed the basis for the Board's
approval of the Sub-Advisory Agreement. After consideration of all of the
factors below and based on its informed business judgment, the Board determined
that the Sub-Advisory Agreement is in the best interests of the Fund and its
shareholders.
o The nature and extent of the advisory services to be provided by the
Sub-Advisor. The Board reviewed the services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement. Based on such review, the
Board concluded that the range of services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement was appropriate and that
the Sub-Advisor currently is providing services in accordance with the
terms of the Sub-Advisory Agreement.
47
o The quality of services to be provided by the Sub-Advisor. The Board
reviewed the credentials and experience of the officers and employees
of the Sub-Advisor who will provide investment advisory services to the
Fund. Based on the review of these and other factors, the Board
concluded that the quality of services to be provided by the
Sub-Advisor was appropriate, and that the Sub-Advisor currently is
providing satisfactory services in accordance with the terms of the
Sub-Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was below the median
performance of such comparable funds for the one year period and above
such median performance for the three and five year periods. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Growth Index. The
Board noted that the Fund's performance was below the performance of
such Index for the one year period and above such Index for the three
and five year periods. Based on this review, the Board concluded that
no changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o Meetings with the Fund's portfolio managers and investment personnel.
The Board is meeting periodically with the Fund's portfolio managers
and/or other investment personnel and believes that such individuals
are competent and able to continue to carry out their responsibilities
under the Sub-Advisory Agreement.
o Overall performance of the Sub-Advisor. The Board considered the
overall performance of the Sub-Advisor in providing investment advisory
services to the Fund and concluded that such performance was
satisfactory.
o Advisory fees, expense limitations and fee waivers, and breakpoints and
economies of scale. In reviewing these factors, the Board considered
only the advisory fees charged to the Fund by AIM and did not consider
the sub-advisory fees paid by AIM to the Sub-Advisor. The Board
believes that this approach is appropriate because the sub-advisory
fees have no effect on the Fund or its shareholders, as they are paid
by AIM rather than the Fund. Furthermore, AIM and the Sub-Advisor are
affiliates and the Board believes that the allocation of fees between
them is a business matter, provided that the advisory fees charged to
the Fund are fair and reasonable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o The Sub-Advisor's financial soundness in light of the Fund's needs. The
Board considered whether the Sub-Advisor is financially sound and has
the resources necessary to perform its obligations under the
Sub-Advisory Agreement, and concluded that the Sub-Advisor has the
financial resources necessary to fulfill its obligations under the
Sub-Advisory Agreement.
48
AIM DIVERSIFIED DIVIDEND FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one and three
calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance in such periods was above
the median performance of such comparable funds. Based on this review,
the Board concluded that no changes should be made to the Fund and that
it was not necessary to change the Fund's portfolio management team at
this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one and three calendar years
against the performance of the Lipper Large-Cap Core Index. The Board
noted that the Fund's performance in such periods was above the
performance of such Index. Based on this review, the Board concluded
that no changes should be made to the Fund and that it was not
necessary to change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to
other mutual funds or other clients with investment strategies
comparable to those of the Fund.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund and
to limit the Fund's total operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the
Fund under the Advisory Agreement was fair and reasonable.
49
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board noted that AIM
has contractually agreed to waive fees and/or limit expenses of the
Fund through October 31, 2005 in an amount necessary to limit total
annual operating expenses to a specified percentage of average daily
net assets for each class of the Fund. The Board also noted that AIM
has voluntarily agreed to waive fees and/or limit expenses of the Fund
in an amount necessary to limit total annual operating expenses to a
specified percentage of average daily net assets for each class of the
Fund that is lower than the contractual agreement. The Board considered
the contractual and voluntary nature of these fee waivers/expense
limitations and noted that the contractual agreement remains in effect
until October 31, 2005 and that the voluntary agreement can be
terminated at any time by AIM without further notice to investors. The
Board considered the effect these fee waivers/expense limitations would
have on the Fund's estimated expenses and concluded that the levels of
fee waivers/expense limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes breakpoints. The Board noted that, due to the Fund's
current asset levels and the way in which the advisory fee breakpoints
have been structured, the Fund has yet to benefit from the breakpoints.
The Board noted that AIM has contractually agreed to waive advisory
fees of the Fund through June 30, 2006 to the extent necessary so that
the advisory fees payable by the Fund do not exceed a specified maximum
advisory fee rate, which maximum rate includes breakpoints and is based
on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would reflect economies of scale
at higher asset levels and that it was not necessary to change the
advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation
50
made by the Senior Officer to the Board that the Board consider
implementing a process to assist them in more closely monitoring the
performance of the AIM Funds. The Board concluded that it would be
advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM LARGE CAP BASIC VALUE FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
51
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance for the one and three year
periods was below the median performance of such comparable funds and
above such median performance for the five year period. Based on this
review, the Board concluded that no changes should be made to the Fund
and that it was not necessary to change the Fund's portfolio management
team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Value Index. The
Board noted that the Fund's performance for the one and three year
periods was below the performance of such Index and above such Index
for the five year period. Based on this review, the Board concluded
that no changes should be made to the Fund and that it was not
necessary to change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to
other mutual funds or other clients with investment strategies
comparable to those of the Fund.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund and
to limit the Fund's total operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the
Fund under the Advisory Agreement was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board noted that AIM
has contractually agreed to waive fees and/or limit expenses of the
Fund through June 30, 2006 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net
assets for each class of the Fund. The Board
52
considered the contractual nature of this fee waiver/expense limitation
and noted that it remains in effect through June 30, 2006. The Board
considered the effect these fee waivers/expense limitations would have
on the Fund's estimated expenses and concluded that the levels of fee
waivers/expense limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes breakpoints. The Board noted that, due to the Fund's
current asset levels and the way in which the advisory fee breakpoints
have been structured, the Fund has yet to benefit from the breakpoints.
The Board noted that AIM has contractually agreed to waive advisory
fees of the Fund through June 30, 2006 to the extent necessary so that
the advisory fees payable by the Fund do not exceed a specified maximum
advisory fee rate, which maximum rate includes breakpoints and is based
on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would reflect economies of scale
at higher asset levels and that it was not necessary to change the
advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
53
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM LARGE CAP GROWTH FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds
54
advised by other advisors with investment strategies comparable to
those of the Fund. The Board noted that the Fund's performance for such
periods was above the median performance of such comparable funds.
Based on this review, the Board concluded that no changes should be
made to the Fund and that it was not necessary to change the Fund's
portfolio management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Growth Index. The
Board noted that the Fund's performance for such periods was above the
performance of such Index. Based on this review, the Board concluded
that no changes should be made to the Fund and that it was not
necessary to change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was the same
as the advisory fee rates for a variable insurance fund advised by AIM
and offered to insurance company separate accounts with investment
strategies comparable to those of the Fund; (ii) was higher than the
sub-advisory fee rates for two unaffiliated mutual funds for which an
AIM affiliate serves as sub-advisor, although the total management fees
paid by one of these unaffiliated mutual funds were higher than the
advisory fee rate for the Fund (data on the total management fees paid
by the other unaffiliated mutual fund was unavailable); (iii) was lower
than the advisory fee rates for an offshore fund for which an AIM
affiliate serves as advisor with investment strategies comparable to
those of the Fund; and (iv) was higher than the advisory fee rates for
six separately managed wrap accounts managed by an AIM affiliate with
investment strategies comparable to those of the Fund. The Board noted
that AIM has agreed to waive advisory fees of the Fund and to limit the
Fund's total operating expenses, as discussed below. Based on this
review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund and
to limit the Fund's total operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the
Fund under the Advisory Agreement was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board noted that AIM
has contractually agreed to waive fees and/or limit expenses of the
Fund through June 30, 2006 in an amount necessary to limit total annual
operating expenses to a specified percentage of average daily net
assets for each class of the Fund. The Board
55
considered the contractual nature of this fee waiver/expense limitation
and noted that it remains in effect through June 30, 2006. The Board
considered the effect these fee waivers/expense limitations would have
on the Fund's estimated expenses and concluded that the levels of fee
waivers/expense limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes breakpoints. The Board noted that, due to the Fund's
current asset levels and the way in which the advisory fee breakpoints
have been structured, the Fund has yet to benefit from the breakpoints.
The Board noted that AIM has contractually agreed to waive advisory
fees of the Fund through June 30, 2006 to the extent necessary so that
the advisory fees payable by the Fund do not exceed a specified maximum
advisory fee rate, which maximum rate includes breakpoints and is based
on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would reflect economies of scale
at higher asset levels and that it was not necessary to change the
advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
56
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM MID CAP GROWTH FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds
57
advised by other advisors with investment strategies comparable to
those of the Fund. The Board noted that the Fund's performance in such
periods was below the median performance of such comparable funds. The
Board noted that AIM has acknowledged that the Fund continues to
require a long-term solution to its under-performance, and that
management is continuing to closely monitor the performance of the Fund
and analyze various possible long-term solutions. Based on this review,
the Board concluded that no changes should be made to the Fund and that
it was not necessary to change the Fund's portfolio management team at
this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Mid-Cap Growth Index. The
Board noted that the Fund's performance was below the performance of
such Index for the one and three year periods and comparable to such
Index for the five year period. The Board noted that AIM has
acknowledged that the Fund continues to require a long-term solution to
its under-performance, and that management is continuing to closely
monitor the performance of the Fund and analyze various possible
long-term solutions. Based on this review, the Board concluded that no
changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that this rate (i) was higher
than the sub-advisory fee rates for an unaffiliated mutual fund for
which an AIM affiliate serves as sub-advisor, and noted that total
management fees paid by such unaffiliated mutual fund were lower than
the advisory fee rate for the Fund; (ii) was higher than the advisory
fee rates for a collective trust portfolio for which an AIM affiliate
serves as advisor with investment strategies comparable to those of the
Fund; and (iii) was lower than the advisory fee rates for an offshore
fund for which an AIM affiliate serves as advisor with investment
strategies comparable to those of the Fund. The Board noted that AIM
has agreed to waive advisory fees of the Fund and to limit the Fund's
total operating expenses, as discussed below. Based on this review, the
Board concluded that the advisory fee rate for the Fund under the
Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was below the
median rate of the funds advised by other advisors with investment
strategies comparable to those of the Fund that the Board reviewed. The
Board noted that AIM has agreed to waive advisory fees of the Fund and
to limit the Fund's total operating expenses, as discussed below. Based
on this review, the Board concluded that the advisory fee rate for the
Fund under the Advisory Agreement was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board noted that AIM
has voluntarily agreed to waive fees and/or limit expenses of the Fund
in an
58
amount necessary to limit total annual operating expenses to a
specified percentage of average daily net assets for each class of the
Fund. The Board considered the voluntary nature of this fee
waiver/expense limitation and noted that it can be terminated at any
time by AIM without further notice to investors. The Board considered
the effect these fee waivers/expense limitations would have on the
Fund's estimated expenses and concluded that the levels of fee
waivers/expense limitations for the Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes one breakpoint. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes a breakpoint. The Board noted that, due to the
Fund's current asset levels and the way in which the advisory fee
breakpoints have been structured, the Fund has yet to benefit from the
breakpoint. The Board noted that AIM has contractually agreed to waive
advisory fees of the Fund through June 30, 2006 to the extent necessary
so that the advisory fees payable by the Fund do not exceed a specified
maximum advisory fee rate, which maximum rate includes breakpoints and
is based on net asset levels. The Board concluded that the Fund's fee
levels under the Advisory Agreement therefore would reflect economies
of scale at higher asset levels and that it was not necessary to change
the advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its
59
financial condition, the Board concluded that the compensation to be
paid by the Fund to AIM under its Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM SELECT BASIC VALUE FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM and AIM's equity
and fixed income trading operations. Based on the review of these and
other factors, the Board concluded that the quality of services to be
provided by AIM was appropriate and that AIM currently is providing
satisfactory services in accordance with the terms of the Advisory
Agreement.
60
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one year ended
March 31, 2005 against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance in period was below the
median performance of such comparable funds. The Board noted that,
because the Fund has recently commenced operations, comparative
performance information was only available for one year and that more
time was needed to adequately assess whether the Fund was
under-performing. Based on this review, the Board concluded that no
changes should be made to the Fund and that it was not necessary to
change the Fund's portfolio management team at this time.
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past year ended March 31, 2005
against the performance of the Lipper Multi-Cap Value Index. The Board
noted that the Fund's performance in such period was below the
performance of such Index. The Board noted that, because the Fund has
recently commenced operations, comparative performance information was
only available for one year and that more time was needed to adequately
assess whether the Fund was under-performing. Based on this review, the
Board concluded that no changes should be made to the Fund and that it
was not necessary to change the Fund's portfolio management team at
this time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board noted that AIM does not serve as an advisor to
other mutual funds or other clients with investment strategies
comparable to those of the Fund.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was comparable
to the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive fees and to
limit the Fund's total operating expenses, as discussed below. The
Board also noted that the Fund is currently in incubation and has no
public shareholders. Based on this review, the Board concluded that the
advisory fee rate for the Fund under the Advisory Agreement was fair
and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board also noted
that AIM has voluntarily agreed to waive fees and/or limit expenses of
the Fund in an amount necessary to limit total annual operating
expenses to a specified percentage of average daily net assets for each
class of the Fund. The Board considered the voluntary nature of this
fee waiver/expense limitation and noted that it can be terminated at
any time by AIM without further notice to investors. The Board also
noted that the Fund is currently in incubation and has no public
shareholders. The Board considered the effect these fee waivers/expense
limitations would have on the Fund's estimated expenses and concluded
that the levels of fee waivers/expense limitations for the Fund were
fair and reasonable.
61
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, would decrease as net assets increase because the Advisory
Agreement includes breakpoints. The Board noted that, due to the Fund's
current asset levels and the way in which the advisory fee breakpoints
have been structured, the Fund has yet to benefit from the breakpoints.
The Board noted that AIM has contractually agreed to waive advisory
fees of the Fund through June 30, 2006 to the extent necessary so that
the advisory fees payable by the Fund do not exceed a specified maximum
advisory fee rate, which maximum rate includes breakpoints and is based
on net asset levels. The Board concluded that the Fund's fee levels
under the Advisory Agreement therefore would reflect economies of scale
at higher asset levels and that it was not necessary to change the
advisory fee breakpoints in the Fund's advisory fee schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash balances") of the
Fund may be invested in money market funds advised by AIM pursuant to
the terms of an SEC exemptive order. The Board found that the Fund may
realize certain benefits upon investing cash balances in AIM advised
money market funds, including a higher net return, increased liquidity,
increased diversification or decreased transaction costs. The Board
also found that the Fund will not receive reduced services if it
invests its cash balances in such money market funds. The Board noted
that, to the extent the Fund invests in affiliated money market funds,
AIM has voluntarily agreed to waive a portion of the advisory fees it
receives from the Fund attributable to such investment. The Board
further determined that the proposed securities lending program and
related procedures with respect to the lending Fund is in the best
interests of the lending Fund and its respective shareholders. The
Board therefore concluded that the investment of cash collateral
received in connection with the securities lending program in the money
market funds according to the procedures is in the best interests of
the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
62
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory services to the Fund, including administrative, transfer
agency and distribution services, and that AIM and its affiliates
currently are providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
AIM WEINGARTEN FUND
o The nature and extent of the advisory services to be provided by AIM.
The Board reviewed the services to be provided by AIM under the
Advisory Agreement. Based on such review, the Board concluded that the
range of services to be provided by AIM under the Advisory Agreement
was appropriate and that AIM currently is providing services in
accordance with the terms of the Advisory Agreement.
o The quality of services to be provided by AIM. The Board reviewed the
credentials and experience of the officers and employees of AIM who
will provide investment advisory services to the Fund. In reviewing the
qualifications of AIM to provide investment advisory services, the
Board reviewed the qualifications of AIM's investment personnel and
considered such issues as AIM's portfolio and product review process,
various back office support functions provided by AIM. Based on the
review of these and other factors, the Board concluded that the quality
of services to be provided by AIM was appropriate and that AIM
currently is providing satisfactory services in accordance with the
terms of the Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was above the median
performance of such comparable funds for the one year period and below
such median performance for the three and five year periods. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
63
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Growth Index. The
Board noted that the Fund's performance was comparable to the
performance of such Index for the one year period and below such Index
for the three and five year periods. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this
time.
o Meeting with the Fund's portfolio managers and investment personnel.
With respect to the Fund, the Board is meeting periodically with such
Fund's portfolio managers and/or other investment personnel and
believes that such individuals are competent and able to continue to
carry out their responsibilities under the Advisory Agreement.
o Overall performance of AIM. The Board considered the overall
performance of AIM in providing investment advisory and portfolio
administrative services to the Fund and concluded that such performance
was satisfactory.
o Fees relative to those of clients of AIM with comparable investment
strategies. The Board reviewed the advisory fee rate for the Fund under
the Advisory Agreement. The Board noted that, based on the Fund's
current assets and taking account of the breakpoints in the Fund's
advisory fee schedule, this rate was comparable to the advisory fee
rates for a variable insurance fund advised by AIM and offered to
insurance company separate accounts with investment strategies
comparable to those of the Fund. The Board noted that AIM has agreed to
waive advisory fees of the Fund, as discussed below. Based on this
review, the Board concluded that the advisory fee rate for the Fund
under the Advisory Agreement was fair and reasonable.
o Fees relative to those of comparable funds with other advisors. The
Board reviewed the advisory fee rate for the Fund under the Advisory
Agreement. The Board compared effective contractual advisory fee rates
at a common asset level and noted that the Fund's rate was comparable
to the median rate of the funds advised by other advisors with
investment strategies comparable to those of the Fund that the Board
reviewed. The Board noted that AIM has agreed to waive advisory fees of
the Fund, as discussed below. Based on this review, the Board concluded
that the advisory fee rate for the Fund under the Advisory Agreement
was fair and reasonable.
o Expense limitations and fee waivers. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board considered the contractual nature of this fee waiver and noted
that it remains in effect until June 30, 2006. The Board considered the
effect this fee waiver would have on the Fund's estimated expenses and
concluded that the levels of fee waivers/expense limitations for the
Fund were fair and reasonable.
o Breakpoints and economies of scale. The Board reviewed the structure of
the Fund's advisory fee under the Advisory Agreement, noting that it
includes two breakpoints. The Board reviewed the level of the Fund's
advisory fees, and noted that such fees, as a percentage of the Fund's
net assets, have decreased as net assets increased because the Advisory
Agreement includes breakpoints. The Board noted that AIM has
contractually agreed to waive advisory fees of the Fund through June
30, 2006 to the extent necessary so that the advisory fees payable by
the Fund do not exceed a specified maximum advisory fee rate, which
maximum rate includes breakpoints and is based on net asset levels. The
Board concluded that the Fund's fee levels under the Advisory Agreement
therefore reflect economies of scale and that it was not necessary to
change the advisory fee breakpoints in the Fund's advisory fee
schedule.
o Investments in affiliated money market funds. The Board also took into
account the fact that uninvested cash and cash collateral from
securities lending arrangements (collectively, "cash
64
balances") of the Fund may be invested in money market funds advised by
AIM pursuant to the terms of an SEC exemptive order. The Board found
that the Fund may realize certain benefits upon investing cash balances
in AIM advised money market funds, including a higher net return,
increased liquidity, increased diversification or decreased transaction
costs. The Board also found that the Fund will not receive reduced
services if it invests its cash balances in such money market funds.
The Board noted that, to the extent the Fund invests in affiliated
money market funds, AIM has voluntarily agreed to waive a portion of
the advisory fees it receives from the Fund attributable to such
investment. The Board further determined that the proposed securities
lending program and related procedures with respect to the lending Fund
is in the best interests of the lending Fund and its respective
shareholders. The Board therefore concluded that the investment of cash
collateral received in connection with the securities lending program
in the money market funds according to the procedures is in the best
interests of the lending Fund and its respective shareholders.
o Independent written evaluation and recommendations of the Fund's Senior
Officer. The Board noted that, upon their direction, the Senior Officer
of the Fund had prepared an independent written evaluation in order to
assist the Board in determining the reasonableness of the proposed
management fees of the AIM Funds, including the Fund. The Board noted
that the Senior Officer's written evaluation had been relied upon by
the Board in this regard in lieu of a competitive bidding process. In
determining whether to continue the Advisory Agreement for the Fund,
the Board considered the Senior Officer's written evaluation and the
recommendation made by the Senior Officer to the Board that the Board
consider implementing a process to assist them in more closely
monitoring the performance of the AIM Funds. The Board concluded that
it would be advisable to implement such a process as soon as reasonably
practicable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o Benefits of soft dollars to AIM. The Board considered the benefits
realized by AIM as a result of brokerage transactions executed through
"soft dollar" arrangements. Under these arrangements, brokerage
commissions paid by the Fund and/or other funds advised by AIM are used
to pay for research and execution services. This research is used by
AIM in making investment decisions for the Fund. The Board concluded
that such arrangements were appropriate.
o AIM's financial soundness in light of the Fund's needs. The Board
considered whether AIM is financially sound and has the resources
necessary to perform its obligations under the Advisory Agreement, and
concluded that AIM has the financial resources necessary to fulfill its
obligations under the Advisory Agreement.
o Historical relationship between the Fund and AIM. In determining
whether to continue the Advisory Agreement for the Fund, the Board also
considered the prior relationship between AIM and the Fund, as well as
the Board's knowledge of AIM's operations, and concluded that it was
beneficial to maintain the current relationship, in part, because of
such knowledge. The Board also reviewed the general nature of the
non-investment advisory services currently performed by AIM and its
affiliates, such as administrative, transfer agency and distribution
services, and the fees received by AIM and its affiliates for
performing such services. In addition to reviewing such services, the
trustees also considered the organizational structure employed by AIM
and its affiliates to provide those services. Based on the review of
these and other factors, the Board concluded that AIM and its
affiliates were qualified to continue to provide non-investment
advisory
65
services to the Fund, including administrative, transfer agency and
distribution services, and that AIM and its affiliates currently are
providing satisfactory non-investment advisory services.
o Other factors and current trends. In determining whether to continue
the Advisory Agreement for the Fund, the Board considered the fact that
AIM, along with others in the mutual fund industry, is subject to
regulatory inquiries and litigation related to a wide range of issues.
The Board also considered the governance and compliance reforms being
undertaken by AIM and its affiliates, including maintaining an internal
controls committee and retaining an independent compliance consultant,
and the fact that AIM has undertaken to cause the Fund to operate in
accordance with certain governance policies and practices. The Board
concluded that these actions indicated a good faith effort on the part
of AIM to adhere to the highest ethical standards, and determined that
the current regulatory and litigation environment to which AIM is
subject should not prevent the Board from continuing the Advisory
Agreement for the Fund.
Approval of Sub-Advisory Agreement
The Board oversees the management of the Fund and, as required by law,
determines annually whether to approve the continuance of the Fund's
sub-advisory agreement. Based upon the recommendation of the Investments
Committee of the Board, which is comprised solely of independent trustees, at a
meeting held on June 30, 2005, the Board, including all of the independent
trustees, approved the continuance of the sub-advisory agreement (the
"Sub-Advisory Agreement") between A I M Capital Management, Inc. (the
"Sub-Advisor") and AIM with respect to the Fund for another year, effective July
1, 2005.
The Board considered the factors discussed below in evaluating the
fairness and reasonableness of the Sub-Advisory Agreement at the meeting on June
30, 2005 and as part of the board's ongoing oversight of the fund. in their
deliberations, the board and the independent trustees did not identify any
particular factor that was controlling, and each trustee attributed different
weights to the various factors.
The discussion below serves as a discussion of the material factors and
the conclusions with respect thereto that formed the basis for the Board's
approval of the Sub-Advisory Agreement. After consideration of all of the
factors below and based on its informed business judgment, the Board determined
that the Sub-Advisory Agreement is in the best interests of the Fund and its
shareholders.
o The nature and extent of the advisory services to be provided by the
Sub-Advisor. Board reviewed the services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement. Based on such review, the
Board concluded that the range of services to be provided by the
Sub-Advisor under the Sub-Advisory Agreement was appropriate and that
the Sub-Advisor currently is providing services in accordance with the
terms of the Sub-Advisory Agreement.
o The quality of services to be provided by the Sub-Advisor. The Board
reviewed the credentials and experience of the officers and employees
of the Sub-Advisor who will provide investment advisory services to the
Fund. Based on the review of these and other factors, the Board
concluded that the quality of services to be provided by the
Sub-Advisor was appropriate, and that the Sub-Advisor currently is
providing satisfactory services in accordance with the terms of the
Sub-Advisory Agreement.
o The performance of the Fund relative to comparable funds. The Board
reviewed the performance of the Fund during the past one, three and
five calendar years against the performance of funds advised by other
advisors with investment strategies comparable to those of the Fund.
The Board noted that the Fund's performance was above the median
performance of such comparable funds for the one year period and below
such median performance for the three and five year periods. Based on
this review, the Board concluded that no changes should be made to the
Fund and that it was not necessary to change the Fund's portfolio
management team at this time.
66
o The performance of the Fund relative to indices. The Board reviewed the
performance of the Fund during the past one, three and five calendar
years against the performance of the Lipper Large-Cap Growth Index. The
Board noted that the Fund's performance was comparable to the
performance of such Index for the one year period and below such Index
for the three and five year periods. Based on this review, the Board
concluded that no changes should be made to the Fund and that it was
not necessary to change the Fund's portfolio management team at this
time.
o Meetings with the Fund's portfolio managers and investment personnel.
The Board is meeting periodically with the Fund's portfolio managers
and/or other investment personnel and believes that such individuals
are competent and able to continue to carry out their responsibilities
under the Sub-Advisory Agreement.
o Overall performance of the Sub-Advisor. The Board considered the
overall performance of the Sub-Advisor in providing investment advisory
services to the Fund and concluded that such performance was
satisfactory.
o Advisory fees, expense limitations and fee waivers, and breakpoints and
economies of scale. In reviewing these factors, the Board considered
only the advisory fees charged to the Fund by AIM and did not consider
the sub-advisory fees paid by AIM to the Sub-Advisor. The Board
believes that this approach is appropriate because the sub-advisory
fees have no effect on the Fund or its shareholders, as they are paid
by AIM rather than the Fund. Furthermore, AIM and the Sub-Advisor are
affiliates and the Board believes that the allocation of fees between
them is a business matter, provided that the advisory fees charged to
the Fund are fair and reasonable.
o Profitability of AIM and its affiliates. The Board reviewed information
concerning the profitability of AIM's (and its affiliates') investment
advisory and other activities and its financial condition. The Board
considered the overall profitability of AIM, as well as the
profitability of AIM in connection with managing the Fund. The Board
noted that AIM's operations remain profitable, although increased
expenses in recent years have reduced AIM's profitability. Based on the
review of the profitability of AIM's and its affiliates' investment
advisory and other activities and its financial condition, the Board
concluded that the compensation to be paid by the Fund to AIM under its
Advisory Agreement was not excessive.
o The Sub-Advisor's financial soundness in light of the Fund's needs. The
Board considered whether the Sub-Advisor is financially sound and has
the resources necessary to perform its obligations under the
Sub-Advisory Agreement, and concluded that the Sub-Advisor has the
financial resources necessary to fulfill its obligations under the
Sub-Advisory Agreement.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or
her services according to a fee schedule which recognizes the fact that such
trustee also serves as a trustee of other AIM Funds. Each such trustee receives
a fee, allocated among the AIM Funds for which he or she serves as a trustee,
which consists of an annual retainer component and a meeting fee component. The
Chair of the Board and Chairs and Vice Chairs of certain committees receive
additional compensation for their services.
Information regarding compensation paid or accrued for each trustee of
the Trust who was not affiliated with AIM during the year ended December 31,
2004 is found in Appendix D.
67
Retirement Plan For Trustees
The trustees have adopted a retirement plan for the trustees of the
Trust who are not affiliated with AIM. The retirement plan includes a retirement
policy as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve
until December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated
trustee of the Trust and/or the other AIM Funds (each, a "Covered Fund") who has
at least five years of credited service as a trustee (including service to a
predecessor fund) for a Covered Fund. The retirement benefits will equal 75% of
the trustee's annual retainer paid or accrued by any Covered Fund to such
trustee during the twelve-month period prior to retirement, including the amount
of any retainer deferred under a separate deferred compensation agreement
between the Covered Fund and the trustee. Notwithstanding the foregoing, the
amount of benefits will exclude any additional compensation paid to the Chair of
the Board and the Chairs and Vice Chairs of certain committees, whether such
amounts are paid directly to the Trustee or deferred. The annual retirement
benefits are payable in quarterly installments for a number of years equal to
the lesser of (i) ten or (ii) the number of such trustee's credited years of
service. A death benefit is also available under the plan that provides a
surviving spouse with a quarterly installment of 50% of a deceased trustee's
retirement benefits for the same length of time that the trustee would have
received based on his or her service. A trustee must have attained the age of 65
(55 in the event of death or disability) to receive any retirement benefit.
Deferred Compensation Agreements
Messrs. Crockett, Dunn, Fields, Frischling and Sklar and Drs.
Mathai-Davis and Soll (for purposes of this paragraph only, the "Deferring
Trustees") have each executed a Deferred Compensation Agreement (collectively,
the "Compensation Agreements"). Pursuant to the Compensation Agreements, the
Deferring Trustees have the option to elect to defer receipt of up to 100% of
their compensation payable by the Trust, and such amounts are placed into a
deferral account and deemed to be invested in one or more AIM Funds selected by
the Deferring Trustees. Distributions from the Deferring Trustees' deferral
accounts will be paid in cash, generally in equal quarterly installments over a
period of up to ten (10) years (depending on the Compensation Agreement)
beginning on the date selected under the Compensation Agreement. The Board, in
its sole discretion, may accelerate or extend the distribution of such deferral
accounts after the Deferring Trustee's retirement benefits commence under the
Plan. The Board, in its sole discretion, also may accelerate or extend the
distribution of such deferral accounts after the Deferring Trustee's termination
of service as a trustee of the Trust. If a Deferring Trustee dies prior to the
distribution of amounts in his or her deferral account, the balance of the
deferral account will be distributed to his or her designated beneficiary. The
Compensation Agreements are not funded and, with respect to the payments of
amounts held in the deferral accounts, the Deferring Trustees have the status of
unsecured creditors of the Trust and of each other AIM Fund from which they are
deferring compensation.
Purchases of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase
Class A shares of the AIM Funds without paying an initial sales charge. AIM
Distributors permits such purchases because there is a reduced sales effort
involved in sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will not
pay an initial sales charge on purchases of Class A shares of the AIM Funds, see
"Purchase, Redemption and Pricing of Shares - Purchase and Redemption of Shares
- - Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund - Purchases of Class A Shares at Net Asset Value."
68
CODES OF ETHICS
AIM, the Trust, AIM Distributors and A I M Capital have each adopted a
Code of Ethics governing, as applicable, personal trading activities of all
directors/trustees, officers of the Trust, persons who, in connection with their
regular functions, play a role in the recommendation of any purchase or sale of
a security by any of the Funds or obtain information pertaining to such purchase
or sale, and certain other employees. The Codes of Ethics are intended to
prohibit conflicts of interest with the Trust that may arise from personal
trading including personal trading in most of the funds within the AIM Family of
Funds(R) ("affiliated funds"). Personal trading, including personal trading
involving securities that may be purchased or held by a Fund, and in affiliated
funds, is permitted by persons covered under the relevant Codes subject to
certain restrictions; however, those persons are generally required to pre-clear
all security transactions with the Compliance Officer or his designee and to
report all transactions on a regular basis.
PROXY VOTING POLICIES
The Board has delegated responsibility for decisions regarding proxy
voting for securities held by each Fund to AIM, the Fund's investment advisor.
AIM will vote such proxies in accordance with its proxy policies and procedures,
which have been reviewed by the Board, and which are found in Appendix E.
Any material changes to the proxy policies and procedures will be
submitted to the Board for approval. The Board will be supplied with a summary
quarterly report of each Fund's proxy voting record.
Information regarding how the Funds voted proxies related to their
portfolio securities during the 12 months ended June 30, 2005 is available at
our website, http://www.aiminvestments.com. This information is also available
at the SEC website, http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of each Fund's shares by
beneficial or record owners of such Fund and by trustees and officers as a group
is found in Appendix F. A shareholder who owns beneficially 25% or more of the
outstanding shares of a Fund is presumed to "control" that Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISOR
AIM, the Funds' investment advisor, was organized in 1976, and along
with its subsidiaries, manages or advises over 200 investment portfolios
encompassing a broad range of investment objectives. AIM is a direct, wholly
owned subsidiary of AIM Management, a holding company that has been engaged in
the financial services business since 1976. AIM Management is an indirect,
wholly owned subsidiary of AMVESCAP. AMVESCAP and its subsidiaries are an
independent global investment management group. Certain of the directors and
officers of AIM are also executive officers of the Trust and their affiliations
are shown under "Management Information" herein.
As investment advisor, AIM supervises all aspects of the Funds'
operations and provides investment advisory services to the Funds. AIM obtains
and evaluates economic, statistical and financial information to formulate and
implement investment programs for the Funds. The Advisory Agreement provides
that, in fulfilling its responsibilities, AIM may engage the services of other
investment managers with respect to one or more of the Funds. The investment
advisory services of AIM and the investment sub-advisory services of the
sub-advisor to the Funds are not exclusive and AIM and the sub-advisor are free
to render investment advisory services to others, including other investment
companies.
69
AIM is also responsible for furnishing to the Funds, at AIM's expense,
the services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of each Fund's accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
The Advisory Agreement provides that each Fund will pay or cause to be
paid all expenses of such Fund not assumed by AIM, including, without
limitation: brokerage commissions, taxes, legal, auditing or governmental fees,
custodian, transfer and shareholder service agent costs, expenses of issue,
sale, redemption, and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to trustee and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Trust on behalf of
each Fund in connection with membership in investment company organizations, and
the cost of printing copies of prospectuses and statements of additional
information distributed to the Funds' shareholders.
AIM, at its own expense, furnishes to the Trust office space and
facilities. AIM furnishes to the Trust all personnel for managing the affairs of
the Trust and each of its series of shares.
Pursuant to its Advisory Agreement with the Trust, AIM receives a
monthly fee from each Fund calculated at the annual rates indicated in the
second column below, based on the average daily net assets of each Fund during
the year.
Effective January 1, 2005, the advisor has contractually agreed to
waive advisory fees to the extent necessary so that the advisory fees payable by
each Fund do not exceed the maximum advisory fee rate set forth in the third
column below. The maximum advisory fee rates are effective through the Committee
Until Date set forth in the fourth column.
<Table>
<Caption>
MAXIMUM ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE COMMITTED UNTIL
FUND NAME PER ADVISORY AGREEMENT RATE AFTER JANUARY 1, 2005 DATE
--------- ---------------------- -------------------------- ----------------
AIM Aggressive Growth Fund 0.80% of first $150M 0.745% of first $250M June 30, 2006
0.625% of amount over $150M 0.73% of next $250M
0.715% of next $500M
0.70% of next $1.5B
0.685% of next $2.5B
0.67% of next $2.5B
0.655% of next $2.5B
0.64% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Blue Chip Fund 0.75% of first $350M 0.695% of first $250M December 31, 2009
0.625% of amount over $350M 0.67% of next $250M
0.645% of next $500M
0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
</Table>
70
<Table>
<Caption>
MAXIMUM ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE COMMITTED UNTIL
FUND NAME PER ADVISORY AGREEMENT RATE AFTER JANUARY 1, 2005 DATE
--------- ---------------------- -------------------------- ----------------
AIM Capital Development Fund 0.75% of first $350M 0.745% of first $250M June 30, 2006
0.625% of amount over $350M 0.73% of next $250M
0.715% of next $500M
0.70% of next $1.5B
0.685% of next $2.5B
0.67% of next $2.5B
0.655% of next $2.5B
0.64% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Charter Fund 1.00% of first $30M 0.75% of first $150M December 31, 2009
0.75% of next $120M 0.615% of next $4.85B
0.625% of amount over $150M 0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Constellation Fund 1.00% of first $30M 0.75% of first $150M December 31, 2009
0.75% of next $120M 0.615% of next $4.85B
0.625% of amount over $150M 0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Diversified Dividend Fund 0.75% of first $1B 0.695% of first $250M June 30, 2006
0.70% of next $1B 0.67% of next $250M
0.625% of amount over $2B 0.645% of next $500M
0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value Fund 0.60% of first $1B N/A N/A
0.575% of next $1B
0.55% of amount over $2B
</Table>
71
<Table>
<Caption>
MAXIMUM ADVISORY
FEE RATES
ANNUAL RATE/NET ASSETS MAXIMUM ADVISORY FEE COMMITTED UNTIL
FUND NAME PER ADVISORY AGREEMENT RATE AFTER JANUARY 1, 2005 DATE
--------- ---------------------- -------------------------- ----------------
AIM Large Cap Growth Fund 0.75% of first $1B 0.695% of first $250M December 31, 2009
0.70% of next $1B 0.67% of next $250M
0.625% of amount over $2B 0.645% of next $500M
0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Growth Fund 0.80% of first $1B 0.745% of first $250M December 31, 2009
0.75% of amount over $1B 0.73% of next $250M
0.715% of next $500M
0.70% of next $1.5B
0.685% of next $2.5B
0.67% of next $2.5B
0.655% of next $2.5B
0.64% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Select Basic Value Fund 0.75% of first $1B 0.695% of first $250M June 30, 2006
0.70% of next $1B 0.67% of next $250M
0.65% of amount over $2B 0.645% of next $500M
0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
- ---------------------------------------------------------------------------------------------------------------------------
AIM Weingarten Fund 1.00% of first $30M 0.695% of first $250M December 31, 2009
0.75% of next $320M 0.67% of next $250M
0.625% of amount over $350M 0.645% of next $500M
0.62% of next $1.5B
0.595% of next $2.5B
0.57% of next $2.5B
0.545% of next $2.5B
0.52% of amount over $10B
</Table>
AIM may from time to time waive or reduce its fee. Voluntary fee
waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM will
retain its ability to be reimbursed for such fee prior to the end of each fiscal
year. Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable
by each Fund. The amount of the waiver will equal 25% of the advisory fee AIM
receives from the Affiliated Money Market Funds as a result of each Fund's
Investment of uninvested cash in an Affiliated Money Market Fund. Termination of
this agreement requires approval by the Board. See "Description of the Funds and
Their Investments and Risks - Investment Strategies and Risks - Other
Investments - Other Investment Companies."
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses (excluding (i) interest; (ii) taxes; (iii) dividend expenses on short
sales; (iv) extraordinary items (these are expenses that
72
are not anticipated to arise from the Fund's day-to-day operations), or items
designated as such by the Fund's Board; and (v) expenses related to a merger or
reorganization as approved by the Fund's Board; and (vi) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement
for AIM Diversified Dividend Fund's Class A, Class B, Class C, Class R and
Investor Class shares to the extent necessary to limit the total operating
expenses to 1.40%, 2.15%, 2.15%, 1.65% and 1.40%, respectively. Such contractual
fee waivers or reductions are set forth in the Fee Table to each Fund's
prospectus and may not be terminated or amended to the Fund's detriment during
the period stated in the agreement between AIM and the Fund.
Investment Sub-Advisor
AIM has entered into a Sub-Advisory Agreement with AIM Capital to
provide investment sub-advisory services to AIM Charter Fund, AIM Constellation
Fund and AIM Weingarten Fund. AIM Capital is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). AIM
Capital is a wholly owned subsidiary of AIM.
For the services to be rendered by AIM Capital, under the Sub-Advisory
Agreement, AIM will pay to AIM Capital a fee which will be computed daily and
paid as of the last day of each month on the basis of each Fund's daily net
asset value, using for each daily calculation the most recently determined net
asset value of the Fund. (See "Computation of Net Asset Value.") On an annual
basis, the sub-advisory fee is equal to 50% of AIM's compensation of the
sub-advised assets per year, for each of the AIM Charter Fund, AIM Constellation
Fund and AIM Weingarten Fund.
The management fees payable by each Fund, the amounts waived by AIM and
the net fees paid by each Fund for the last three fiscal years ended October 31
are found in Appendix G.
Portfolio Managers. Appendix H contains the following information regarding the
portfolio managers identified in each Fund's prospectus:
o The dollar range of the manager's investments in each
Fund.
o A description of the manager's compensation
structure.
o Information regarding other accounts managed by the
manager and potential conflicts of interest that
might arise from the management of multiple accounts.
Securities Lending Arrangements. If a Fund engages in securities lending, AIM
will provide the Fund investment advisory services and related administrative
services. The Advisory Agreement describes the administrative services to be
rendered by AIM if a Fund engages in securities lending activities, as well as
the compensation AIM may receive for such administrative services. Services to
be provided include: (a) overseeing participation in the securities lending
program to ensure compliance with all applicable regulatory and investment
guidelines; (b) assisting the securities lending agent or principal (the
"agent") in determining which specific securities are available for loan; (c)
monitoring the agent to ensure that securities loans are effected in accordance
with AIM's instructions and with procedures adopted by the Board; (d) preparing
appropriate periodic reports for, and seeking appropriate approvals from, the
Board with respect to securities lending activities; (e) responding to agent
inquiries; and (f) performing such other duties as may be necessary.
AIM's compensation for advisory services rendered in connection with
securities lending is included in the advisory fee schedule. As compensation for
the related administrative services AIM will provide, a lending Fund will pay
AIM a fee equal to 25% of the net monthly interest or fee income retained or
paid to the Fund from such activities. AIM currently intends to waive such fee,
and has agreed to seek Board approval prior to its receipt of all or a portion
of such fee.
73
SERVICE AGREEMENTS
Administrative Services Agreement. AIM and the Trust have entered into a Master
Administrative Services Agreement ("Administrative Services Agreement") pursuant
to which AIM may perform or arrange for the provision of certain accounting and
other administrative services to each Fund which are not required to be
performed by AIM under the Advisory Agreement. The Administrative Services
Agreement provides that it will remain in effect and continue from year to year
only if such continuance is specifically approved at least annually by the
Board, including the independent trustees, by votes cast in person at a meeting
called for such purpose. Under the Administrative Services Agreement, AIM is
entitled to receive from the Funds reimbursement of its costs or such reasonable
compensation as may be approved by the Board. Currently, AIM is reimbursed for
the services of the Trust's principal financial officer and her staff, and any
expenses related to fund accounting services.
Administrative services fees paid to AIM by each Fund for the last
three fiscal years ended October 31 are found in Appendix I.
OTHER SERVICE PROVIDERS
TRANSFER AGENT. AIM Investment Services, Inc., ("AIS"), 11 Greenway
Plaza, Suite 100, Houston, Texas 77046, a registered transfer agent and wholly
owned subsidiary of AIM, acts as transfer and dividend disbursing agent for the
Funds.
The Transfer Agency and Service Agreement (the "TA Agreement") between
the Trust and AIS provides that AIS will perform certain services related to the
servicing of shareholders of the Funds. Other such services may be delegated or
sub-contracted to third party intermediaries. For servicing accounts holding
Class A, A3, B, C, P, R, AIM Cash Reserve and Investor Class Shares, the TA
Agreement provides that the Trust, on behalf of the Funds, will pay AIS a fee at
an annual rate of $21.60 per open shareholder account plus certain out of pocket
expenses. This fee is paid monthly at the rate of 1/12 of the annual rate and is
based upon the number of open shareholder accounts during each month. In
addition, all fees payable by AIS or its affiliates to third party
intermediaries who service accounts pursuant to sub-transfer agency, omnibus
account services and sub-accounting agreements are charged back to the Funds,
subject to certain limitations approved by the Board of the Trust. These
payments are made in consideration of services that would otherwise be provided
by AIS if the accounts serviced by such intermediaries were serviced by AIS
directly. For more information regarding such payments to intermediaries, see
the discussion under "Administrative and Processing Support Payments" below.
CUSTODIAN. State Street Bank and Trust Company (the "Custodian"), 225
Franklin Street, Boston, Massachusetts 02110, is custodian of all securities and
cash of the Funds. Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as sub-custodian for purchases of shares of the Funds. The Bank of New
York, 2 Hanson Place, Brooklyn, New York 11217-1431, also serves as
sub-custodian to facilitate cash management.
The Custodian is authorized to establish separate accounts in foreign
countries and to cause foreign securities owned by the Funds to be held outside
the United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities' depositories in a
country. The Custodian is responsible for monitoring eligible foreign securities
depositories.
Under its contract with the Trust, the Custodian maintains the
portfolio securities of the Funds, administers the purchases and sales of
portfolio securities, collects interest and dividends and other distributions
made on the securities held in the portfolios of the Funds and performs other
ministerial duties. These services do not include any supervisory function over
management or provide any protection against any possible depreciation of
assets.
74
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Ernst & Young LLP, 5
Houston Center, 1401 McKinney, Suite 1200, Houston, Texas 77010-4035, the Funds'
independent registered public accounting firm, is responsible for auditing the
financial statements of the Funds. The Audit Committee of the Board has
appointed PricewaterhouseCoopers LLP, 1201 Louisiana, Suite 2900, Houston, Texas
77002, as the independent registered public accounting firm of the Funds for
fiscal year ended October 31, 2005. Such appointment was ratified and approved
by the independent trustees of the Board.
COUNSEL TO THE TRUST. Legal matters for the Trust have been passed upon
by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, Philadelphia,
Pennsylvania 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisor has adopted compliance procedures that cover, among
other items, brokerage allocation and other trading practices. Unless
specifically noted, the Sub-Advisor's procedures do not materially differ from
AIM's procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor makes decisions to buy and sell securities for
each Fund, selects broker-dealers (each, a "Broker"), effects the Funds'
investment portfolio transactions, allocates brokerage fees in such transactions
and, where applicable, negotiates commissions and spreads on transactions. AIM's
primary consideration in effecting a security transaction is to obtain the best
execution, which AIM defines as prompt and efficient execution of the
transaction at the best obtainable price with payment of commissions, mark-ups
or mark-downs which are reasonable in relation to the value of the brokerage
services provided by the Broker. While AIM seeks reasonably competitive
commission rates, the Funds may not pay the lowest commission or spread
available. See "Brokerage Selection" below.
Some of the securities in which the Funds invest are traded in
over-the-counter markets. Portfolio transactions placed in such markets may be
effected on a principle basis at net prices without commissions, but which
include compensation to the Broker in the form of a mark up or mark down, or on
an agency basis, which involves the payment of negotiated brokerage commissions
to the Broker, including electronic communication networks. Purchases of
underwritten issues include a commission or concession paid by the issuer (not
the Funds) to the underwriter. Purchases of money market instruments may be made
directly from issuers without the payment of commissions.
Traditionally, commission rates have not been negotiated on stock
markets outside the United States. Although in recent years many overseas stock
markets have adopted a system of negotiated rates, a number of markets maintain
an established schedule of minimum commission rates.
Brokerage commissions paid by each of the Funds during the last three
fiscal years ended October 31 are found in Appendix J.
COMMISSIONS
During the last three fiscal years ended October 31, none of the Funds
paid brokerage commissions to Brokers affiliated with the Funds, AIM, AIM
Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with
banks and their affiliates that own 5% or more of the outstanding voting
securities of an AIM Fund, provided the conditions of an exemptive order
received by the AIM Funds from the SEC are met. In addition, a Fund may purchase
or sell a security from or to certain other AIM Funds or accounts (and may
invest in Affiliated Money Market Funds) provided the Funds follow procedures
adopted by the Boards of the various AIM Funds, including
75
the Trust. These inter-fund transactions do not generate brokerage commissions
but may result in custodial fees or taxes or other related expenses.
BROKER SELECTION
AIM's primary consideration in selecting Brokers to execute portfolio
transactions for a Fund is to obtain best execution. In selecting a Broker to
execute a portfolio transaction in equity securities for a Fund, AIM considers
the full range and quality of a Broker's services, including the value of
research and/or brokerage services provided, execution capability, commission
rate, willingness to commit capital, anonymity and responsiveness. AIM's primary
consideration when selecting a Broker to execute a portfolio transaction in
fixed income securities for a Fund is the Broker's ability to deliver or sell
the relevant fixed income securities; however, AIM will also consider the
various factors listed above. In each case, the determinative factor is not the
lowest commission or spread available but whether the transaction represents the
best qualitative execution for the Fund. AIM will not select Brokers based upon
their promotion or sale of Fund shares.
In choosing Brokers to execute portfolio transactions for the Funds,
AIM may select Brokers that provide brokerage and/or research services ("Soft
Dollar Products") to the Funds and/or the other accounts over which AIM and its
affiliates have investment discretion. Section 28(e) of the Securities Exchange
Act of 1934, as amended, provides that AIM, under certain circumstances,
lawfully may cause an account to pay a higher commission than the lowest
available. Under Section 28(e)(1), AIM must make a good faith determination that
the commissions paid are "reasonable in relation to the value of the brokerage
and research services provided viewed in terms of either that particular
transaction or [AIM's] overall responsibilities with respect to the accounts as
to which [it] exercises investment discretion." The services provided by the
Broker also must lawfully and appropriately assist AIM in the performance of its
investment decision-making responsibilities. Accordingly, a Fund may pay a
Broker higher commissions than those available from another Broker in
recognition of such Broker's provision of Soft Dollar Products to AIM.
AIM faces a potential conflict of interest when it uses client trades
to obtain Soft Dollar Products. This conflict exists because AIM is able to use
the Soft Dollar Products to manage client accounts without paying cash for the
Soft Dollar Products, which reduces AIM's expenses to the extent that AIM would
have purchased such products had they not been provided by Brokers. Section
28(e) permits AIM to use Soft Dollar Products for the benefit of any account it
manages. Certain AIM-managed accounts may generate soft dollars used to purchase
Soft Dollar Products that ultimately benefit other AIM-managed accounts,
effectively cross subsidizing the other AIM-managed accounts that benefit
directly from the product. AIM may not use all of the Soft Dollar Products
provided by Brokers through which a Fund effects securities transactions in
connection with managing such Fund.
AIM and certain of its affiliates presently engage in the following
instances of cross-subsidization:
1. Fixed income funds normally do not generate soft dollar
commissions to pay for Soft Dollar Products. Therefore, soft
dollar commissions used to pay for Soft Dollar Products which
are used to manage the fixed income AIM Funds are generated
entirely by equity AIM Funds and other equity client accounts
managed by AIM or AIM Capital, a subsidiary of AIM. In other
words, the fixed income AIM Funds are cross-subsidized by the
equity AIM Funds, in that the fixed income AIM Funds receive
the benefit of Soft Dollar Products services for which they do
not pay.
2. The investment models used to manage many of the AIM Funds are
also used to manage other accounts of AIM and/or AIM Capital.
The Soft Dollar Products obtained through the use of soft
dollar commissions generated by the transactions of the AIM
Funds and/or other accounts managed by AIM and/or AIM Capital
are used to maintain the investment models relied upon by both
of these advisory affiliates.
76
This type of cross-subsidization occurs in both directions.
For example, soft dollar commissions generated by transactions
of the AIM Funds and/or other accounts managed by AIM are used
for Soft Dollar Products which may benefit those AIM Funds
and/or accounts as well as accounts managed by AIM Capital.
Additionally, soft dollar commissions generated by
transactions of accounts managed by AIM Capital are used for
Soft Dollar Products which may benefit those accounts as well
as accounts managed by AIM. In certain circumstances, AIM
Capital accounts may indicate that their transactions should
not be used to generate soft dollar commissions but may still
receive the benefits of Soft Dollar Products received by AIM
or AIM Capital.
3. Some of the common investment models used to manage various
Funds and other accounts of AIM and/or AIM Capital are also
used to manage accounts of AIM Private Asset Management, Inc.
("APAM"), another AIM subsidiary. The Soft Dollar Products
obtained through the use of soft dollar commissions generated
by the transactions of the Funds and/or other accounts managed
by AIM and/or AIM Capital are used to maintain the investment
models relied upon by AIM, AIM Capital and APAM. This
cross-subsidization occurs in only one direction. Most of
APAM's accounts do not generate soft dollar commissions which
can be used to purchase Soft Dollar Products. The soft dollar
commissions generated by transactions of the Funds and/or
other accounts managed by AIM and/or AIM Capital are used for
Soft Dollar Products which may benefit the accounts managed by
AIM, AIM Capital and APAM; however, APAM does not provide any
soft dollar research benefit to the Funds and/or other
accounts managed by AIM or AIM Capital.
AIM and AIM Capital attempt to reduce or eliminate the potential
conflicts of interest concerning the use of Soft Dollar Products by directing
client trades for Soft Dollar Products only if AIM and AIM Capital conclude that
the Broker supplying the product is capable of providing best execution.
Certain Soft Dollar Products may be available directly from a vendor on
a hard dollar basis; other Soft Dollar Products are available only through
Brokers in exchange for soft dollars. AIM uses soft dollars to purchase two
types of Soft Dollar Products:
o proprietary research created by the Broker executing
the trade, and
o other products created by third parties that are
supplied to AIM through the Broker executing the
trade.
Proprietary research consists primarily of traditional research
reports, recommendations and similar materials produced by the in house research
staffs of broker-dealer firms. This research includes evaluations and
recommendations of specific companies or industry groups, as well as analyses of
general economic and market conditions and trends, market data, contacts and
other related information and assistance. AIM periodically rates the quality of
proprietary research produced by various Brokers. Based on the evaluation of the
quality of information that AIM receives from each Broker, AIM develops an
estimate of each Broker's share of AIM clients' commission dollars. AIM attempts
to direct trades to the firms to meet these estimates.
AIM also uses soft dollars to acquire products from third parties that
are supplied to AIM through Brokers executing the trades or other Brokers who
"step in" to a transaction and receive a portion of the brokerage commission for
the trade. AIM may from time to time instruct the executing Broker to allocate
or "step out" a portion of a transaction to another Broker. The Broker to which
AIM has "stepped out" would then settle and complete the designated portion of
the transaction, and the executing Broker would settle and complete the
remaining portion of the transaction that has not been "stepped out." Each
Broker may receive a commission or brokerage fee with respect to that portion of
the transaction that it settles and completes.
Soft Dollar Products received from Brokers supplement AIM's own
research (and the research of certain of its affiliates), and may include the
following types of products and services:
77
o Database Services - comprehensive databases containing current and/or
historical information on companies and industries and indices.
Examples include historical securities prices, earnings estimates and
financial data. These services may include software tools that allow
the user to search the database or to prepare value-added analyses
related to the investment process (such as forecasts and models used in
the portfolio management process).
o Quotation/Trading/News Systems - products that provide real time market
data information, such as pricing of individual securities and
information on current trading, as well as a variety of news services.
o Economic Data/Forecasting Tools - various macro economic forecasting
tools, such as economic data or currency and political forecasts for
various countries or regions.
o Quantitative/Technical Analysis - software tools that assist in
quantitative and technical analysis of investment data.
o Fundamental/Industry Analysis - industry specific fundamental
investment research.
o Fixed Income Security Analysis - data and analytical tools that pertain
specifically to fixed income securities. These tools assist in creating
financial models, such as cash flow projections and interest rate
sensitivity analyses, which are relevant to fixed income securities.
o Other Specialized Tools - other specialized products, such as
consulting analyses, access to industry experts, and distinct
investment expertise such as forensic accounting or custom built
investment-analysis software.
If AIM determines that any service or product has a mixed use (i.e., it
also serves functions that do not assist the investment decision-making or
trading process), AIM will allocate the costs of such service or product
accordingly in its reasonable discretion. AIM will allocate brokerage
commissions to Brokers only for the portion of the service or product that AIM
determines assists it in the investment decision-making or trading process and
will pay for the remaining value of the product or service in cash.
Outside research assistance is useful to AIM since the Brokers used by
AIM tend to provide more in-depth analysis of a broader universe of securities
and other matters than AIM's staff follows. In addition, such services provide
AIM with a diverse perspective on financial markets. Some Brokers may indicate
that the provision of research services is dependent upon the generation of
certain specified levels of commissions and underwriting concessions by AIM's
clients, including the Funds. However, the Funds are not under any obligation to
deal with any Broker in the execution of transactions in portfolio securities.
In some cases, Soft Dollar Products are available only from the Broker providing
them. In other cases, Soft Dollar Products may be obtainable from alternative
sources in return for cash payments. AIM believes that because Broker research
supplements rather than replaces AIM's research, the receipt of such research
tends to improve the quality of AIM's investment advice. The advisory fee paid
by the Funds is not reduced because AIM receives such services. To the extent
the Funds' portfolio transactions are used to obtain Soft Dollar Products, the
brokerage commissions obtained by the Funds might exceed those that might
otherwise have been paid.
AIM may determine target levels of brokerage business with various
Brokers on behalf of its clients (including the Funds) over a certain time
period. The target levels will be based upon the following factors, among
others: (1) the execution services provided by the Broker; and (2) the research
services provided by the Broker. Portfolio transactions may be effected through
Brokers that recommend the Funds to their clients, or that act as agent in the
purchase of a Fund's shares for their clients, provided that AIM believes such
Brokers provide best execution and such transactions are executed in compliance
with AIM's policy against using directed brokerage to compensate Brokers for
promoting or selling AIM Fund shares. AIM will not enter into a binding
commitment with Brokers to place trades with such Brokers involving brokerage
commissions in precise amounts.
78
DIRECTED BROKERAGE (RESEARCH SERVICES)
Directed brokerage (research services) paid by each of the Funds during
the last fiscal year ended October 31, 2004 are found in Appendix K.
REGULAR BROKERS
Information concerning the Funds' acquisition of securities of their
regular Brokers during the last fiscal year ended October 31, 2004 is found in
Appendix K.
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous AIM Funds and other accounts.
Some of these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more other accounts. However, the
position of each account in the same security and the length of time that each
account may hold its investment in the same security may vary. The timing and
amount of purchase by each account will also be determined by its cash position.
If the purchase or sale of securities is consistent with the investment policies
of the Fund(s) and one or more other accounts, and is considered at or about the
same time, AIM will allocate transactions in such securities among the Fund(s)
and these accounts. AIM may combine such transactions, in accordance with
applicable laws and regulations, to obtain the most favorable execution.
Simultaneous transactions could, however, adversely affect a Fund's ability to
obtain or dispose of the full amount of a security which it seeks to purchase or
sell.
ALLOCATION OF EQUITY INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become
interested in participating in equity IPOs. Purchases of equity IPOs by one AIM
Fund or other accounts may also be considered for purchase by one or more other
AIM Funds or accounts. AIM shall combine indications of interest for equity IPOs
for all AIM Funds and accounts participating in purchase transactions for that
equity IPO. When the full amount of all equity IPO orders for such AIM Funds and
accounts cannot be filled completely, AIM shall allocate such transactions in
accordance with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that
seeks to participate in a particular equity IPO by reviewing a number of
factors, including market capitalization/liquidity suitability and sector/style
suitability of the investment with the AIM Fund's or account's investment
objective, policies, strategies and current holdings, AIM will allocate of
securities issued in equity IPOs to eligible AIM Funds and accounts on a pro
rata basis based on order size.
PURCHASE, REDEMPTION AND PRICING OF SHARES
TRANSACTIONS THROUGH FINANCIAL INTERMEDIARIES. If you are investing indirectly
in a Fund through a financial intermediary such as a broker-dealer, a bank
(including a bank trust department), an insurance company separate account, an
investment advisor, an administrator or trustee of a retirement plan or a
qualified tuition plan or a sponsor of a fee-based program that maintains a
master account (an omnibus account) with the Fund for trading on behalf of its
customers, different guidelines and restrictions may apply than if you held your
shares of the Fund directly. These differences may include, but are not limited
to: (i) different eligibility standards to purchase and sell shares, different
eligibility exchange shares by telephone; (ii) different minimum and maximum
initial and subsequent purchase amounts: and (iii) system inability to provide
Letter of Intent privileges. The financial intermediary through whom you are
investing may also choose to impose a redemption fee that has different
characteristics, which maybe less or more restrictive, than the redemption fee
currently imposed on certain Funds.
79
If the financial intermediary is managing your account, you may also be charged
a transaction or other fee by such financial intermediary, including service
fees for handling redemption transactions. Consult with your financial
intermediary (or, in the case of a retirement plan, your plan sponsor) to
determine what fees, guidelines, conditions and restrictions, including any of
the above, may be applicable to you.
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM Money
Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash
Fund) is grouped into one of three categories to determine the applicable
initial sales charge for its Class A Shares. Additionally, Class A shares of AIM
Short Term Bond Fund are subject to an initial sales charge of 2.50%. The sales
charge is used to compensate AIM Distributors and participating dealers for
their expenses incurred in connection with the distribution of the Funds'
shares. You may also be charged a transaction or other fee by the financial
institution managing your account.
Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash
Reserve Shares of AIM Money Market Fund are sold without an initial sales
charge.
CATEGORY I FUNDS
<Table>
AIM Advantage Health Sciences Fund AIM Leisure Fund
AIM Aggressive Growth Fund AIM Mid Cap Basic Value Fund
AIM Asia Pacific Growth Fund AIM Mid Cap Core Equity Fund
AIM Basic Value Fund AIM Mid Cap Growth Fund
AIM Blue Chip Fund AIM Moderate Allocation Fund
AIM Capital Development Fund AIM Moderate Growth Allocation Fund
AIM Charter Fund AIM Moderately Conservative Allocation Fund
AIM Conservative Allocation Fund AIM Multi-Sector Fund
AIM Constellation Fund AIM Opportunities I Fund
AIM Diversified Dividend Fund AIM Opportunities II Fund
AIM Dynamics Fund AIM Opportunities III Fund
AIM Energy Fund AIM Premier Equity Fund
AIM European Growth Fund AIM Select Equity Fund
AIM European Small Company Fund AIM Small Cap Equity Fund
AIM Financial Services Fund AIM Small Cap Growth Fund
AIM Global Real Estate Fund AIM Small Company Growth Fund
AIM Global Value Fund AIM Technology Fund
AIM Gold & Precious Metals Fund AIM Trimark Endeavor Fund
AIM Growth Allocation Fund AIM Trimark Fund
AIM International Core Equity Fund AIM Trimark Small Companies Fund
AIM International Growth Fund AIM Utilities Fund
AIM International Small Company Fund AIM Weingarten Fund
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund
</Table>
80
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
---------------------- ------------- ---------- -------------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
</Table>
CATEGORY II FUNDS
<Table>
AIM Basic Balanced Fund* AIM High Income Municipal Fund
AIM Developing Markets Fund* AIM High Yield Fund
AIM Global Aggressive Growth Fund* AIM Income Fund
AIM Global Equity Fund* AIM Intermediate Government Fund
AIM Global Growth Fund* AIM Municipal Bond Fund
AIM Global Health Care Fund* AIM Real Estate Fund*
AIM Total Return Bond Fund
</Table>
*Effective November 1, 2005, the fund's front-end sales charge paid on purchases
of Class A shares will be the same as the front-end sales charge paid on
purchases of Class A shares of AIM's Category I Funds.
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
---------------------- ------------- ---------- -------------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
</Table>
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
81
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
---------------------- ------------- ---------- -------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
</Table>
AIM SHORT TERM BOND FUND
<Table>
<Caption>
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Amount of Investment in Offering Amount Offering
Single Transaction Price Invested Price
---------------------- ------------- ---------- -------------
Less than $ 100,000 2.50% 2.56% 2.00%
$100,000 but less than $ 250,000 2.00 2.04 1.50
$250,000 but less than $ 500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.25 1.27 1.0
</Table>
Beginning on October 31, 2002, Class A shares of AIM Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund were closed to new investors.
Current investors must maintain a share balance in order to continue to make
incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or
more of Class A Shares of a Category I, II or III Fund and Class A Shares of AIM
Short Term Bond Fund do not pay an initial sales charge. In addition, investors
who currently own Class A shares of Category I, II, or III Funds and Class A
Shares of AIM Short Term Bond Fund and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on the
additional purchases. The additional purchases, as well as initial purchases of
$1,000,000 or more, are referred to as Large Purchases. If an investor makes a
Large Purchase of Class A shares of a Category I or II Fund and Class A Shares
of AIM Short Term Bond Fund, however, each share will generally be subject to a
1.00% contingent deferred sales charge ("CDSC") if the investor redeems those
shares within 18 months after purchase. Large Purchases of Class A shares by
investors who were Class K shareholders of record on October 21, 2005 are not
subject to a CDSC.
AIM Distributors may pay a dealer concession and/or advance a service
fee on Large Purchases, as set forth below. Exchanges between the AIM Funds may
affect total compensation paid.
AIM Distributors may make the following payments to dealers of record
for Large Purchases of Class A shares of Category I or II Funds or AIM Short
Term Bond Fund by investors other than (i) retirement plans that are maintained
pursuant to Sections 401 and 457 of the Internal Revenue Code of 1986, as
amended (the Code), and (ii) retirement plans that are maintained pursuant to
Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code:
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PERCENT OF PURCHASE
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the public
offering price of all other shares owned by the same customer submitting the
purchase order on the day on which the purchase order is received equals or
exceeds $1,000,000, the purchase will be considered a "jumbo accumulation
purchase." With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same customer over the life of
his or her account(s).
If an investor made a Large Purchase of Class A shares of a Category
III Fund or AIM Short Term Bond Fund on and after November 15, 2001 and through
October 31, 2002 and exchanges those shares for Class A shares of a Category I
or II Fund or AIM Short Term Bond Fund, AIM Distributors will pay an additional
dealer concession of 0.75% upon exchange.
If an investor made a Large Purchase of Class A shares of a Category I
or II Fund or AIM Short Term Bond Fund on and after November 15, 2001 and
through October 31, 2002 and exchanges those shares for Class A shares of a
Category III Fund, AIM Distributors will not pay any additional dealer
compensation upon the exchange. Beginning February 17, 2003, Class A shares of a
Category I or II Fund or AIM Short Term Bond Fund may not be exchanged for Class
A shares of a Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category
III Fund on and after October 31, 2002 and exchanges those shares for Class A
shares of a Category I or II Fund or AIM Short Term Bond Fund, AIM Distributors
will pay 1.00% of such purchase as dealer compensation upon the exchange. The
Class A shares of the Category I or II Fund or AIM Short Term Bond Fund received
in exchange generally will be subject to a 1.00% CDSC if the investor redeems
such shares within 18 months from the date of exchange.
If an investor makes a Large Purchase of Class A shares of a Category
III Fund and exchanges those shares for Class A shares of another Category III
Fund, AIM Distributors will not pay any additional dealer concession upon the
exchange. Beginning February 17, 2003, Class A shares of a Category III Fund may
not be exchanged for Class A shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV. For
purchases of Class A shares of Category I and II Funds and AIM Short Term Bond
Fund, AIM Distributors may make the following payments to investment dealers or
other financial service firms for sales of such shares at net asset value
("NAV") to certain retirement plans provided that the applicable dealer of
record is able to establish that the retirement plan's purchase of Class A
shares is a new investment (as defined below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
This payment schedule will be applicable to purchases of Class A shares
at NAV by the following types of retirement plans: (i) all plans maintained
pursuant to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant
to Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code.
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A "new investment" means a purchase paid for with money that does not
represent (i) the proceeds of one or more redemptions of AIM Fund shares, (ii)
an exchange of AIM Fund shares, (iii) the repayment of one or more retirement
plan loans that were funded through the redemption of AIM Fund shares, or (iv)
money returned from another fund family. If AIM Distributors pays a dealer
concession in connection with a plan's purchase of Class A shares at NAV, such
shares may be subject to a CDSC of 1.00% of net assets for 12 months, commencing
on the date the plan first invests in Class A shares of an AIM Fund. If the
applicable dealer of record is unable to establish that a plan's purchase of
Class A shares at NAV is a new investment, AIM Distributors will not pay a
dealer concession in connection with such purchase and such shares will not be
subject to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of jumbo accumulation purchases made by the same plan over the life of the
plan's account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown
in the tables above, purchases of certain amounts of AIM Fund shares may reduce
the initial sales charges. These reductions are available to purchasers that
meet the qualifications listed below. We will refer to purchasers that meet
these qualifications as "Qualified Purchasers."
DEFINITIONS
As used herein, the terms below shall be defined as follows:
o "Individual" refers to a person, as well as his or her Spouse
or Domestic Partner and his or her Children;
o "Spouse" is the person to whom one is legally married under
state law;
o "Domestic Partner" is an adult with whom one shares a primary
residence for at least six-months, is in a relationship as a
couple where one or each of them provides personal or
financial welfare of the other without a fee, is not related
by blood and is not married;
o "Child" or "Children" include a biological, adopted or foster
son or daughter, a Step-child, a legal ward or a Child of a
person standing in loco parentis;
o "Parent" is a person's biological or adoptive mother or
father;
o "Step-child" is the child of one's Spouse by a previous
marriage or relationship;
o "Step-parent" is the Spouse of a Child's Parent; and
o "Immediate Family" includes an Individual (including, as
defined above, a person, his or her Spouse or Domestic Partner
and his or her Children) as well as his or her Parents,
Step-parents and the Parents of Spouse or Domestic Partner.
INDIVIDUALS
o an Individual (including his or her spouse or domestic
partner, and children);
o a retirement plan established exclusively for the benefit of
an Individual, specifically including, but not limited to, a
Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k),
Keogh plan, or a tax-sheltered 403(b)(7) custodial account;
and
o a qualified tuition plan account, maintained pursuant to
Section 529 of the Code, or a Coverdell Education Savings
Account, maintained pursuant to Section 530 of the Code (in
84
either case, the account must be established by an Individual
or have an Individual named as the beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
o a retirement plan maintained pursuant to Section 401, 403
(only if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the
Code), 408 (includes SEP, SARSEP and SIMPLE IRA plans) or 457
of the Code, if:
a. the employer or plan sponsor submits all
contributions for all participating employees in a
single contribution transmittal (the AIM Funds will
not accept separate contributions submitted with
respect to individual participants);
b. each transmittal is accompanied by a single check or
wire transfer; and
c. if the AIM Funds are expected to carry separate
accounts in the names of each of the plan
participants, (i) the employer or plan sponsor
notifies AIM Distributors in writing that the
separate accounts of all plan participants should be
linked, and (ii) all new participant accounts are
established by submitting an appropriate Account
Application on behalf of each new participant with
the contribution transmittal.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following
sections discuss different ways that a Qualified Purchaser can qualify for a
reduction in the initial sales charges for purchases of Class A shares of the
AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i)
indicating on the Account Application that he, she or it intends to provide a
Letter of Intent ("LOI"), and (ii) subsequently fulfilling the conditions of
that LOI. Employer-sponsored retirement plans, with the exception of Solo 401(k)
plans and SEP plans, are not eligible for a LOI.
The LOI confirms the total investment in shares of the AIM Funds that
the Qualified Purchaser intends to make within the next 13 months. By marking
the LOI section on the Account Application and by signing the Account
Application, the Qualified Purchaser indicates that he, she or it understands
and agrees to the terms of the LOI and is bound by the provisions described
below:
Calculating the Initial Sales Charge
o Each purchase of fund shares normally subject to an initial
sales charge made during the 13-month period will be made at
the public offering price applicable to a single transaction
of the total dollar amount indicated by the LOI (to determine
what the applicable public offering price is, look at the
sales charge table in the section on "Initial Sales Charges"
above).
o It is the purchaser's responsibility at the time of purchase
to specify the account numbers that should be considered in
determining the appropriate sales charge.
o The offering price may be further reduced as described below
under "Rights of Accumulation" if the Transfer Agent is
advised of all other accounts at the time of the investment.
o Shares acquired through reinvestment of dividends and capital
gains distributions will not be applied to the LOI.
85
Calculating the Number of Shares to be Purchased
o Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date
will be the date of the first purchase within the 90-day
period.
o Purchases made more than 90 days before signing an LOI will be
applied toward the completion of the LOI based on the value of
the shares purchased that is calculated at the public offering
price on the effective date of the LOI.
o If a purchaser meets the original obligation at any time
during the 13-month period, he or she may revise the intended
investment amount upward by submitting a written and signed
request. This revision will not change the original expiration
date.
o The Transfer Agent will process necessary adjustments upon the
expiration or completion date of the LOI.
Fulfilling the Intended Investment
o By signing an LOI, a purchaser is not making a binding
commitment to purchase additional shares, but if purchases
made within the 13-month period do not total the amount
specified, the purchaser will have to pay the increased amount
of sales charge.
o To assure compliance with the provisions of the 1940 Act, the
Transfer Agent will escrow in the form of shares an
appropriate dollar amount (computed to the nearest full share)
out of the initial purchase (or subsequent purchases if
necessary). All dividends and any capital gain distributions
on the escrowed shares will be credited to the purchaser. All
shares purchased, including those escrowed, will be registered
in the purchaser's name. If the total investment specified
under this LOI is completed within the 13-month period, the
escrowed shares will be promptly released.
o If the intended investment is not completed, the purchaser
will pay the Transfer Agent the difference between the sales
charge on the specified amount and the sales charge on the
amount actually purchased. If the purchaser does not pay such
difference within 20 days of the expiration date, he or she
irrevocably constitutes and appoints the Transfer Agent as his
attorney to surrender for redemption any or all shares, to
make up such difference within 60 days of the expiration date.
o Shareholders of AIM Basic Balanced Fund, AIM Developing
Markets Fund, AIM Global Aggressive Growth Fund, AIM Global
Equity Fund, AIM Global Growth Fund, AIM Global Health Care
Fund and AIM Real Estate Fund who have a Letter of Intent in
place as of November 1, 2005, will be able to complete the
Letter of Intent under the current pricing schedule, and
future Letters of Intent or subsequent purchases will be
subject to the Category I pricing.
Canceling the LOI
o If at any time before completing the LOI Program, the
purchaser wishes to cancel the agreement, he or she must give
written notice to AIM Distributors.
o If at any time before completing the LOI Program the purchaser
requests the Transfer Agent to liquidate or transfer
beneficial ownership of his total shares, the LOI will be
automatically canceled. If the total amount purchased is less
than the amount specified in the LOI, the Transfer Agent will
redeem an appropriate number of escrowed shares equal to the
difference between the sales charge actually paid and the
sales charge that would have been paid if the total purchases
had been made at a single time.
86
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut
General Guaranteed Account, established for tax qualified group annuities, for
contracts purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
If an investor entered into an LOI to purchase $1,000,000 or more of
Class A shares of a Category III Fund on and after November 15, 2001 and through
October 30, 2002, such shares will be subject to a 12-month, 0.25% CDSC.
Purchases of Class A shares of a Category III Fund made pursuant to an LOI to
purchase $1,000,000 or more of shares entered into prior to November 15, 2001 or
after October 30, 2002 will not be subject to this CDSC. All LOIs to purchase
$1,000,000 or more of Class A shares of Category I and II Funds and AIM Short
Term Bond Fund are subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales
charges based upon his, her or its existing investment in shares of any of the
AIM Funds at the time of the proposed purchase. To determine whether or not a
reduced initial sales charge applies to a proposed purchase, AIM Distributors
takes into account not only the money which is invested upon such proposed
purchase, but also the value of all shares of the AIM Funds owned by such
purchaser, calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales
charge applies to the total amount of money being invested, even if only a
portion of that amount exceeds the breakpoint for the reduced sales charge. For
example, if a purchaser already owns qualifying shares of any AIM Fund with a
value of $20,000 and wishes to invest an additional $20,000 in a fund with a
maximum initial sales charge of 5.50%, the reduced initial sales charge of 5.25%
will apply to the full $20,000 purchase and not just to the $15,000 in excess of
the $25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular
purchase, the purchaser or his dealer must furnish the Transfer Agent with a
list of the account numbers and the names in which such accounts of the
purchaser are registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut
General Guaranteed Account, established for tax-qualified group annuities, for
contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II
Fund or AIM Short Term Bond Fund is at net asset value, the newly purchased
shares will be subject to a CDSC if the investor redeems them prior to the 18
month holding period (12 months for Category III Fund shares). For new purchases
of Class A shares of Category III Funds at net asset value made on and after
November 15, 2001 and through October 30, 2002, the newly purchased shares will
be subject to a CDSC if the investor redeems them prior to the end of the 12
month holding period.
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As
discussed above, investors or dealers seeking to qualify orders for a reduced
initial sales charge must identify such orders and, if necessary, support their
qualification for the reduced charge. AIM Distributors reserves the right to
determine whether any purchaser is entitled to the reduced sales charge based on
the definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3
shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund,
AIM Cash Reserve Shares of AIM Money Market Fund, and Class B and Class C shares
of AIM Floating Rate Fund and Investor Class shares of
87
any fund will not be taken into account in determining whether a purchase
qualifies for a reduction in initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors
permits certain categories of persons to purchase Class A shares of AIM
Funds without paying an initial sales charge. These are typically
categories of persons whose transactions involve little expense, such as
persons who have a relationship with the funds or with AIM and certain
programs for purchase.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result in
relatively low expenses of distribution, be permitted to purchase shares through
AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales
charges on purchases of Class A shares because there is a reduced sales effort
involved in sales to these purchasers:
o AIM Management and its affiliates, or their clients;
o Any current or retired officer, director, trustee or employee (and
members of their Immediate Family) of AIM Management, its affiliates or
The AIM Family of Funds(R), and any foundation, trust, employee benefit
plan or deferred compensation plan established exclusively for the
benefit of, or by, such persons;
o Any current or retired officer, director, or employee (and members of
their Immediate Family) of DST Systems, Inc. or Personix, a division of
Fiserv Solutions, Inc.;
o Sales representatives and employees (and members of their Immediate
Family) of selling group members of financial institutions that have
arrangements with such selling group members;
o Purchases through approved fee-based programs;
o Employer-sponsored retirement plans that are Qualified Purchasers, as
defined above provided that:
a. a plan's initial investment is at least $1 million;
b. there are at least 100 employees eligible to
participate in the plan; or
c. all plan transactions are executed through a single
omnibus account per AIM Fund and the financial
institution or service organization has entered into
the appropriate agreement with the distributor;
further provided that
d. retirement plans maintained pursuant to Section
403(b) of the Code are not eligible to purchase
shares at NAV based on the aggregate investment made
by the plan or the number of eligible employees
unless the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3)
of the Code; and
e. purchases of AIM Opportunities I Fund by all
retirement plans are subject to initial sales
charges;
o Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds;
o Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or AIM
Constellation Fund on September 8, 1986, or of AIM Charter
88
Fund on November 17, 1986, who have continuously owned shares having a
market value of at least $500 and who purchase additional shares of the
same Fund;
o Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts, a
unitholder may invest proceeds from the redemption or repurchase of his
units only when the investment in shares of AIM Weingarten Fund and AIM
Constellation Fund is effected within 30 days of the redemption or
repurchase;
o A shareholder of a fund that merges or consolidates with an AIM Fund or
that sells its assets to an AIM Fund in exchange for shares of an AIM
Fund;
o Shareholders of the GT Global funds as of April 30, 1987 who since that
date continually have owned shares of one or more of these funds;
o Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and
who have continuously held shares in the GT Global funds since that
time;
o Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM Fund,
and who purchase additional shares of that AIM Fund;
o Shareholders of Investor Class shares of an AIM Fund;
o Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
o Additional purchases of Class A shares by shareholders of record of
Class K shares on October 21, 2005 whose Class K shares were converted
to Class A shares;
o Insurance company separate accounts;
o Retirement plan established exclusively for the benefit of an
individual (specifically including, but not limited to, a Traditional
IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a
tax-sheltered 403(b)(7) custodial account) if:
a. such plan is funded by a rollover of assets from an
Employer-Sponsored Retirement Plan;
b. the account being funded by such rollover is to be
maintained by the same trustee, custodian or
administrator that maintained the plan from which the
rollover distribution funding such rollover
originated, or an affiliate thereof; and
c. the dealer of record with respect to the account
being funded by such rollover is the same as the
dealer of record with respect to the plan from which
the rollover distribution funding such rollover
originated, or an affiliate thereof.
o Transfers to IRAs that are attributable to AIM Fund investments held in
403(b)(7)s, SIMPLEs, SEPs, SARSEPs, Traditional or Roth IRAs; and
o Rollovers from AIM-held 403(b)(7)s, 401(K)s, SEPs, SIMPLEs, SARSEPs,
Money Purchase Plans, and Profit Sharing Plans if the assets are
transferred to an AIM IRA.
In addition, an investor may acquire shares of any of the AIM Funds at
net asset value in connection with:
o the reinvestment of dividends and distributions from a Fund;
89
o exchanges of shares of certain Funds; as more fully described
in the Prospectus;
o the purchase of shares in connection with the repayment of a
retirement plan loan administered by AIM Investment Services,
Inc.; or
o a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire
initial sales charge to dealers for all sales with respect to which orders are
placed with AIM Distributors during a particular period. Dealers to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the 1933 Act.
The financial advisor through which you purchase your shares may
receive all or a portion of the sales charges and Rule 12b-1 distribution fees
discussed above. In addition to those payments, AIM Distributors or one or more
of its corporate affiliates (collectively, the "ADI Affiliates") may make
additional cash payments to financial advisors in connection with the promotion
and sale of shares of AIM Funds. ADI Affiliates make these payments from their
own resources, from AIM Distributors' retention of underwriting concessions and
from payments to AIM Distributors under Rule 12b-1 plans. These additional cash
payments are described below. The categories described below are not mutually
exclusive. The same financial advisor may receive payments under more than one
or all categories. Most financial advisors that sell shares of AIM Funds receive
one or more types of these cash payments. Financial advisors negotiate the cash
payments to be paid on an individual basis. Where services are provided, the
costs of providing the services and the overall package of services provided may
vary from one financial advisor to another. ADI Affiliates do not make an
independent assessment of the cost of providing such services.
In this context, "financial advisors" include any broker, dealer, bank
(including bank trust departments), transfer agent, registered investment
advisor, financial planner, retirement plan administrator and any other
financial intermediary having a selling, administration or similar agreement
with ADI affiliates.
REVENUE SHARING PAYMENTS. ADI Affiliates make revenue sharing payments
as incentives to certain financial advisors to promote and sell shares of AIM
Funds. The benefits ADI Affiliates receive when they make these payments
include, among other things, placing AIM Funds on the financial advisor's funds
sales system, placing AIM Funds on the financial advisor's preferred or
recommended fund list, and access (in some cases on a preferential basis over
other competitors) to individual members of the financial advisor's sales force
or to the financial advisor's management. Revenue sharing payments are sometimes
referred to as "shelf space" payments because the payments compensate the
financial advisor for including AIM Funds in its fund sales system (on its
"sales shelf"). ADI Affiliates compensate financial advisors differently
depending typically on the level and/or type of considerations provided by the
financial advisor. In addition, payments typically apply only to retail sales,
and may not apply to other types of sales or assets (such as sales to retirement
plans, qualified tuition programs, or fee based advisor programs - some of which
may be generate certain other payments described below.)
The revenue sharing payments ADI Affiliates make may be calculated on
sales of shares of AIM Funds ("Sales-Based Payments"), in which case the total
amount of such payments shall not exceed 0.25% of the public offering price of
all shares sold by the financial advisor during the particular period. Such
payments also may be calculated on the average daily net assets of the
applicable AIM Funds attributable to that particular financial advisor
("Asset-Based Payments"), in which case the total amount of such cash payments
shall not exceed 0.25% per annum of those assets during a defined period.
Sales-Based Payments primarily create incentives to make new sales of shares of
AIM Funds and Asset-Based Payments primarily create incentives to retain
previously sold shares of AIM Funds in investor accounts. ADI Affiliates may pay
a financial advisor either or both Sales-Based Payments and Asset-Based
Payments.
90
ADMINISTRATIVE AND PROCESSING SUPPORT PAYMENTS. ADI Affiliates also may
make payments to certain financial advisors that sell AIM Fund shares for
certain administrative services, including record keeping and sub-accounting
shareholder accounts. Payments for these services typically do not exceed 0.25%
of average annual assets or $19 per annum per shareholder account. ADI
Affiliates also may make payments to certain financial advisors that sell AIM
Fund shares in connection with client account maintenance support, statement
preparation and transaction processing. The types of payments that ADI
Affiliates may make under this category include, among others, payment of ticket
charges per purchase or exchange order placed by a financial advisor, payment of
networking fees of up to $12 per shareholder account maintained on certain
mutual fund trading systems, or one-time payments for ancillary services such as
setting up funds on a financial advisor's mutual fund trading systems.
OTHER CASH PAYMENTS. From time to time, ADI Affiliates, at their
expense, may provide additional compensation to financial advisors which sell or
arrange for the sale of shares of the Fund. Such compensation provided by ADI
Affiliates may include financial assistance to financial advisors that enable
ADI Affiliates to participate in an/or present at conferences or seminars, sales
or training programs for invited registered representatives and other employees,
client entertainment, client and investor events, and other financial
advisor-sponsored events, and travel expenses, including lodging incurred by
registered representatives and other employees in connection with client
prospecting, retention and due diligence trips. Other compensation may be
offered to the extent not prohibited by state laws or any self-regulatory
agency, such as the NASD, Inc. ("NASD"). ADI Affiliates make payments for
entertainment events they deem appropriate, subject to ADI Affiliate guidelines
and applicable law. These payments may vary depending upon the nature of the
event or the relationship.
ADI Affiliates are motivated to make the payments described above since
they promote the sale of AIM Fund shares and the retention of those investments
by clients of financial advisors. To the extent financial advisors sell more
shares of AIM Funds or retain shares of AIM Funds in their clients' accounts,
ADI Affiliates benefit from the incremental management and other fees paid to
ADI Affiliates by the AIM Funds with respect to those assets.
In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you additional fees or commissions
other than those disclosed in this Statement of Additional Information. You can
ask your financial advisor about any payments it receives from ADI Affiliates or
the AIM Funds, as well as about fees and/or commissions it charges.
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within six years after purchase. See the Prospectus for additional
information regarding contingent deferred sales charges. AIM Distributors may
pay sales commissions to dealers and institutions who sell Class B shares of the
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an
initial sales charge. Instead, investors may pay a CDSC if they redeem their
shares within the first year after purchase (no CDSC applies to Class C shares
of AIM Short Term Bond Fund unless you exchange shares of another AIM Fund that
are subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for
additional information regarding this CDSC. AIM Distributors may pay sales
commissions to dealers and institutions who sell Class C shares of the AIM Funds
(except for Class C shares of AIM Short Term Bond Fund) at the time of such
sales. Payments will equal 1.00% of the purchase price and will consist of a
sales commission of 0.75% plus an advance of the first year service fee of
0.25%. These commissions are not paid on sales to investors exempt from the
CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30,
1995, who purchase additional shares in any of the Funds on or after May 1,
1995, and in circumstances where AIM Distributors grants an exemption on
particular transactions.
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AIM Distributors may pay dealers and institutions who sell Class C
shares of AIM Short Term Bond Fund an annual fee of 0.50% of average daily net
assets. These payments will consist of an asset-based fee of 0.25% and a service
fee of 0.25% and will commence immediately.
Class K Shares
Class K shares converted to Class A shares at the close of business on
October 21, 2005. If AIM Distributors paid a concession at the time of sale to
the dealer of record, the Class K shares were subject to a 0.70% CDSC at the
time of redemption if all retirement plan assets were redeemed within one year
from the date of the retirement plan's initial purchase. This CDSC will continue
to apply if all retirement plan assets are redeemed within 12 months from the
date of the retirement plan's initial purchase.
Payments With Regard to Class K Shares
For Class A shares acquired by a former Class K shareholder (i) as a
result of a fund merger; or (ii) as a result of the conversion of Class K shares
into Class A shares on October 21, 2005, AIM Distributors will pay financial
intermediaries 0.45% on such Class A shares as follows: (i) 0.25% from the Class
A shares' Rule 12b-1 plan fees; and (ii) 0.20% from AIM Distributors' own
resources provided that, on an annualized basis for 2005 as of October 21, 2005,
the 0.20% exceeds $2,000 per year.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an
initial sales charge. If AIM Distributors pays a concession to the dealer of
record, however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds or AIM Short Term Bond Fund, AIM Distributors may make
the following payments to dealers of record provided that the applicable dealer
of record is able to establish that the purchase of Class R shares is a new
investment or a rollover from a retirement plan in which an AIM Fund was offered
as an investment option:
PERCENT OF CUMULATIVE PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM
Distributors may make payment to the dealer of record based on the cumulative
total of purchases made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject
to an initial sales charge or to a CDSC. AIM Distributors may pay dealers and
institutions an annual fee of 0.25% of average daily net assets and such
payments will commence immediately.
Purchases of Institutional Class Shares
Institutional Class shares are sold at net asset value, and are not
subject to an initial sales charge or to a CDSC.
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Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to
be acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release of
the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with
certain dealers and investment advisory firms to accept telephone instructions
to exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AIS at (800) 959-4246. If a
shareholder is unable to reach AIS by telephone, he may also request exchanges
by fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AIS as long as
such request is received prior to the close of the customary trading session of
the New York Stock Exchange ("NYSE"). AIS and AIM Distributors may in certain
cases be liable for losses due to unauthorized or fraudulent transactions if
they do not follow reasonable procedures for verification of telephone
transactions. Such reasonable procedures may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through AIM
Distributors or through any dealer who has entered into an agreement with AIM
Distributors. In addition to the Funds' obligation to redeem shares, AIM
Distributors may also repurchase shares as an accommodation to shareholders. To
effect a repurchase, those dealers who have executed Selected Dealer Agreements
with AIM Distributors must phone orders to the order desk of the Funds at (800)
959-4246 and guarantee delivery of all required documents in good order. A
repurchase is effected at the net asset value per share of the applicable Fund
next determined after the repurchase order is received. Such an arrangement is
subject to timely receipt by AIS, the Funds' transfer agent, of all required
documents in good order. If such documents are not received within a reasonable
time after the order is placed, the order is subject to cancellation. While
there is no charge imposed by a Fund or by AIM Distributors (other than any
applicable contingent deferred sales charge) when shares are redeemed or
repurchased, dealers may charge a fair service fee for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed when (a) trading on the NYSE is restricted, as
determined by applicable rules and regulations of the SEC, (b) the NYSE is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposition of portfolio securities or the valuation of the net
assets of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated account(s),
present or future, with full power of substitution in the premises. AIS and AIM
Distributors are thereby authorized and directed to accept and act upon any
telephone redemptions of shares held in any of the account(s) listed, from any
person who requests the redemption. An investor acknowledges by signing the form
that he understands and agrees that AIS and AIM Distributors may not be liable
for any loss, expense or cost arising out of any telephone redemption
93
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AIS reserves the
right to cease to act as attorney-in-fact subject to this appointment, and AIM
Distributors reserves the right to modify or terminate the telephone redemption
privilege at any time without notice. An investor may elect not to have this
privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a
shareholder of an AIM Fund to withdraw on a regular basis at least $50 per
withdrawal. Under a Systematic Redemption Plan, all shares are to be held by AIS
and all dividends and distributions are reinvested in shares of the applicable
AIM Fund by AIS. To provide funds for payments made under the Systematic
Redemption Plan, AIS redeems sufficient full and fractional shares at their net
asset value in effect at the time of each such redemption.
Payments under a Systematic Redemption Plan constitute taxable events.
Since such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of Class A
shares, it is disadvantageous to effect such purchases while a Systematic
Redemption Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A
shares of Category I and II Funds and AIM Short Term Bond Fund, or upon the
redemption of Class B shares or Class C shares (no CDSC applies to Class C
shares of AIM Short Term Bond Fund unless you exchange shares of another AIM
Fund that are subject to a CDSC into AIM Short Term Bond Fund) and, in certain
circumstances, upon the redemption of Class K or Class R shares. See the
Prospectus for additional information regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF
CLASS A SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, IIorIII Fund or AIM Short Term Bond Fund will not be subject to a
CDSC upon the redemption of those shares in the following situations:
o Redemptions of shares of Category I or II Funds or AIM Short
Term Bond Fund held more than 18 months;
o Redemptions of shares of Category III Funds purchased prior to
November 15, 2001 or after October 30, 2002;
o Redemptions of shares of Category III Funds purchased on or
after November 15, 2001 and through October 30, 2002 and held
for more than 12 months;
o Redemptions of shares held by retirement plans in cases where
(i) the plan has remained invested in Class A shares of an AIM
Fund for at least 12 months, or (ii) the redemption is not a
complete redemption of shares held by the plan;
o Redemptions from private foundations or endowment funds;
94
o Redemptions of shares by the investor where the investor's
dealer waives the amounts otherwise payable to it by the
distributor and notifies the distributor prior to the time of
investment;
o Redemptions of shares of Category I, II or III Funds, AIM Cash
Reserve Shares of AIM Money Market Fund or AIM Short Term Bond
Fund acquired by exchange from Class A shares of a Category I
or II Fund or AIM Short Term Bond Fund, unless the shares
acquired by exchange (on or after November 15, 2001 and
through October 30, 2002 with respect to Category III Funds)
are redeemed within 18 months of the original purchase of the
exchange of Category I or II Fund or AIM Short Term Bond Fund
shares;
o Redemptions of shares of Category III Funds, shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money
Market Fund acquired by exchange from Class A shares of a
Category III Fund purchased prior to November 15, 2001;
o Redemptions of shares of Category I or II Funds or AIM Short
Term Bond Fund acquired by exchange from Class A shares of a
Category III Fund purchased on and after November 15, 2001 and
through October 30, 2002, unless the shares acquired by
exchange are redeemed within 18 months of the original
purchase of the exchanged Category III Fund shares;
o Redemption of shares of Category III Funds, shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money
Market Fund acquired by exchange from Class A shares of a
Category III Fund purchased on and after November 15, 2001 and
through October 30, 2002unless the shares acquired by exchange
are redeemed within 12 months of the original purchase of the
exchanged Category III Fund shares;
o Redemptions of shares of Category I or II Funds or AIM Short
Term Bond Fund acquired by exchange on and after November 15,
2001 from AIM Cash Reserve Shares of AIM Money Market Fund if
the AIM Cash Reserve Shares were acquired by exchange from a
Category I or II Fund or AIM Short Term Bond Fund, unless the
Category I or II Fund or AIM Short Term Bond Fund shares
acquired by exchange are redeemed within 18 months of the
original purchase of the exchanged Category I or II Funds or
AIM Short Term Bond Fund shares;
o Redemptions of Category I or II Funds or AIM Short Term Bond
Fund by retirement plan participants resulting from a total
redemption of the plan assets that occurs more than one year
from the date of the plan's initial purchase; and
o Redemptions of shares of Category I or II Funds or AIM Short
Term Bond Fund held by an Investor Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES.
Investors who purchased former GT Global funds Class B shares before June 1,
1998 are subject to the following waivers from the CDSC otherwise due upon
redemption:
o Total or partial redemptions resulting from a distribution
following retirement in the case of a tax-qualified
employer-sponsored retirement;
o Minimum required distributions made in connection with an IRA,
Keogh Plan or custodial account under Section 403(b) of the
Code or other retirement plan following attainment of age 70
1/2;
o Redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the
former GT Global funds, which are permitted to
95
be made without penalty pursuant to the Code, other than
tax-free rollovers or transfers of assets, and the proceeds of
which are reinvested in the former GT Global funds;
o Redemptions made in connection with participant-directed
exchanges between options in an employer-sponsored benefit
plan;
o Redemptions made for the purpose of providing cash to fund a
loan to a participant in a tax-qualified retirement plan;
o Redemptions made in connection with a distribution from any
retirement plan or account that is permitted in accordance
with the provisions of Section 72(t)(2) of the Code, and the
regulations promulgated thereunder;
o Redemptions made in connection with a distribution from a
qualified profit-sharing or stock bonus plan described in
Section 401(k) of the Code to a participant or beneficiary
under Section 401(k)(2)(B)(IV) of the Code upon hardship of
the covered employee (determined pursuant to Treasury
Regulation Section 1.401(k)-1(d)(2)); and
o Redemptions made by or for the benefit of certain states,
counties or cities, or any instrumentalities, departments or
authorities thereof where such entities are prohibited or
limited by applicable law from paying a sales charge or
commission.
CDSCs will not apply to the following redemptions of Class B or Class C
shares, as applicable:
o Additional purchases of Class C shares of AIM International
Core Equity Fund (formerly known as AIM International Value
Fund) and AIM Real Estate Fund by shareholders of record on
April 30, 1995, of these Funds, except that shareholders whose
broker-dealers maintain a single omnibus account with AIS on
behalf of those shareholders, perform sub-accounting functions
with respect to those shareholders, and are unable to
segregate shareholders of record prior to April 30, 1995, from
shareholders whose accounts were opened after that date will
be subject to a CDSC on all purchases made after March 1,
1996;
o Redemptions following the death or post-purchase disability of
(1) any registered shareholders on an account or (2) a settlor
of a living trust, of shares held in the account at the time
of death or initial determination of post-purchase disability;
o Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred
compensation plans and Section 401 qualified plans, where
redemptions result from (i) required minimum distributions to
plan participants or beneficiaries who are age 70 1/2 or
older, and only with respect to that portion of such
distributions that does not exceed 12% annually of the
participant's or beneficiary's account value in a particular
AIM Fund; (ii) in kind transfers of assets where the
participant or beneficiary notifies the distributor of the
transfer no later than the time the transfer occurs; (iii)
tax-free rollovers or transfers of assets to another plan of
the type described above invested in Class B or Class C shares
of one or more of the AIM Funds; (iv) tax-free returns of
excess contributions or returns of excess deferral amounts;
and (v) distributions on the death or disability (as defined
in the Code) of the participant or beneficiary;
o Amounts from a Systematic Redemption Plan of up to an annual
amount of 12% of the account value on a per fund basis, at the
time the withdrawal plan is established, provided the investor
reinvests his dividends;
96
o Liquidation by the AIM Fund when the account value falls below
the minimum required account size of $500; and
o Investment account(s) of AIM and its affiliates.
CDSCs will not apply to the following redemptions of Class C shares:
o A total or partial redemption of shares where the investor's
dealer of record notified the distributor prior to the time of
investment that the dealer would waive the upfront payment
otherwise payable to him;
o A total or partial redemption which is necessary to fund a
distribution requested by a participant in a retirement plan
maintained pursuant to Section 401, 403, or 457 of the Code;
o Redemptions of Class C shares of a Fund other than AIM Short
Term Bond Fund if you received such Class C shares by
exchanging Class C shares of AIM Short Term Bond Fund; and
o Redemptions of Class C shares of AIM Short Term Bond Fund
unless you received such Class C shares by exchanging Class C
shares of another Fund and the original purchase was subject
to a CDSC.
CDSCs will not apply to the following redemptions of Class K shares:
o Class K shares where the retirement plan's dealer of record
notifies the distributor prior to the time of investment that
the dealer waives the upfront payment otherwise payable to
him.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS R SHARES AND FORMER
CLASS K SHAREHOLDERS THAT ACQUIRED CLASS A SHARES
CDSCs will not apply to redemptions of Class A shares acquired as a
result of conversion of Class K shares into Class A shares where the retirement
plan's dealer of record notified the distributor prior to the time of purchase
that the dealer waived the upfront payment otherwise payable to him.
CDSCs will not apply to the following redemptions of Class R shares:
o A total or partial redemption of Class R shares where the
retirement plan's dealer of record notifies the distributor
prior to the time of investment that the dealer waives the
upfront payment otherwise payable to him; and
o Redemptions of shares held by retirement plans in cases where
(i) the plan has remained invested in Class R shares of a Fund
for at least 12 months, or (ii) the redemption is not a
complete redemption of all Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received
in good order. To be in good order, an investor must supply AIS with all
required information and documentation, including signature guarantees when
required. In addition, if a purchase of shares is made by check, the check must
be received in good order. This means that the check must be properly completed
and signed, and legible to AIS in its sole discretion.
AUTHORIZED AGENTS. AIS and AIM Distributors may authorize agents to
accept purchase and redemption orders that are in good form on behalf of the AIM
Funds. In certain cases, these authorized
97
agents are authorized to designate other intermediaries to accept purchase and
redemption orders on the Fund's behalf. The Fund will be deemed to have received
the purchase or redemption order when the Fund's authorized agent or its
designee accepts the order. The order will be priced at the net asset value next
determined after the order is accepted by the Fund's authorized agent or its
designee.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or
other financial intermediary to ensure that all orders are transmitted on a
timely basis to AIS. Any loss resulting from the failure of the dealer or
financial intermediary to submit an order within the prescribed time frame will
be borne by that dealer or financial intermediary. If a check used to purchase
shares does not clear, or if any investment order must be canceled due to
nonpayment, the investor will be responsible for any resulting loss to an AIM
Fund or to AIM Distributors.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions or
exchanges of shares previously reported as lost, whether or not the redemption
amount is under $250,000 or the proceeds are to be sent to the address of
record. AIM Funds may waive or modify any signature guarantee requirements at
any time.
Acceptable guarantors include banks, broker-dealers, credit unions,
national securities exchanges, savings associations and any other organization,
provided that such institution or organization qualifies as an "eligible
guarantor institution" as that term is defined in rules adopted by the SEC, and
further provided that such guarantor institution is listed in one of the
reference guides contained in AIS's current Signature Guarantee Standards and
Procedures, such as certain domestic banks, credit unions, securities dealers,
or securities exchanges. AIS will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization qualifies
as an "eligible guarantor institution," an investor should contact the Client
Services Department of AIS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an
investor appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated account(s),
or in any other account with any of the AIM Funds, present or future, which has
the identical registration as the designated account(s), with full power of
substitution in the premises. AIS and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption
proceeds to be applied to purchase shares in any one or more of the AIM Funds,
provided that such fund is available for sale and provided that the registration
and mailing address of the shares to be purchased are identical to the
registration of the shares being redeemed. An investor acknowledges by signing
the form that he understands and agrees that AIS and AIM Distributors may not be
liable for any loss, expense or cost arising out of any telephone exchange
requests effected in accordance with the authorization set forth in these
instructions if they reasonably believe such request to be genuine, but may in
certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AIS reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his
account through the internet by establishing a Personal Identification Number
(PIN). By establishing a PIN, the investor acknowledges and agrees that neither
AIS nor AIM Distributors will be liable for any loss, expense or cost arising
out of any internet transaction effected by them in accordance with any
instructions submitted by a user who
98
transmits the PIN as authentication of his or her identity. Procedures for
verification of internet transactions include requests for confirmation of the
shareholder's personal identification number and mailing of confirmations
promptly after the transactions. The investor also acknowledges that the ability
to effect internet transactions may be terminated at any time by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure
that AIS maintains a correct address for his account(s). An incorrect address
may cause an investor's account statements and other mailings to be returned to
AIS. Upon receiving returned mail, AIS will attempt to locate the investor or
rightful owner of the account. If unsuccessful, AIS will retain a shareholder
locator service with a national information database to conduct periodic
searches for the investor. If the search firm is unable to locate the investor,
the search firm will determine whether the investor's account has legally been
abandoned. AIS is legally obligated to escheat (or transfer) abandoned property
to the appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering
price per Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on October 31, 2004, AIM
Aggressive Growth Fund - Class A shares had a net asset value per share of
$9.62. The offering price, assuming an initial sales charge of 5.50%, therefore
was $10.18.
Calculation of Net Asset Value
Each Fund determines its net asset value per share once daily as of the
close of the customary trading session of the NYSE (generally 4:00 p.m. Eastern
time) on each business day of the Fund. In the event the NYSE closes early
(i.e., before 4:00 p.m. Eastern time) on a particular day, each Fund determines
its net asset value per share as of the close of the NYSE on such day. For
purposes of determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of the customary trading
session of the NYSE. 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 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. The
Funds determine net asset value per share by dividing the value of a Fund's
securities, cash and other assets (including interest accrued but not collected)
attributable to a particular class, less all its liabilities (including accrued
expenses and dividends payable) attributable to that class, by the total number
of shares outstanding of that class. Determination of a Fund's net asset value
per share is made in accordance with generally accepted accounting principles.
The net asset value for shareholder transactions may be different than the net
asset value reported in the Fund's financial statement due to adjustments
required by generally accepted accounting principles made to the net assets of
the Fund at period end.
Each equity security (excluding convertible bonds) held by a Fund is
valued at its last sales price on the exchange where the security is principally
traded or, lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each equity security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued on the basis of prices furnished by
independent pricing vendors or market makers. Each security reported on the
NASDAQ National Market System is valued at the NASDAQ Official Closing Price
("NOCP") or absent a NOCP, at the closing bid price on that day. Debt securities
(including convertible bonds) are fair valued using an evaluated quote on the
basis of prices provided by an independent pricing vendor. Evaluated quotes
provided by the pricing vendor may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as institution-size
trading in similar groups of securities,
99
developments related to special securities, dividend rate, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics and
other market data.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case of
debt obligations, the mean between the last bid and ask prices. Securities for
which market quotations are not available, including situations where market
quotations are unreliable, are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in accordance with
procedures approved by the Board. Short-term investments are valued at amortized
cost when the security has 60 days or less to maturity.
Generally, trading in corporate bonds, U.S. Government securities and
money market instruments is substantially completed each day at various times
prior to the close of the customary trading session of the NYSE. The values of
such securities used in computing the net asset value of a Fund's shares are
determined at such times. Occasionally, events affecting the values of such
securities may occur between the times at which such values are determined and
the close of the customary trading session of the NYSE. If AIM believes a
development/event has actually caused a closing price to no longer reflect
current market value, the closing price may be adjusted to reflect the fair
value of the affected security as of the close of the NYSE as determined in good
faith using procedures approved by the Board.
Foreign securities are converted into U.S. dollar amounts using
exchange rates as of the close of the NYSE. Trading in certain foreign
securities is substantially completed each day at various times prior to the
close of the NYSE. The values of such securities used in computing the net asset
value of each Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the close of
the customary trading session of the NYSE. If an issuer specific event has
occurred that AIM determines, in its judgment, is likely to have affected the
closing price of a foreign security, it will price the security at fair value.
Issuer specific events may include a merger or insolvency, events which affect a
geographical area or an industry segment, such as political events or natural
disasters, or market events, such as a significant movement in the U.S. market.
AIM also relies on a screening process from a pricing vendor to indicate the
degree of certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current market value
as of the close of the NYSE. For foreign securities where AIM believes, at the
approved degree of certainty, that the price is not reflective of current market
value, AIM will use the indication of fair value from the pricing vendor to
determine the fair value of the security. The pricing vendor, pricing
methodology or degree of certainty may change from time to time. Multiple
factors may be considered by the pricing vendor in determining adjustments to
reflect fair value and may include information relating to sector indices, ADRs,
domestic and foreign index futures, and exchange-traded funds.
Fund securities primarily traded in foreign markets may be traded in
such markets on days which are not business days of the Fund. Because the net
asset value per share of each Fund is determined only on business days of the
Fund, the value of the portfolio securities of a Fund that invests in foreign
securities may be significantly affected on days when an investor cannot
exchange or redeem shares of the Fund.
REDEMPTIONS IN KIND
Although the Funds generally intend to pay redemption proceeds solely
in cash, the Funds reserve the right to determine, in their sole discretion,
whether to satisfy redemption requests by making payment in securities or other
property (known as a redemption in kind). For instance, a Fund may make a
redemption in kind, if a cash redemption would disrupt its operations or
performance. Securities that will be delivered as payment in redemptions in kind
will be valued using the same methodologies that the Fund typically utilizes in
valuing such securities. Shareholders receiving such securities are likely to
incur transaction and brokerage costs on their subsequent sales of such
securities, and the securities may increase or decrease in value until the
shareholder sells them. The Trust, on behalf of the Funds, has
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made an election under Rule 18f-1 under the 1940 Act (a "Rule 18f-1 Election"),
and therefore, the Trust, on behalf of a Fund is obligated to redeem for cash
all shares presented to such Fund for redemption by any one shareholder in an
amount up to the lesser of $250,000 or 1% of that Fund's net assets in any
90-day period. The Rule 18f-1 Election is irrevocable while Rule 18f-1 under the
1940 Act is in effect unless the SEC by order permits withdrawal of such Rule
18f-1 Election.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification
number or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8
(for non-resident aliens) or Form W-9 (certifying exempt status) accompanying
the registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold, 28% of
redemption payments and reportable dividends (whether paid or accrued) in the
case of any shareholder who fails to provide the Fund with a taxpayer
identification number ("TIN") and a certification that he is not subject to
backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an
incorrect TIN;
3. the investor or the Fund is notified by the IRS that the
investor is subject to backup withholding because the investor
failed to report all of the interest and dividends on such
investor's tax return (for reportable interest and dividends
only);
4. the investor fails to certify to the Fund that the investor is
not subject to backup withholding under (3) above (for
reportable interest and dividend accounts opened after 1983
only); or
5. the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all
five situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and
information reporting. AIM or AIS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a
correct TIN will be subject to a $50 penalty imposed by the IRS unless such
failure is due to reasonable cause and not willful neglect. If an investor
falsifies information on this form or makes any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, such investor may be subject to a $500 penalty imposed by the IRS
and to certain criminal penalties including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities
are not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is signed
and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a 30%
rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
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DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND DISTRIBUTIONS
It is the present policy of each Fund, except for AIM Diversified
Dividend Fund, to declare and pay annually net investment income dividends and
capital gain distributions. It is each Fund's intention to distribute
substantially all of its net investment income and realized net capital gain,
except for AIM Diversified Dividend Fund as noted below. In the case of AIM
Diversified Dividend Fund, it is the policy to declare and pay quarterly net
investment income dividends and declare and pay annually any capital gain
distributions. In determining the amount of capital gains, if any, available for
distribution, capital gains will generally be offset against available net
capital loss, if any, carried forward from previous fiscal periods. All
dividends and distributions will be automatically reinvested in additional
shares of the same class of each Fund unless the shareholder has requested in
writing to receive such dividends and distributions in cash or that they be
invested in shares of another AIM Fund, subject to the terms and conditions set
forth in the Prospectus under the caption "Special Plans - Automatic Dividend
Investment." Such dividends and distributions will be reinvested at the net
asset value per share determined on the ex-dividend date. If a shareholder's
account does not have any shares in it on a dividend or capital gain
distribution payment date, the dividend or distribution will be paid in cash
whether or not the shareholder has elected to have such dividends or
distributions reinvested.
Dividends on Class B and Class C shares are expected to be lower than
those for Class A shares because of higher distribution fees paid by Class B and
Class C shares. Dividends on Class R shares may be lower than those for Class A
shares, depending on whether the Class R shares pay higher distribution fees
than those for Class A shares. Other class-specific expenses may also affect
dividends on shares of those classes. Expenses attributable to a particular
class ("Class Expenses") include distribution plan expenses, which must be
allocated to the class for which they are incurred. Other expenses may be
allocated as Class Expenses, consistent with applicable legal principles under
the 1940 Act and the Code.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Funds and their shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussion here and in the Prospectus is not intended as a substitute for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY. Each Fund has elected
to be taxed under Subchapter M of the Code as a regulated investment company and
intends to maintain its qualification as such in each of its taxable years. As a
regulated investment company, each Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes an amount equal to (i) at least 90%
of its investment company taxable income (i.e., net investment income, net
foreign currency ordinary gain or loss and the excess of net short-term capital
gain over net long-term capital loss) and (ii) at least 90% of the excess of its
tax-exempt interest income under Code Section 103(a) over its deductions
disallowed under Code Sections 265 and 171(a)(2) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. Distributions by a Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if it has been incurred in the succeeding year.
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Each Fund may use "equalization accounting" in determining the portion
of its net investment income and capital gain net income that has been
distributed. A Fund that elects to use equalization accounting will allocate a
portion of its realized investment income and capital gain to redemptions of
Fund shares and will reduce the amount of such income and gain that it
distributes in cash. However, each Fund intends to make cash distributions for
each taxable year in an aggregate amount that is sufficient to satisfy the
Distribution Requirement without taking into account its use of equalization
accounting. The Internal Revenue Service has not published any guidance
concerning the methods to be used in allocating investment income and capital
gain to redemptions of shares. In the event that the Internal Revenue Service
determines that a Fund is using an improper method of allocation and has
underdistributed its net investment income and capital gain net income for any
taxable year, such Fund may be liable for additional federal income tax.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities), other income
(including, but not limited to, gain from options, futures or forward contracts)
derived from its business of investing in such stock, securities or currencies
and net income derived from certain publicly traded partnerships (the "Income
Requirement"). Under certain circumstances, a Fund may be required to sell
portfolio holdings to meet this requirement.
In addition to satisfying the requirements described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company (the "Asset Diversification Test"). Under this test, at the
close of each quarter of each Fund's taxable year, at least 50% of the value of
the Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers, as to which the Fund has not invested more than 5% of the
value of the Fund's total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses or of securities of certain publicly traded
partnerships.
For purposes of the Asset Diversification Test, the IRS has ruled that
the issuer of a purchased listed call option on stock is the issuer of the stock
underlying the option. The IRS has also informally ruled that, in general, the
issuers of purchased or written call and put options on securities, of long and
short positions on futures contracts on securities and of options on such future
contracts are the issuers of the securities underlying such financial
instruments where the instruments are traded on an exchange.
Where the writer of a listed call option owns the underlying
securities, the IRS has ruled that the Asset Diversification Test will be
applied solely to such securities and not to the value of the option itself.
With respect to options on securities indexes, futures contracts on securities
indexes and options on such futures contracts, the IRS has informally ruled that
the issuers of such options and futures contracts are the separate entities
whose securities are listed on the index, in proportion to the weighing of
securities in the computation of the index. It is unclear under present law who
should be treated as the issuer of forward foreign currency exchange contracts,
of options on foreign currencies, or of foreign currency futures and related
options. It has been suggested that the issuer in each case may be the foreign
central bank or the foreign government backing the particular currency. Due to
this uncertainty and because the Funds may not rely on informal rulings of the
IRS, the Funds may find it necessary to seek a ruling from the IRS as to the
application of the Asset Diversification Test to certain of the foregoing types
of financial instruments or to limit its holdings of some or all such
instruments in order to stay within the limits of such test.
Under an IRS revenue procedure, a Fund may treat its position as lender
under a repurchase agreement as a U.S. Government security for purposes of the
Asset Diversification where the repurchase
103
agreement is fully collateralized (under applicable SEC standards) with
securities that constitute U.S. Government securities.
If for any taxable year a Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated earnings
and profits. Such distributions generally will be eligible for the dividends
received deduction (to the extent discussed below) in the case of corporate
shareholders and will be included in the qualified dividend income of
noncorporate shareholders. See "Fund Distributions" below.
DETERMINATION OF TAXABLE INCOME OF A REGULATED INVESTMENT COMPANY. In
general, gain or loss recognized by a Fund on the disposition of an asset will
be a capital gain or loss. However, gain recognized on the disposition of a debt
obligation purchased by a Fund at a market discount (generally, at a price less
than its principal amount) will be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation unless the Fund made an election to accrue market
discount into income. If a Fund purchases a debt obligation that was originally
issued at a discount, the Fund is generally required to include in gross income
each year the portion of the original issue discount which accrues during such
year. In addition, under the rules of Code Section 988, gain or loss recognized
on the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract or of foreign currency itself, will
generally be treated as ordinary income or loss. In certain cases, a fund may
make an election to treat such gain or loss as capital.
Certain hedging transactions that may be engaged in by certain of the
Funds (such as short sales "against the box") may be subject to special tax
treatment as "constructive sales" under Section 1259 of the Code if a Fund holds
certain "appreciated financial positions" (defined generally as any interest
(including a futures or forward contract, short sale or option) with respect to
stock, certain debt instruments, or partnership interests if there would be a
gain were such interest sold, assigned, or otherwise terminated at its fair
market value). Upon entering into a constructive sales transaction with respect
to an appreciated financial position, a Fund will generally be deemed to have
constructively sold such appreciated financial position and will recognize gain
as if such position were sold, assigned, or otherwise terminated at its fair
market value on the date of such constructive sale (and will take into account
any gain for the taxable year which includes such date).
Some of the forward foreign currency exchange contracts, options and
futures contracts that certain of the Funds may enter into will be subject to
special tax treatment as "Section 1256 contracts." Section 1256 contracts that a
Fund holds are treated as if they are sold for their fair market value on the
last business day of the taxable year, regardless of whether a taxpayer's
obligations (or rights) under such contracts have terminated (by delivery,
exercise, entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed disposition of
Section 1256 contracts is combined with any other gain or loss that was
previously recognized upon the termination of Section 1256 contracts during that
taxable year. The net amount of such gain or loss for the entire taxable year
(including gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is deemed to be 60% long-term and 40% short-term gain or loss.
However, in the case of Section 1256 contracts that are forward foreign currency
exchange contracts, the net gain or loss is separately determined and (as
discussed above) generally treated as ordinary income or loss unless a Fund
elects to treat them as capital gain or loss. If such a future or option is held
as an offsetting position and can be considered a straddle under Section 1092 of
the Code, such a straddle will constitute a mixed straddle. A mixed straddle
will be subject to both Section 1256 and Section 1092 unless certain elections
are made by the Fund.
Other hedging transactions in which the Funds may engage may result in
"straddles" or "conversion transactions" for U.S. federal income tax purposes.
The straddle and conversion transaction rules may affect the character of gains
(or in the case of the straddle rules, losses) realized by the Funds.
104
In addition, losses realized by the Funds on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which the
losses are realized. Because only a few regulations implementing the straddle
rules and the conversion transaction rules have been promulgated, the tax
consequences to the Funds of hedging transactions are not entirely clear. The
hedging transactions may increase the amount of short-term capital gain realized
by the Funds (and, if they are conversion transactions, the amount of ordinary
income) which is taxed as ordinary income when distributed to shareholders.
Because application of any of the foregoing rules governing Section
1256 contracts, constructive sales, straddle and conversion transactions may
affect the character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected investment or straddle
positions, the taxable income of a Fund may exceed or be less than its book
income. Accordingly, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income, qualified dividend
income, or long-term capital gain may also differ from the book income of the
Fund and may be increased or decreased as compared to a fund that did not engage
in such transactions.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible
excise tax is imposed on a regulated investment company that fails to distribute
in each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income (excess of capital gains over
capital losses) for the one-year period ended on October 31 of such calendar
year (or, at the election of a regulated investment company having a taxable
year ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall
(1) reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year and (2) exclude
Section 988 foreign currency gains and losses incurred after October 31 (or
after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
Each Fund generally intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
in the event that the Internal Revenue Service determines that a Fund is using
an improper method of allocation for purposes of equalization accounting (as
discussed above), such Fund may be liable for excise tax. Moreover, investors
should note that a Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. In addition, under certain circumstances, a Fund may elect to pay a
minimal amount of excise tax.
PFIC INVESTMENTS. The Funds are permitted to invest in foreign equity
securities and thus may invest in stocks of foreign companies that are
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign company is classified as a PFIC if at least one-half of its
assets constitute investment-type assets or 75% or more of its gross income is
investment-type income.
The application of the PFIC rules may affect, among other things, the
character of gain, the amount of gain or loss and the timing of the recognition
and character of income with respect to PFIC stock, as well as subject the Funds
themselves to tax on certain income from PFIC stock. For these reasons the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a fund that did not invest in PFIC stock.
SWAP AGREEMENTS. Each Fund may enter into swap agreements. The rules
governing the tax aspects of swap agreements are in a developing stage and are
not entirely clear in certain respects.
105
Accordingly, while a Fund intends to account for such transactions in a manner
deemed to be appropriate, the IRS might not accept such treatment. If it did
not, the status of a Fund as a regulated investment company might be affected.
Each Fund intends to monitor developments in this area. Certain requirements
that must be met under the Code in order for a Fund to qualify as a regulated
investment company may limit the extent to which a Fund will be able to engage
in swap agreements.
FUND DISTRIBUTIONS. Each Fund anticipates distributing substantially
all of its investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and treated as
dividends for federal income tax purposes, but they will only qualify for the
70% dividends received deduction for corporations and as qualified dividend
income for individuals and other noncorporate taxpayers to the extent discussed
below.
A Fund may either retain or distribute to shareholders its net capital
gain (net long-term capital gain over net short-term capital loss) for each
taxable year. Each Fund currently intends to distribute any such amounts. If net
capital gain is distributed and designated as a capital gain dividend, it will
be taxable to shareholders as long-term capital gain (currently taxable at a
maximum rate of 15% for noncorporate shareholders) regardless of the length of
time the shareholder has held his shares or whether such gain was recognized by
the Fund prior to the date on which the shareholder acquired his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carry forward)
at the 35% corporate tax rate. If a Fund elects to retain its net capital gain,
it is expected that the Fund also will elect to have shareholders treated as if
each received a distribution of its pro rata share of such gain, with the result
that each shareholder will be required to report its pro rata share of such gain
on its tax return as long-term capital gain, will receive a refundable tax
credit for its pro rata share of tax paid by the Fund on the gain, and will
increase the tax basis for its shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by a Fund with respect to a taxable year
will qualify for the 70% dividends received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
As described below, the alternative minimum tax applicable to corporations may
reduce the value of the dividends received deduction.
Ordinary income dividends paid by a Fund to individuals and other
noncorporate taxpayers will be treated as qualified dividend income that is
subject to tax at a maximum rate of 15% to the extent of the amount of
qualifying dividends received by the Fund from domestic corporations and from
foreign corporations that are either incorporated in a possession of the United
States, or are eligible for benefits under certain income tax treaties with the
United States that include an exchange of information program. In addition,
qualifying dividends include dividends paid with respect to stock of a foreign
corporation that is readily tradable on an established securities market in the
United States. However, dividends received by the Fund from foreign personal
holding companies, foreign investment companies or PFICs are not qualifying
dividends. If the qualifying dividend income received by a Fund is equal to 95%
(or a greater percentage) of the Fund's gross income (exclusive of net capital
gain) in any taxable year, all of the ordinary income dividends paid by the Fund
will be qualifying dividend income.
Dividends paid by a Fund will not be eligible for the dividends
received deduction when received by a corporation that has not held its shares
of the Fund for at least 46 days during the 91-day period beginning 45 days
before the date on which the shares become ex-dividend and will not be treated
as qualified dividend income when received by an individual or other
noncorporate shareholder who has not held its shares of the Fund for at least 61
days during the 121-day period beginning 60 days before the date on which the
shares become ex-dividend.
Alternative minimum tax ("AMT") is imposed in addition to, but only to
the extent it exceeds, the regular tax and is computed at a maximum rate of 28%
for non-corporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an
106
exemption amount. However, the AMT on capital gain dividends and qualified
dividend income paid by a Fund to a noncorporate shareholder may not exceed a
maximum rate of 15%. The corporate dividends received deduction is not itself an
item of tax preference that must be added back to taxable income or is otherwise
disallowed in determining a corporation's AMTI. However, corporate shareholders
will generally be required to take the full amount of any dividend received from
the Fund into account (without a dividends received deduction) in determining
their adjusted current earnings, which are used in computing an additional
corporate preference item (i.e., 75% of the excess of a corporate taxpayer's
adjusted current earnings over its AMTI (determined without regard to this item
and the AMTI net operating loss deduction)) that is includable in AMTI. However,
certain small corporations are wholly exempt from the AMT.
Distributions by a Fund that are not made from earnings and profits
will be treated as a return of capital to the extent of (and in reduction of)
the shareholder's tax basis in his shares; any excess will be treated as gain
from the sale of his shares.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year
in accordance with the guidance that has been provided by the IRS.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by a Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of a Fund just
prior to a distribution. The price of shares purchased at this time may reflect
the amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
SALE OR REDEMPTION OF SHARES. A shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be deferred under the wash sale rules if the shareholder purchases other shares
of the Fund within 30 days before or after the sale or redemption. In general,
any gain or loss arising from (or treated as arising from) the sale or
redemption of shares of a Fund will be considered capital gain or loss and will
be long-term capital gain or loss if the shares were held for longer than one
year. Currently, any long-term capital gain recognized by a non-corporate
shareholder will be subject to tax at a maximum rate of 15%. However, any
capital loss arising from the sale or redemption of shares held for six months
or less will be treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on such shares. Capital losses in any year
are deductible only to the extent of capital gains plus, in the case of a
non-corporate taxpayer, $3,000 of ordinary income.
If a shareholder (a) incurs a sales load in acquiring shares of a Fund,
(b) disposes of such shares less than 91 days after they are acquired, and (c)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired. The wash sale rules may also
limit the amount of loss that may be taken into account on disposition after
such adjustment.
107
BACKUP WITHHOLDING. The Funds may be required to withhold 28% of
taxable distributions and/or redemption payments. For more information refer to
"Purchase, Redemption and Pricing of Shares - Backup Withholding".
FOREIGN SHAREHOLDERS. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from a Fund is "effectively connected" with a U.S. trade or business
carried on by such shareholder. If the income from a Fund is not effectively
connected with a U.S. trade or business carried on by a foreign shareholder,
distributions (other than distributions of long-term and short-term capital gain
and of certain types of interest income) will be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) upon the gross amount of the
distribution. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gain realized on the redemption of shares of a Fund,
capital gain dividends and amounts retained by a Fund that are designated as
undistributed net capital gain.
As a consequence of the enactment of the American Jobs Creation Act of
2004, such a foreign shareholder will also generally be exempt from U.S. federal
income tax on distributions that a Fund designates as "short-term capital gain
dividends" or as "interest-related dividends" for Fund taxable years beginning
after December 31, 2004 and before January 1, 2008. The aggregate amount that
may be designated as short-term capital gain dividends for a Fund's taxable year
is generally equal to the excess (if any) of the Fund's net short-term capital
gain over its net long-term capital loss. The aggregate amount designated as
interest-related dividends for any Fund taxable year is generally limited to the
excess of the amount of "qualified interest income" of the Fund over allocable
expenses. Qualified interest income is generally equal to the sum of a Fund's
U.S.-source income that constitutes (1) bank deposit interest; (2) short-term
original issue discount that is exempt from withholding tax; (3) interest on a
debt obligation which is in registered form, unless it is earned on a debt
obligation issued by a corporation or partnership in which the Fund holds a
10-percent ownership interest or its payment is contingent on certain events;
and (4) interest-related dividends received from another regulated investment
company.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, short-term capital gain dividends, interest-related
dividends and any gains realized upon the sale or redemption of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign non-corporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 28% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
Foreign shareholders may be subject to U.S. withholding tax at a rate
of 30% on the income resulting from the foreign tax election (as defined below),
but may not be able to claim a credit or deduction with respect to the
withholding tax for the foreign tax treated as having been paid by them.
Foreign persons who file a United States tax return to obtain a U.S.
tax refund and who are not eligible to obtain a social security number must
apply to the IRS for an individual taxpayer identification number, using IRS
Form W-7. For a copy of the IRS Form W-7 and accompanying instructions, please
contact your tax advisor or the IRS.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit. Estates of decedents dying after December 31, 2004 and before January 1,
2008 will be able to exempt from federal estate tax the proportion of the value
108
of a Fund's shares attributable to "qualifying assets" held by the Fund at the
end of the quarter immediately preceding the decedent's death (or such other
time as the Internal Revenue Service may designate in regulations). Qualifying
assets include bank deposits and other debt obligations that pay interest or
accrue original issue discount that is exempt from withholding tax, debt
obligations of a domestic corporation that are treated as giving rise to foreign
source income, and other investments that are not treated for tax purposes as
being within the United States. Shareholders will be advised annually of the
portion of a Fund's assets that constituted qualifying assets at the end of each
quarter of its taxable year.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign tax.
FOREIGN INCOME TAX. Investment income received by each Fund from
sources within foreign countries may be subject to foreign income tax withheld
at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Funds to a reduced rate of, or exemption from, tax
on such income. It is impossible to determine the effective rate of foreign tax
in advance since the amount of a Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of a Fund's total assets at the close of
each taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign income tax paid by the Fund (the "Foreign Tax Election"). Pursuant to
the Foreign Tax Election, shareholders will be required (i) to include in gross
income, even though not actually received, their respective pro-rata shares of
the foreign income tax paid by the Fund that are attributable to any
distributions they receive; and (ii) either to deduct their pro-rata share of
foreign tax in computing their taxable income, or to use it (subject to various
Code limitations) as a foreign tax credit against Federal income tax (but not
both). No deduction for foreign tax may be claimed by a non-corporate
shareholder who does not itemize deductions or who is subject to alternative
minimum tax.
Unless certain requirements are met, a credit for foreign tax is
subject to the limitation that it may not exceed the shareholder's U.S. tax
(determined without regard to the availability of the credit) attributable to
the shareholder's foreign source taxable income. In determining the source and
character of distributions received from a Fund for this purpose, shareholders
will be required to allocate Fund distributions according to the source of the
income realized by the Fund. Each Fund's gain from the sale of stock and
securities and certain currency fluctuation gain and loss will generally be
treated as derived from U.S. sources. In addition, the limitation on the foreign
tax credit is applied separately to foreign source "passive" income, such as
dividend income, and the portion of foreign source income consisting of
qualified dividend income is reduced by approximately 57% to account for the tax
rate differential. Individuals who have no more than $300 ($600 for married
persons filing jointly) of creditable foreign tax included on Form 1099 and
whose foreign source income is all "qualified passive income" may elect each
year to be exempt from the foreign tax credit limitation and will be able to
claim a foreign tax credit without filing Form 1116 with its corresponding
requirement to report income and tax by country. Moreover, no foreign tax credit
will be allowable to any shareholder who has not held his shares of the Fund for
at least 16 days during the 30-day period beginning 15 days before the day such
shares become ex-dividend with respect to any Fund distribution to which foreign
income taxes are attributed (taking into account certain holding period
reduction requirements of the Code). Because of these limitations, shareholders
may be unable to claim a credit for the full amount of their proportionate
shares of the foreign income tax paid by a Fund.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS. The foregoing
general discussion of U.S. federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on February 21, 2005. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
109
Rules of state and local taxation of ordinary income, qualified
dividend income and capital gain dividends may differ from the rules for U.S.
federal income taxation described above. Distributions may also be subject to
additional state, local and foreign taxes depending on each shareholder's
particular situation. Non-U.S. shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Funds.
DISTRIBUTION OF SECURITIES
DISTRIBUTION PLANS
The Trust has adopted distribution plans pursuant to Rule 12b-1 under
the 1940 Act with respect to each Fund's Class A shares, Class B shares, Class C
shares, Class R shares and Investor Class shares, if applicable (collectively
the "Plans").
Each Fund, pursuant to its Class A, Class B, Class C and Class R Plans,
as applicable, and each of AIM Blue Chip Fund, AIM Capital Development Fund, AIM
Diversified Dividend Fund and AIM Large Cap Basic Value Fund, pursuant to its
Investor Class Plan, pays AIM Distributors compensation at the annual rate,
shown immediately below, of the Fund's average daily net assets of the
applicable class.
<Table>
<Caption>
INVESTOR
FUND CLASS A CLASS B CLASS C CLASS R CLASS
- ---- ------- ------- ------- ------- --------
AIM Aggressive Growth Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Blue Chip Fund 0.25% 1.00% 1.00% 0.50% 0.25%
AIM Capital Development Fund 0.25% 1.00% 1.00% 0.50% 0.25%
AIM Charter Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Constellation Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Diversified Dividend Fund 0.25% 1.00% 1.00% 0.50% 0.25%
AIM Large Cap Basic Value Fund 0.25% 1.00% 1.00% 0.50% 0.25%
AIM Large Cap Growth Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Mid Cap Growth Fund 0.25% 1.00% 1.00% 0.50% N/A
AIM Select Basic Value Fund 0.25% 1.00% 1.00% N/A N/A
AIM Weingarten Fund 0.25% 1.00% 1.00% 0.50% N/A
</Table>
AIM Diversified Dividend Fund and AIM Large Cap Growth Fund, pursuant
to its Investor Class Plan, pays AIM Distributors an amount necessary to
reimburse AIM Distributors for its actual allocated share of expenses incurred
pursuant to the Investor Class Plan for the period, up to a maximum annual rate
of 0.25% of the average daily net assets of the Investor Class shares of the
Fund.
All of the Plans compensate or reimburse AIM Distributors, as
applicable, for the purpose of financing any activity which is primarily
intended to result in the sale of shares of the Funds. Such activities include,
but are not limited to, the following: printing of prospectuses and statements
of additional information and reports for other than existing shareholders;
overhead; preparation and distribution of advertising material and sales
literature; expenses of organizing and conducting sales seminars; supplemental
payments to dealers and other institutions such as asset-based sales charges or
as payments of service fees under shareholder service arrangements; and costs of
administering each Plan.
Amounts payable by a Fund under the Class A, Class B, Class C and Class
R Plans and amounts payable by AIM Blue Chip Fund, AIM Capital Development Fund,
AIM Diversified Dividend Fund and AIM Large Cap Basic Value Fund, under its
Investor Class Plan need not be directly related to the expenses actually
incurred by AIM Distributors on behalf of each Fund. These Plans do not obligate
the Funds to reimburse AIM Distributors for the actual allocated share of
expenses AIM Distributors may incur in fulfilling its obligations under these
Plans. Thus, even if AIM Distributors' actual allocated share of expenses
exceeds the fee payable to AIM Distributors at any given time, under these
Plans, the Funds
110
will not be obligated to pay more than that fee. If AIM Distributors' actual
allocated share of expenses is less than the fee it receives, under these Plans,
AIM Distributors will retain the full amount of the fee.
Amounts payable by AIM Diversified Dividend Fund and AIM Large Cap
Growth Fund under their Investor Class Plans are directly related to the
expenses incurred by AIM Distributors on behalf of each Fund, as these Plans
obligate each Fund to reimburse AIM Distributors for their actual allocated
share of expenses incurred pursuant to the Investor Class Plan for the period,
up to a maximum annual rate of 0.25% of the average daily net assets of the
Investor Class shares of each Fund. If AIM Distributors' actual allocated share
of expenses incurred pursuant to the Investor Class Plan for the period exceeds
the 0.25% annual cap, under this Plan AIM Diversified Dividend Fund and AIM
Large Cap Growth Fund will not be obligated to pay more than the 0.25% annual
cap. If AIM Distributors' actual allocated share of expenses incurred pursuant
to the Investor Class Plan for the period is less than the 0.25% annual cap,
under this Plan AIM Distributors is entitled to be reimbursed only for its
actual allocated share of expenses.
AIM Distributors may from time to time waive or reduce any portion of
its 12b-1 fee for Class A, Class C, Class R or Investor Class shares. Voluntary
fee waivers or reductions may be rescinded at any time without further notice to
investors. During periods of voluntary fee waivers or reductions, AIM
Distributors will retain its ability to be reimbursed for such fee prior to the
end of each fiscal year. Contractual fee waivers or reductions set forth in the
Fee Table in a Prospectus may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM Distributors and
the Fund.
The Funds may pay a service fee of 0.25% of the average daily net
assets of the Class A, Class B, Class C, Class R and Investor Class shares
attributable to the customers of selected dealers and financial institutions to
such dealers and financial institutions, including AIM Distributors, acting as
principal, who furnish continuing personal shareholder services to their
customers who purchase and own the applicable class of shares of the Fund. Under
the terms of a shareholder service agreement, such personal shareholder services
include responding to customer inquiries and providing customers with
information about their investments. Any amounts not paid as a service fee under
each Plan would constitute an asset-based sales charge.
AIM Distributors may pay dealers and institutions who sell Class R
shares an annual fee of 0.50% of average daily net assets. These payments will
consist of an asset-based fee of 0.25% and a service fee of 0.25% and will
commence either on the thirteenth month after the first purchase, on accounts on
which a dealer concession was paid, or immediately, on accounts on which a
dealer concession was not paid. If AIM Distributors pays a dealer concession, it
will retain all payments received by it relating to Class R shares for the first
year after they are purchased. AIM Distributors will make quarterly payments to
dealers and institutions based on the average net asset value of Class R shares
which are attributable to shareholders for whom the dealers and institutions are
designated as dealers of record.
Under a Shareholder Service Agreement, a Fund agrees to pay
periodically fees to selected dealers and other institutions who render the
foregoing services to their customers. The fees payable under a Shareholder
Service Agreement will be calculated at the end of each payment period for each
business day of the Funds during such period at the annual rate specified in
each agreement based on the average daily net asset value of the Funds' shares
purchased or acquired through exchange. Fees shall be paid only to those
selected dealers or other institutions who are dealers or institutions of record
at the close of business on the last business day of the applicable payment
period for the account in which such Fund's shares are held.
Selected dealers and other institutions entitled to receive
compensation for selling Fund shares may receive different compensation for
selling shares of one particular class over another. Under the Plans, certain
financial institutions which have entered into service agreements and which sell
shares of the Funds on an agency basis, may receive payments from the Funds
pursuant to the respective Plans. AIM Distributors does not act as principal,
but rather as agent for the Funds, in making dealer incentive
111
and shareholder servicing payments to dealers and other financial institutions
under the Plans. These payments are an obligation of the Funds and not of AIM
Distributors.
Payments pursuant to the Plans are subject to any applicable
limitations imposed by rules of the NASD.
See Appendix L for a list of the amounts paid by each class of shares
of each Fund to AIM Distributors pursuant to the Plans for the year, or period,
ended October 31, 2004 and Appendix M for an estimate by category of the
allocation of actual fees paid by each class of shares of each Fund pursuant to
its respective distribution plan for the year or period ended October 31, 2004.
As required by Rule 12b-1, the Plans and related forms of Shareholder
Service Agreements were approved by the Board, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements related to the Plans (the "Rule 12b-1 Trustees").
In approving the Plans in accordance with the requirements of Rule 12b-1, the
trustees considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each class of the Funds and its
respective shareholders.
The anticipated benefits that may result from the Plans with respect to
each Fund and/or the classes of each Fund and its shareholders include but are
not limited to the following: (1) rapid account access; (2) relatively
predictable flow of cash; and (3) a well-developed, dependable network of
shareholder service agents to help to curb sharp fluctuations in rates of
redemptions and sales, thereby reducing the chance that an unanticipated
increase in net redemptions could adversely affect the performance of each Fund.
Unless terminated earlier in accordance with their terms, the Plans
continue from year to year as long as such continuance is specifically approved,
in person, at least annually by the Board, including a majority of the Rule
12b-1 Trustees. A Plan may be terminated as to any Fund or class by the vote of
a majority of the Rule 12b-1 Trustees or, with respect to a particular class, by
the vote of a majority of the outstanding voting securities of that class.
Any change in the Plans that would increase materially the distribution
expenses paid by the applicable class requires shareholder approval; otherwise,
the Plans may be amended by the trustees, including a majority of the Rule 12b-1
Trustees, by votes cast in person at a meeting called for the purpose of voting
upon such amendment. As long as the Plans are in effect, the selection or
nomination of the Independent Trustees is committed to the discretion of the
Independent Trustees.
The Class B Plan obligates Class B shares to continue to make payments
to AIM Distributors following termination of the Class B shares Distribution
Agreement with respect to Class B shares sold by or attributable to the
distribution efforts of AIM Distributors or its predecessors, unless there has
been a complete termination of the Class B Plan (as defined in such Plan) and
the Class B Plan expressly authorizes AIM Distributors to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended,
relating to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to which
AIM Distributors acts as the distributor of shares of the Funds. The address of
AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739. Certain trustees
and officers of the Trust are affiliated with AIM Distributors. See "Management
of the Trust."
The Distribution Agreements provide AIM Distributors with the exclusive
right to distribute shares of the Funds on a continuous basis directly and
through other broker-dealers with whom AIM Distributors
112
has entered into selected dealer agreements. AIM Distributors has not undertaken
to sell any specified number of shares of any classes of the Funds.
AIM Distributors expects to pay sales commissions from its own
resources to dealers and institutions who sell Class B and Class C shares of the
Funds at the time of such sales.
Payments with respect to Class B shares will equal 4.00% of the
purchase price of the Class B shares sold by the dealer or institution, and will
consist of a sales commission equal to 3.75% of the purchase price of the Class
B shares sold plus an advance of the first year service fee of 0.25% with
respect to such shares. The portion of the payments to AIM Distributors under
the Class B Plan which constitutes an asset-based sales charge (0.75%) is
intended in part to permit AIM Distributors to recoup a portion of such sales
commissions plus financing costs. In the future, if multiple distributors serve
a Fund, each such distributor (or its assignee or transferee) would receive a
share of the payments under the Class B Plan based on the portion of the Fund's
Class B shares sold by or attributable to the distribution efforts of that
distributor.
AIM Distributors may pay sales commissions to dealers and institutions
who sell Class C shares of the AIM Funds at the time of such sales. Payments
with respect to Class C shares will equal 1.00% of the purchase price of the
Class C shares sold by the dealer or institution, and will consist of a sales
commission of 0.75% of the purchase price of the Class C shares sold plus an
advance of the first year service fee of 0.25% with respect to such shares. AIM
Distributors will retain all payments received by it relating to Class C shares
for the first year after they are purchased. The portion of the payments to AIM
Distributors under the Class A, Class C and Class R Plan attributable to Class C
shares which constitutes an asset-based sales charge (0.75%) is intended in part
to permit AIM Distributors to recoup a portion of the sales commissions to
dealers plus financing costs, if any. After the first full year, AIM
Distributors will make quarterly payments to dealers and institutions based on
the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record. These payments will consist of an asset-based sales charge of 0.75% and
a service fee of 0.25%.
The Trust (on behalf of any class of any Fund) or AIM Distributors may
terminate the Distribution Agreements on 60 days' written notice without
penalty. The Distribution Agreements will terminate automatically in the event
of their assignment. In the event the Class B shares Distribution Agreement is
terminated, AIM Distributors would continue to receive payments of asset-based
distribution fees in respect of the outstanding Class B shares attributable to
the distribution efforts of AIM Distributors or its predecessors; provided,
however that a complete termination of the Class B Plan (as defined in such
Plan) would terminate all payments to AIM Distributors. Termination of the Class
B Plan or the Distribution Agreement for Class B shares would not affect the
obligation of Class B shareholders to pay CDSCs.
Total sales charges (front end and CDSCs) paid in connection with the
sale of shares of each class of each Fund, if applicable, for the last three
fiscal years ended October 31 are found in Appendix N.
CALCULATION OF PERFORMANCE DATA
Although performance data may be useful to prospective investors when
comparing a Fund's performance with other funds and other potential investments,
investors should note that the methods of computing performance of other
potential investments are not necessarily comparable to the methods employed by
a Fund.
113
Average Annual Total Return Quotation
The standard formula for calculating average annual total return is as
follows:
n
P(1+T) =ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (assuming the
applicable maximum sales load is deducted at the
beginning of the one, five, or ten year periods);
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the one, five, or ten year
periods (or fractional portion of such period).
The average annual total returns for each Fund, with respect to its
Class A, Class B, Class C, Class R and Investor Class shares, if applicable, for
the one, five and ten year periods (or since inception if less than ten years)
ended October 31 are found in Appendix O.
Total returns quoted in advertising reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital gain
distributions, and any change in the Fund's net asset value per share over the
period. Cumulative total return reflects the performance of a Fund over a stated
period of time. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical investment in a Fund over a stated
period of time, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline in
value had been constant over the period.
Each Fund's total return is calculated in accordance with a
standardized formula for computation of annualized total return. Standardized
total return for: (1) Class A shares reflects the deduction of a Fund's maximum
front-end sales charge at the time of purchase; (2) Class B and Class C shares
reflects the deduction of the maximum applicable CDSC on a redemption of shares
held for the period; (3) Class R shares does not reflect a deduction of any
sales charge since that class is generally sold and redeemed at net asset value
and (4) Investor Class shares does not reflect a deduction of any sales charge
since that class is sold and redeemed at net asset value.
A Fund's total return shows its overall change in value, including
changes in share price and assuming all the Fund's dividends and capital gain
distributions are reinvested. A cumulative total return reflects the Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical compounded annual rate of return that would have
produced the same cumulative total return if the Fund's performance had been
constant over the entire period. Because average annual returns tend to even out
variations in the Fund's return, investors should recognize that such returns
are not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gains or losses.
Alternative Total Return Quotations
Standard total return quotes may be accompanied by total return figures
calculated by alternative methods. For example, average annual total return may
be calculated without assuming payment of the full sales load according to the
following formula:
114
n
P(1+U) =ERV
Where P = a hypothetical initial payment of $1,000;
U = average annual total return assuming payment of
only a stated portion of, or none of, the
applicable maximum sales load at the beginning of
the stated period;
n = number of years; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
Cumulative total return across a stated period may be calculated as
follows:
P(1+V)=ERV
Where P = a hypothetical initial payment of $1,000;
V = cumulative total return assuming payment of all
of, a stated portion of, or none of, the applicable
maximum sales load at the beginning of the stated
period; and
ERV = ending redeemable value of a hypothetical $1,000
payment at the end of the stated period.
The cumulative total returns for each Fund, with respect to its Class
A, Class B, Class C and Class R and Investor Class shares, if applicable, for
the one, five and ten year periods (or since inception if less than ten years)
ended October 31 are found in Appendix O.
Calculation of Certain Performance Data
AIM Aggressive Growth Fund, AIM Blue Chip Fund, AIM Capital Development
Fund, AIM Charter Fund, AIM Constellation Fund, AIM Diversified Dividend Fund,
AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund, AIM Mid Cap Growth
Fund and AIM Weingarten Fund may use a restated or a blended performance
calculation to derive certain performance data shown for the Class R shares in
this Statement of Additional Information and in each Fund's advertisements and
other sales material. If a Fund's Class R shares were not offered to the public
during the performance period covered, the performance data shown will be the
restated historical performance of such Fund's Class A shares at net asset
value, adjusted to reflect the higher Rule 12b-1 fees applicable to Class R
shares. If the Fund's Class R shares were offered to the public only during a
portion of the performance period covered, the performance data shown will be
the blended returns of the historical performance of such Fund's Class R shares
since their inception and the restated historical performance of such Fund's
Class A shares (for periods prior to the inception of such Class R shares) at
net asset value, adjusted to reflect the higher Rule 12b-1 fees applicable to
Class R shares. If a Fund's Class R shares were offered to the public during the
entire performance period covered, the performance data shown will be the
historical performance of such Fund's Class R shares.
AIM Blue Chip Fund, AIM Capital Development Fund, AIM Diversified
Dividend Fund, AIM Large Cap Basic Value Fund and AIM Large Cap Growth Fund may
use a restated or a blended performance calculation to derive certain
performance data shown for their Investor Class shares in this Statement of
Additional Information and in each Fund's advertisements and other sales
material. If a Fund's Investor Class shares were not offered to the public
during the performance period covered, the performance data shown will be the
restated historical performance of such Fund's Class A shares at net asset
value, which restated performance will reflect the higher Rule 12b-1 fees
applicable to Class A shares. If a Fund's Investor Class shares were offered to
the public only during a portion of the performance period covered, the
performance data shown will be the blended returns of the historical performance
of such Fund's Investor Class shares since their inception and the restated
historical performance of such Fund's Class A shares (for periods prior to
inception of such Fund's Investor Class shares) at net asset value, which
restated performance will reflect the higher Rule 12b-1 fees applicable to Class
A shares. If a Fund's Investor Class shares were offered to the public during
the entire performance
115
period covered, the performance data shown will be the historical performance of
such Fund's Investor Class shares.
A restated or blended performance calculation may be used to derive (i)
each Fund's standardized average annual total returns over a stated period and
(ii) each Fund's non-standardized cumulative total returns over a stated period.
Average Annual Total Return (After Taxes on Distributions) Quotation
A Fund's average annual total return (after taxes on distributions)
shows its overall change in value, including changes in share price and assuming
all the Fund's dividends and capital gain distributions are reinvested. It
reflects the deduction of federal income taxes on distributions, but not on
redemption proceeds. Average annual total returns (after taxes on distributions)
are calculated by determining the after-tax growth or decline in value of a
hypothetical investment in a Fund over a stated period of time, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Because average annual total returns (after taxes on distributions) tend
to even out variations in the Fund's return, investors should recognize that
such returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, a Fund may separate its average annual total
returns (after taxes on distributions) into income results and capital gains or
losses.
The standard formula for calculating average annual total return (after
taxes on distributions) is:
n
P(1+T) = ATV
D
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made
D at the beginning of the one, five, or ten year
periods (or since inception, if applicable) at the
end of the one, five, or ten year periods (or since
inception, if applicable), after taxes on fund
distributions but not after taxes on redemption.
Standardized average annual total return (after taxes on distributions)
for: (1) Class A shares reflects the deduction of a Fund's maximum front-end
sales charge at the time of purchase; (2) Class B and Class C shares reflect the
deduction of the maximum applicable CDSC on a redemption of shares held for the
period; and (3) Investor Class shares does not reflect a deduction of any sales
charge since that class is sold and redeemed at net asset value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes on a
Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The average annual total returns (after taxes on distributions) for
each Fund, with respect to its Class A, Class B, Class C and Investor Class
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended October 31 are found in Appendix O.
116
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) Quotation
A Fund's average annual total return (after taxes on distributions and
sale of Fund shares) shows its overall change in value, including changes in
share price and assuming all the Fund's dividends and capital gain distributions
are reinvested. It reflects the deduction of federal income taxes on both
distributions and proceeds. Average annual total returns (after taxes on
distributions and redemption) are calculated by determining the after-tax growth
or decline in value of a hypothetical investment in a Fund over a stated period
of time, and then calculating the annually compounded percentage rate that would
have produced the same result if the rate of growth or decline in value had been
constant over the period. Because average annual total returns (after taxes on
distributions and redemption) tend to even out variations in the Fund's return,
investors should recognize that such returns are not the same as actual
year-by-year results. To illustrate the components of overall performance, a
Fund may separate its average annual total returns (after taxes on distributions
and redemption) into income results and capital gains or losses.
The standard formula for calculating average annual total return (after
taxes on distributions and redemption) is:
n
P(1+T) = ATV
DR
Where P = a hypothetical initial payment of $1,000;
T = average annual total return (after taxes on
distributions and redemption);
n = number of years; and
ATV = ending value of a hypothetical $1,000 payment made
DR at the beginning of the one, five, or ten year
periods (or since inception, if applicable) at the
end of the one, five, or ten year periods (or since
inception, if applicable), after taxes on fund
distributions and redemption.
Standardized average annual total return (after taxes on distributions
and redemption) for: (1) Class A shares reflects the deduction of a Fund's
maximum front-end sales charge at the time of purchase; (2) Class B and Class C
shares reflect the deduction of the maximum applicable CDSC on a redemption of
shares held for the period; and (3) Investor Class shares does not reflect a
deduction of any sales charge since that class is sold and redeemed at net asset
value.
The after-tax returns assume all distributions by a Fund, less the
taxes due on such distributions, are reinvested at the price calculated as
stated in the prospectus on the reinvestment dates during the period. Taxes due
on a Fund's distributions are calculated by applying to each component of the
distribution (e.g., ordinary income and long-term capital gain) the highest
corresponding individual marginal federal income tax rates in effect on the
reinvestment date. The taxable amount and tax character of each distribution is
as specified by the Fund on the dividend declaration date, but reflects any
subsequent recharacterizations of distributions. The effect of applicable tax
credits, such as the foreign tax credit, are also taken into account. The
calculations only reflect federal taxes, and thus do not reflect state and local
taxes or the impact of the federal alternative minimum tax.
The ending values for each period assume a complete liquidation of all
shares. The ending values for each period are determined by subtracting capital
gains taxes resulting from the sale of Fund shares and adding the tax benefit
from capital losses resulting from the sale of Fund shares. The capital gain or
loss upon sale of Fund shares is calculated by subtracting the tax basis from
the proceeds. Capital gains taxes (or the benefit resulting from tax losses) are
calculated using the highest federal individual capital gains tax rate for gains
of the appropriate character (e.g., ordinary income or long-term) in effect on
the date of the sale of Fund shares and in accordance with federal tax law
applicable on that date. The calculations assume that a shareholder may deduct
all capital losses in full.
The basis of shares acquired through the $1,000 initial investment are
tracked separately from subsequent purchases through reinvested distributions.
The basis for a reinvested distribution is the distribution net of taxes paid on
the distribution. Tax basis is adjusted for any distributions representing
returns of capital and for any other tax basis adjustments that would apply to
an individual taxpayer.
117
The amount and character (i.e., short-term or long-term) of capital
gain or loss upon sale of Fund shares is determined separately for shares
acquired through the $1,000 initial investment and each subsequent purchase
through reinvested distributions. The tax character is determined by the length
of the measurement period in the case of the initial $1,000 investment and the
length of the period between reinvestment and the end of the measurement period
in the case of reinvested distributions.
The average annual total returns (after taxes on distributions and
redemption) for each Fund, with respect to its Class A, Class B, Class C and
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended October 31 are found in Appendix O.
Performance Information
All advertisements of the Funds will disclose the maximum sales charge
(including deferred sales charges) imposed on purchases of a Fund's shares. If
any advertised performance data does not reflect the maximum sales charge (if
any), such advertisement will disclose that the sales charge has not been
deducted in computing the performance data, and that, if reflected, the maximum
sales charge would reduce the performance quoted. Further information regarding
each Fund's performance is contained in that Fund's annual report to
shareholders, which is available upon request and without charge.
From time to time, AIM or its affiliates may waive all or a portion of
their fees and/or assume certain expenses of any Fund. Fee waivers or reductions
or commitments to reduce expenses will have the effect of increasing that Fund's
yield and total return.
The performance of each Fund will vary from time to time and past
results are not necessarily indicative of future results.
Total return and yield figures for the Funds are neither fixed nor
guaranteed. The Funds may provide performance information in reports, sales
literature and advertisements. The Funds may also, from time to time, quote
information about the Funds published or aired by publications or other media
entities which contain articles or segments relating to investment results or
other data about one or more of the Funds. The following is a list of such
publications or media entities:
Advertising Age Insurance Week
Barron's Investor's Business Daily
Best's Review Journal of the American
Bloomberg Society of CLU & ChFC
Broker World Kiplinger Letter
Business Week Money
Changing Times Mutual Fund Forecaster
Christian Science Monitor Nation's Business
Consumer Reports New York Times
Economist Pension World
FACS of the Week Pensions & Investments
Financial Planning Personal Investor
Financial Product News Philadelphia Inquirer
Financial Services Week The Bond Buyer
Financial World USA Today
Forbes U.S. News & World Report
Fortune Wall Street Journal
Hartford Courant Washington Post
Inc CNN
Institutional Investor CNBC
Insurance Forum PBS
118
Each Fund may also compare its performance to performance data of
similar mutual funds as published by the following services:
Bank Rate Monitor Standard & Poor's
Bloomberg Stanger
Donoghue's Strategic Insight
FactSet Data Systems Thompson Financial
Lipper, Inc. Weisenberger
Mutual Fund Values (Morningstar)
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the following:
Lipper Large Cap Core Fund Index Russell 1000(R) Value Index
Lipper Large Cap Growth Fund Index Russell 2500(TM) Index
Lipper Large Cap Value Fund Index Russell 2500(TM) Growth Index
Lipper Mid Cap Core Fund Index Russell 3000(R) Growth Index
Lipper Mid Cap Growth Fund Index Russell 3000(R) Index
Lipper Multi Cap Growth Fund Index Russell MidCap(R) Growth Index
Lipper Multi Cap Value Fund Index Russell MidCap(R) Index
MSCI World Index Standard & Poor's 500 Index
Russell 1000(R) Growth Index Standard & Poor's Mid Cap 400
Russell 1000(R) Index Index
Each Fund may also compare its performance to rates on Certificates of
Deposit and other fixed rate investments such as the following:
10 year Treasury Notes
90 day Treasury Bills
Advertising for the Funds may from time to time include discussions of
general economic conditions and interest rates. Advertising for such Funds may
also include references to the use of those Funds as part of an individual's
overall retirement investment program. From time to time, sales literature
and/or advertisements for any of the Funds may disclose: (i) the largest
holdings in the Funds' portfolios; (ii) certain selling group members; (iii)
certain institutional shareholders; (iv) measurements of risk, including
standard deviation, Beta and Sharpe ratios; and/or (v) capitalization and sector
analyses of holdings in the Funds' portfolios.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, discussions regarding investment styles, such as the growth, value
or GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
PENDING LITIGATION
Regulatory Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, INVESCO Funds Group, Inc. ("IFG")
(the former investment advisor to certain AIM Funds) and ADI, as well as
numerous unrelated mutual fund complexes and financial institutions. None of the
AIM Funds has been named as a defendant in this lawsuit. The WVAG complaint,
filed in the Circuit Court of Marshall County, West Virginia [Civil Action No.
05-C-81], alleges, in substance, that AIM, IFG
119
and ADI engaged in unfair competition and/or unfair or deceptive trade practices
by failing to disclose in the prospectuses for the AIM Funds, including those
formerly advised by IFG, that they had entered into certain arrangements
permitting market timing of such Funds. As a result of the foregoing, the WVAG
alleges violations of W. Va. Code Section 46A-1-101, et seq. (the West Virginia
Consumer Credit and Protection Act). The WVAG complaint is seeking injunctive
relief; civil monetary penalties; a writ of quo warranto against the defendants;
pre-judgment and post-judgment interest; costs and expenses, including counsel
fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be
barred from serving as an investment advisor for any investment company
registered under the Investment Company Act of 1940, as amended (a "registered
investment company"). Such results could affect the ability of AIM or any other
investment advisor directly or indirectly owned by AMVESCAP PLC ("AMVESCAP"),
from serving as an investment advisor to any registered investment company,
including your Fund. Your Fund has been informed by AIM that, if these results
occur, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as your Fund's investment advisor. There is not assurance that such
exemptive relief will be granted.
On May 31, 2005, the defendants removed this lawsuit to the U.S.
District Court for the Northern District of West Virginia at Wheeling. On June
13, 2005, the MDL Court (as defined below) issued a Conditional Transfer Order
transferring this lawsuit to the MDL Court. On June 29, 2005 the WVAG filed a
Notice of Opposition to this Conditional Transfer Order. On July 7, 2005, the
Supreme Court of West Virginia ruled in the context of a separate lawsuit that
the WVAG does not have authority pursuant to W. Va. Code Section 46A-6-104 of
the West Virginia Consumer Credit and Protection Act to bring an action based
upon conduct that is ancillary to the purchase or sale of securities. AIM
intends to seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light
of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that essentially mirror the WVAG's allegations mentioned above
and conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions, 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. AIM and ADI have the right to challenge this action, which
they intend to do.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and
shareholder derivative suits, have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG, AIM, AIM
Management, AMVESCAP, the parent company of IFG and AIM, certain related
entities, certain of their current and former officers and/or certain unrelated
third parties) based on allegations of improper market timing and related
activity in the AIM Funds. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal and state securities laws; (ii) violation of various provisions of
ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of contract. These
lawsuits were initiated in both Federal and state courts and seek such remedies
as compensatory damages; restitution; injunctive relief; disgorgement of
management fees; imposition of a constructive trust; removal of certain
directors and/or employees; various corrective measures under ERISA; rescission
of certain Funds' advisory agreements; interest; and attorneys' and experts'
fees. A list identifying such lawsuits that have been served on IFG, AIM, the
AIM Funds or related entities, or for which service of process has been waived,
as of September 20, 2005 is set forth in Appendix P-1.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings, with one exception. Pursuant to an Order of the MDL Court,
plaintiffs consolidated their claims for pre-trial purposes into three amended
complaints against
120
various AIM- and IFG-related parties. A list identifying the amended complaints
in the MDL Court is included in Appendix M-1. Plaintiffs in two of the
underlying lawsuits transferred to the MDL Court continue to seek remand of
their action to state court. These lawsuits are identified in Appendix P-1.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various
parties (including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs. A
list identifying such lawsuits that have been served on IFG, AIM, the AIM Funds
or related entities, or for which service of process has been waived, as of
September 20, 2005 is set forth in Appendix P-2.
Private Civil Actions Alleging Excessive Advisory and/or Distribution
Fees
Multiple civil lawsuits, including purported class action and
shareholder derivative suits, have been filed against various parties
(including, depending on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.),
Inc. ("IINA"), ADI and/or INVESCO Distributors, Inc. ("INVESCO Distributors"))
alleging that the defendants charged excessive advisory and/or distribution fees
and failed to pass on to shareholders the perceived savings generated by
economies of scale. Certain of these lawsuits also allege that the defendants
adopted unlawful distribution plans. These lawsuits allege a variety of theories
of recovery, including but not limited to: (i) violation of various provisions
of the Federal securities laws; (ii) breach of fiduciary duty; and/or (iii)
breach of contract. These lawsuits have been filed in Federal courts and seek
such remedies as damages; injunctive relief; rescission of certain Funds'
advisory agreements and distribution plans; interest; prospective relief in the
form of reduced fees; and attorneys' and experts' fees. A list identifying such
lawsuits that have been served on IFG, AIM, the AIM Funds or related entities,
or for which service of process has been waived, as of September 20, 2005 is set
forth in Appendix P-3.
Private Civil Actions Alleging Improper Charging of Distribution Fees
on Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have
been filed against various parties (including, depending on the lawsuit, IFG,
AIM, ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
AIM Funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same AIM Fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees. A list identifying such lawsuits that have
been served on IFG, AIM, the AIM Funds or related entities, or for which service
of process has been waived, as of September 20, 2005 is set forth in Appendix
P-4.
121
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and
shareholder derivative suits, have been filed against various parties
(including, depending on the lawsuit, AIM Management, IFG, AIM, AIM Investment
Services, Inc. ("AIS") and/or certain of the trustees of the AIM Funds) alleging
that the defendants improperly used the assets of the AIM Funds to pay brokers
to aggressively promote the sale of the AIM Funds over other mutual funds and
that the defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees. A list identifying such lawsuits that have been
served on IFG, AIM, the AIM Funds or related entities, or for which service of
process has been waived, as of September 20, 2005 is set forth in Appendix P-5.
Private Civil Action Alleging Failure to Ensure Participation in Class
Action Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been
filed against AIM, IINA, A I M Capital Management, Inc. ("AIM Capital")
and the trustees of the AIM Funds alleging that the defendants breached
their fiduciary duties by failing to ensure that the AIM Funds
participated in class action settlements in which they were eligible to
participate. This lawsuit alleges as theories of recovery: (i)
violation of various provisions of the Federal securities laws; (ii)
common law breach of fiduciary duty; and (iii) common law negligence.
This lawsuit has been filed in Federal court and seeks such remedies as
compensatory and punitive damages; forfeiture of all commissions and
fees paid by the class of plaintiffs; and costs and attorneys' fees.
Such lawsuit, which was dismissed by the Court on August 12, 2005 is
set forth in Appendix P-6.
122
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt
ratings of Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings are as follows:
Aaa: Bonds and preferred stock which are rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds and preferred stock which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. These are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Caa: Bonds and preferred stock which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds and preferred stock which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated
class of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
A-1
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to
honor senior financial obligations and contracts. Such obligations generally
have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be
investment grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be
modified by the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
MOODY'S U.S. LONG-TERM MUNICIPAL BOND RATING DEFINITIONS
Municipal ratings are opinions of the investment quality of issuers
and issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors
relating to municipal finance: economy, debt, finances, and
administration/management strategies. Each of the factors is evaluated
individually and for its effect on the other factors in the context of the
municipality's ability to repay its debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
A-2
Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak
creditworthiness relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa to Caa. The modifier 1 indicates that the
issue ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for
short-term obligations that are considered investment grade. These ratings are
designated as Moody's Investment Grade (MIG) and are divided into three levels -
MIG 1 through MIG 3.
In addition, those short-term obligations that are of speculative
quality are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a
two-component rating is assigned. The first element represents Moody's
evaluation of the degree of risk associated with scheduled principal and
interest payments. The second element represents Moody's evaluation of the
degree of risk associated with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When either the long- or short-term aspect of a VRDO is not
rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating
expirations will be a function of each issue's specific structural or credit
features.
Gradations of investment quality are indicated by rating symbols, with
each symbol representing a group in which the quality characteristics are
broadly the same.
A-3
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having significant
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
A-4
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria will be used in making that
assessment: amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note); and source of
payment (the more dependant the issue is on the market for its refinancing, the
more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
A-5
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely basis. These credit ratings
apply to a variety of entities and issues, including but not limited to
sovereigns, governments, structured financings, and corporations; debt,
preferred/preference stock, bank loans, and counterparties; as well as the
financial strength of insurance companies and financial guarantors.
Credit ratings are used by investors as indications of the likelihood
of getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term 'BB'
- - 'D'; Short-term 'B' - 'D') either signal a higher probability of default or
that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold
any security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch Ratings believes
to be reliable. Fitch Ratings does not audit or verify the truth or accuracy of
such information. Ratings may be changed or withdrawn as a result of changes in,
or the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the
program concerned; it should not be assumed that these ratings apply to every
issue made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the applicable
program rating.
Credit ratings do not directly address any risk other than credit risk.
In particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of financial
commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality. The
obligor has a very strong capacity for timely payment of financial commitments
which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-6
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there is
a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively short
period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow financial
commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D: Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and are valued on the basis of their prospects
for achieving partial or full recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on these bonds,
and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
FITCH SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local
currency ratings. A Short-term rating has a time horizon of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
A-7
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as in
the case of the higher ratings.
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
EXAMPLES OF PERSONS TO WHOM AIM PROVIDES
NON-PUBLIC PORTFOLIO HOLDINGS ON AN ONGOING BASIS
(AS OF OCTOBER 7, 2005)
<Table>
<Caption>
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------
Ballard Spahr Andrews & Ingersoll, LLP Legal Counsel
Foley & Lardner LLP Legal Counsel (for certain AIM Funds)
Kramer, Levin Naftalis & Frankel LLP Legal Counsel
PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm
Brown Brothers Harriman & Co. Securities Lender (for certain AIM Funds)
MS Securities Services, Inc. Securities Lender (for certain AIM Funds)
Morgan Stanley & Co. Securities Lender (for certain AIM Funds)
Fitch, Inc. Rating & Ranking Agency (for certain AIM Funds)
iMoneyNet Ranking Agency (for certain AIM funds)
Lipper Inc. Rating & Ranking Agency (for certain AIM Funds)
Moody's Investors Service Rating & Ranking Agency (for certain AIM Funds)
Institutional Shareholder Services, Inc. Proxy Voting Service
State Street Bank and Trust Company Custodian (for certain AIM Funds), Software Provider,
Securities Lender (for certain AIM Funds), Line of
Credit Provider (for certain AIM Funds)
The Bank of New York Custodian (for certain AIM Funds)
JP Morgan Securities Inc. Line of Credit Provider (for certain AIM Funds)
Citigroup Global Markets Inc. Line of Credit Provider (for certain AIM Funds)
JPMorgan Chase Bank Line of Credit Provider (for certain AIM Funds)
AIM Investment Services, Inc. Transfer Agent
Bloomberg System Provider (for certain AIM Funds)
Reuters America Inc. Pricing Service (for certain AIM Funds)
The MacGregor Group, Inc. Software Provider
Thomson Financial, Inc. Software Provider
Xcitek Solutions Plus Software Provider
Bowne & Co., Inc. Financial Printer
CENVEO Financial Printer
Classic Printers Inc. Financial Printer
Color Dynamics Financial Printer
Earth Color Houston Financial Printer
EMCO Press Financial Printer
Grover Printing Financial Printer
Gulfstream Graphics Corp. Financial Printer
Signature Financial Printer
Southwest Precision Printers, Inc. Financial Printer
ABN Amro Financial Services, Inc. Broker (for certain AIM Funds)
</Table>
B-1
<Table>
<Caption>
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------
BB&T Capital Markets Broker (for certain AIM Funds)
Belle Haven Investments L.P. Broker (for certain AIM Funds)
BOSC, Inc. Broker (for certain AIM Funds)
Cabrera Capital Markets Broker (for certain AIM Funds)
Coastal Securities, LP Broker (for certain AIM Funds)
Duncan-Williams, Inc. Broker (for certain AIM Funds)
Fidelity Investments Broker (for certain AIM Funds)
First Albany Capital Broker (for certain AIM Funds)
First Tryon Securities Broker (for certain AIM Funds)
Anglemyer & Co. Analyst (for certain AIM Funds)
Empirical Research Partners Analyst (for certain AIM Funds)
Factset Research Systems, Inc. Analyst (for certain AIM Funds)
Global Trend Alert Analyst (for certain AIM Funds)
J.P. Morgan Chase Analyst (for certain AIM Funds)
Kevin Dann & Partners Analyst (for certain AIM Funds)
Muzea Insider Consulting Services, LLC Analyst (for certain AIM Funds)
Noah Financial, LLC Analyst (for certain AIM Funds)
Piper Jaffray Analyst (for certain AIM Funds)
RBC Capital Markets Analyst (for certain AIM Funds)
</Table>
B-2
APPENDIX C
TRUSTEES AND OFFICERS
As of September 30, 2005
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173. Each trustee oversees 109 portfolios in the AIM Funds
complex. The trustees serve for the life of the Trust, subject to their earlier
death, incapacitation, resignation, retirement or removal as more specifically
provided in the Trust's organizational documents. Column two below includes
length of time served with predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS OTHER TRUSTEESHIP(s)
POSITION(S) HELD WITH THE AND/OR HELD BY TRUSTEE
TRUST OFFICER
SINCE
- -------------------------------- -------- ----------------------------------------------- ---------------------
INTERESTED PERSONS
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management Group None
Trustee, Vice Chair, President Inc. (financial services holding company);
and Principal Executive Officer Director and Vice Chairman, AMVESCAP PLC and
Chairman, AMVESCAP PLC - AIM Division (parent
of AIM and a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M Capital
Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.
(registered transfer agent), and Fund
Management Company (registered broker dealer);
and Chief Executive Officer, AMVESCAP PLC -
Managed Products
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.; Director
President and President, A I M Advisors, Inc.; Director,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Director and Chairman, AIM
Investment Services, Inc., Fund Management
Company and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC - AIM Division
(parent of AIM and a global investment
management firm)
Formerly: Director, Chairman, President and
Chief Executive Officer, INVESCO Funds Group,
Inc.; President and Chief Executive
Officer, INVESCO Distributors, Inc.; Chief
Executive Officer, AMVESCAP PLC - Managed
Products; and Chairman, A I M Advisors, Inc.
</Table>
- ----------
(1) Mr. Graham is considered an interested person of the Trust because he
is a director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because
he is an officer and a director of the advisor to, and a director of
the principal underwriter of the Trust.
C-1
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS OTHER TRUSTEESHIP(s)
POSITION(S) HELD WITH THE AND/OR HELD BY TRUSTEE
TRUST OFFICER
SINCE
- -------------------------------- -------- ----------------------------------------------- ---------------------
INDEPENDENT TRUSTEES
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee and Chair (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
Bob R. Baker - 1936 2003 Retired None
Trustee
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & investment company)
McKenzie (2 portfolios)
James T. Bunch - 1942 2003 Co-President and Founder, Green, Manning & None
Trustee Bunch Ltd. (investment banking firm); and
Director, Policy Studies, Inc. and Van Gilder
Insurance Corporation
Albert R. Dowden -- 1941 2000 Director of a number of public and private None
Trustee business corporations, including the Boss
Group, Ltd. (private investment and
management); Cortland Trust, Inc. (Chairman)
(registered investment company (3
portfolios)); Annuity and Life Re (Holdings),
Ltd (insurance company); and CompuDyne
Corporation (provider of products and services
to the public security market)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North America,
Inc.; Senior Vice President, AB Volvo; and
director of various affiliated Volvo companies
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
</Table>
C-2
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS OTHER TRUSTEESHIP(s)
POSITION(S) HELD WITH THE AND/OR HELD BY TRUSTEE
TRUST OFFICER
SINCE
- -------------------------------- -------- ----------------------------------------------- ---------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff; and
Trustee Group, Inc. (government affairs company); and Discovery Global
Owner, Dos Angelos Ranch, L.P. Education Fund
(non-profit)
Formerly: Chief Executive Officer, Texana
Timber LP (sustainable forestry company)
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
(3 portfolios)
Gerald J. Lewis - 1933 2003 Chairman, Lawsuit Resolution Services (San General Chemical
Trustee Diego, California) Group, Inc.
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee USA
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
Larry Soll - 1942 2003 Retired None
Trustee
Raymond Stickel, Jr.4 -- 1944 2005 Retired None
Trustee
Formerly: Partner, Deloitte & Touche
</Table>
- ----------
(3) Mr. Stickel was elected as a Trustee of the Trust effective October 1,
2005.
C-3
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS OTHER TRUSTEESHIP(s)
POSITION(S) HELD WITH THE AND/OR HELD BY TRUSTEE
TRUST OFFICER
SINCE
- -------------------------------- -------- ----------------------------------------------- ---------------------
OTHER OFFICERS
Lisa O. Brinkley -- 1959 2004 Senior Vice President, A I M Management Group N/A
Senior Vice President and Chief Inc.; Senior Vice President and Chief
Compliance Officer Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M
Capital Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc., and Fund Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds; and
Chief Compliance Officer, A I M
Distributors, Inc.
Russell C. Burk - 1958 2005 Formerly: Director of Compliance and Assistant N/A
Senior Vice President and General Counsel, ICON Advisers, Inc.;
Senior Officer Financial Consultant, Merrill Lynch; General
Counsel and Director of Compliance, ALPS
Mutual Funds, Inc.
Kevin M. Carome - 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President, Chief General Counsel, A I M Management Group Inc.
Legal Officer and Secretary and A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.; Vice
President, A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; and Senior Vice President,
A I M Distributors, Inc.
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.;
Senior Vice President and General Counsel,
Liberty Funds Group, LLC; and Vice President,
A I M Distributors, Inc., and Director and
General Counsel, Fund Management Company
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Treasurer and Advisors, Inc.
Principal Financial Officer
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
</Table>
C-4
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS OTHER TRUSTEESHIP(s)
POSITION(S) HELD WITH THE AND/OR HELD BY TRUSTEE
TRUST OFFICER
SINCE
- -------------------------------- -------- ----------------------------------------------- ---------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief Investment N/A
Vice President Officer, A I M Advisors Inc.; Director,
Chairman, Chief Executive Officer, President
and Chief Investment Officer, A I M Capital
Management, Inc; Executive Vice President, A I
M Management Group Inc.
Formerly: Senior Vice President, AIM Private
Asset Management, Inc.; Chief Equity Officer,
and Senior Investment Officer, A I M Capital
Management, Inc.; and Managing Partner,
Beutel, Goodman Capital Management
Karen Dunn Kelley - 1960 2004 Director of Cash Management, Managing Director N/A
Vice President and Chief Cash Management Officer, A I M
Capital Management, Inc.; Director and
President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
</Table>
C-5
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2004
<Table>
<Caption>
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
Funds(R)
- ----------------------- -------------------------------------------------- --------------------------------
Robert H. Graham Aggressive Growth Over $100,000 Over $100,000
Blue Chip Over $100,000
Capital Development Over $100,000
Charter Over $100,000
Constellation Over $100,000
Diversified Dividend Over $100,000
Emerging Growth Over $100,000
Large Cap Basic Value Over $100,000
Large Cap Growth Over $100,000
Mid Cap Growth Over $100,000
Weingarten Over $100,000
Mark H. Williamson Large Cap Growth $50,001 - $100,000 Over $100,000
Bob R. Baker -0- Over $100,000
Frank S. Bayley Charter $10,001 - $50,000 Over $100,000
Mid Cap Growth $10,001 - $50,000
James T. Bunch Blue Chip $1 - $10,000 Over $100,000(4)
Large Cap Basic Value $50,001 - $100,000
Large Cap Growth $1 - $10,000
Bruce L. Crockett Aggressive Growth $1 - $10,000 Over $100,000(4)
Charter $1 - $10,000
Constellation $1 - $10,000
Weingarten $1 - $10,000
Albert R. Dowden Blue Chip $10,001 - $50,000 Over $100,000
Emerging Growth $10,001 - $50,000
Edward K. Dunn, Jr. Capital Development Over $100,000 Over $100,000(4)
Jack M. Fields Blue Chip $1 - $10,000 Over $100,000(4)
Charter Over $100,000
Constellation Over $100,000
Weingarten Over $100,000
Carl Frischling Aggressive Growth Over $100,000 Over $100,000(4)
Blue Chip $50,001 - $100,000
Capital Development Over $100,000
Charter Over $100,000
Mid Cap Growth $10,001 - $50,000
Weingarten $50,001 - $100,000
</Table>
- ----------
(4) Includes the total amount of compensation deferred by the trustee at
his or her election pursuant to a deferred compensation plan. Such
deferred compensation is placed in a deferral account and deemed to be
invested in one or more of the AIM Funds.
C-6
<Table>
<Caption>
NAME OF TRUSTEE DOLLAR RANGE OF EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF EQUITY
PER FUND SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES OVERSEEN BY
TRUSTEE IN THE AIM FAMILY OF
Funds(R)
- ----------------------- -------------------------------------------------- --------------------------------
Gerald J. Lewis Blue Chip $1 - $10,000 Over $100,000(4)
Capital Development $10,001 - $50,000
Large Cap Basic Value $1 - $10,000
Large Cap Growth $1 - $10,000
Prema Mathai-Davis Aggressive Growth $50,001 - $100,000 Over $100,000(4)
Blue Chip $10,001 - $50,000
Large Cap Basic Value $10,001 - $50,000
Lewis F. Pennock Capital Development $1 - $10,000 Over $100,000(4)
Charter $10,001 - $50,000
Diversified Dividend $1 - $10,000
Large Cap Basic Value $1 - $10,000
Ruth H. Quigley -0- $10,001 - $50,000
Larry Soll Blue Chip $1 - $10,000 Over $100,000(4)
Large Cap Basic Value $1 - $10,000
Large Cap Growth $1 - $10,000
Raymond Stickel, Jr.(5) -0- -0-
</Table>
- ----------
(4) Includes the total amount of compensation deferred by the trustee at
his or her election pursuant to a deferred compensation plan. Such
deferred compensation is placed in a deferral account and deemed to be
invested in one or more of the AIM Funds.
(5) Mr. Stickel was elected as a Trustee of the Trust effective October 1,
2005.
C-7
APPENDIX D
TRUSTEE COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued
for each trustee of the Trust who was not affiliated with AIM during the year
ended December 31, 2004:
<Table>
<Caption>
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL BENEFITS TOTAL
COMPENSATION FROM ACCRUED UPON RETIREMENT COMPENSATION
THE BY ALL FROM ALL AIM FROM ALL AIM
TRUSTEE TRUST(1)(2) AIM FUNDS(3) FUNDS(4) FUNDS (5)(6)
- -------------------------------- ----------------- ------------- --------------- ------------
Bob R. Baker $ 26,824 $ 198,871 $ 144,786 $ 189,750
Frank S. Bayley 26,774 175,241 112,500 193,500
James T. Bunch 26,824 143,455 112,500 186,000
Bruce L. Crockett 26,774 75,638 112,500 223,500
Albert R. Dowden 26,634 93,210 112,500 192,500
Edward K. Dunn, Jr. 26,774 133,390 112,500 193,500
Jack M. Fields 26,774 48,070 112,500 186,000
Carl Frischling(7) 26,616 62,040 112,500 185,000
Gerald J. Lewis 26,824 143,455 112,500 186,000
Prema Mathai-Davis 26,774 55,768 112,500 189,750
Lewis F. Pennock 26,774 80,777 112,500 186,000
Ruth H. Quigley 26,774 154,767 112,500 189,750
Louis S. Sklar(8) 26,774 115,160 101,250 186,000
Larry Soll 26,824 184,356 130,823 186,000
Raymond Stickel, Jr.(9) -0- -0- -0- -0-
</Table>
- ----------
(1) Amounts shown are based on the fiscal year ended October 31, 2004. The
total amount of compensation deferred by all trustees of the Trust
during the fiscal year ended October 31, 2004, including earnings, was
$97,262.
(2) At the request of the trustees, AMVESCAP has agreed to reimburse the
Trust for Fund expenses related to market timing matters. "Aggregate
Compensation From the Trust" above does not include $6,777 of trustee
compensation which, pursuant to such agreement, was reimbursed by
AMVESCAP during the fiscal year ended October 31, 2004.
(3) During the fiscal year ended October 31, 2004, the total amount of
expenses allocated to the Trust in respect of such retirement benefits
was $197,215.
(4) These amounts represent the estimated annual benefits payable by the
AIM Funds upon the trustee's retirement and assumes each trustee serves
until his or her normal retirement date.
(5) All trustees currently serve as trustees of 19 registered investment
companies advised by AIM.
(6) At the request of the trustees, AMVESCAP has agreed to reimburse the
Trust for Fund expenses related to market timing matters. "Total
Compensation From All AIM Funds" above does not include $44,000 of
trustee compensation which, pursuant to such agreement, was reimbursed
by AMVESCAP during the calendar year ended December 31, 2004.
(7) During the fiscal year ended October 31, 2004 the Trust paid $140,199
in legal fees to Kramer Levin Naftalis & Frankel LLP for services
rendered by such firm as counsel to the independent trustees of the
Trust. Mr. Frischling is a partner of such firm.
(8) Mr. Sklar retired effective December 31, 2004.
(9) Mr. Stickel was elected as a Trustee of the Trust effective October 1,
2005.
D-1
APPENDIX E
PROXY POLICIES AND PROCEDURES
(AS AMENDED OCTOBER 1, 2005)
A. PROXY POLICIES
Each of A I M Advisors, Inc., A I M Capital Management, Inc. and AIM
Private Asset Management, Inc. (each an "AIM Advisor" and collectively
"AIM") has the fiduciary obligation to, at all times, make the economic
best interest of advisory clients the sole consideration when voting
proxies of companies held in client accounts. As a general rule, each
AIM Advisor shall vote against any actions that would reduce the rights
or options of shareholders, reduce shareholder influence over the board
of directors and management, reduce the alignment of interests between
management and shareholders, or reduce the value of shareholders'
investments. At the same time, AIM believes in supporting the
management of companies in which it invests, and will accord proper
weight to the positions of a company's board of directors, and the AIM
portfolio managers who chose to invest in the companies. Therefore, on
most issues, our votes have been cast in accordance with the
recommendations of the company's board of directors, and we do not
currently expect that trend to change. Although AIM's proxy voting
policies are stated below, AIM's proxy committee considers all relevant
facts and circumstances, and retains the right to vote proxies as
deemed appropriate.
I. BOARDS OF DIRECTORS
A board that has at least a majority of independent directors
is integral to good corporate governance. The key board
committees (e.g., Audit, Compensation and Nominating) should
be composed of only independent trustees.
There are some actions by directors that should result in
votes being withheld. These instances include directors who:
o Are not independent directors and (a) sit on the
board's audit, compensation or nominating committee,
or (b) sit on a board where the majority of the board
is not independent;
o Attend less than 75 percent of the board and
committee meetings without a valid excuse;
o It is not clear that the director will be able to
fulfill his function;
o Implement or renew a dead-hand or modified dead-hand
poison pill;
o Enacted egregious corporate governance or other
policies or failed to replace management as
appropriate;
o Have failed to act on takeover offers where the
majority of the shareholders have tendered their
shares; or
o Ignore a shareholder proposal that is approved by a
majority of the shares outstanding.
Votes in a contested election of directors must be evaluated
on a case-by-case basis, considering the following factors:
o Long-term financial performance of the target company
relative to its industry;
o Management's track record;
o Portfolio manager's assessment;
o Qualifications of director nominees (both slates);
o Evaluation of what each side is offering shareholders
as well as the likelihood that the proposed
objectives and goals can be met; and
o Background to the proxy contest.
II. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A company should limit its relationship with its auditors to
the audit engagement, and certain closely related activities
that do not, in the aggregate, raise an appearance of impaired
independence. We will support the reappointment of the
company's auditors unless:
o It is not clear that the auditors will be able to
fulfill their function;
o There is reason to believe the independent auditors
have rendered an opinion that is neither accurate nor
indicative of the company's financial position; or
o The auditors have a significant professional or
personal relationship with the issuer that
compromises the auditors' independence.
E-1
III. COMPENSATION PROGRAMS
Appropriately designed equity-based compensation plans,
approved by shareholders, can be an effective way to align the
interests of long-term shareholders and the interests of
management, employees and directors. Plans should not
substantially dilute shareholders' ownership interests in the
company, provide participants with excessive awards or have
objectionable structural features. We will consider all
incentives, awards and compensation, and compare them to a
company-specific adjusted allowable dilution cap and a
weighted average estimate of shareholder wealth transfer and
voting power dilution.
o We will generally vote against equity-based plans
where the total dilution (including all equity-based
plans) is excessive.
o We will support the use of employee stock purchase
plans to increase company stock ownership by
employees, provided that shares purchased under the
plan are acquired for no less than 85% of their
market value.
o We will vote against plans that have any of the
following structural features: ability to re-price
underwater options without shareholder approval,
ability to issue options with an exercise price below
the stock's current market price, ability to issue
reload options, or automatic share replenishment
("evergreen") feature.
o We will vote for proposals to reprice options if
there is a value-for-value (rather than a
share-for-share) exchange.
o We will generally support the board's discretion to
determine and grant appropriate cash compensation and
severance packages.
IV. CORPORATE MATTERS
We will review management proposals relating to changes to
capital structure, reincorporation, restructuring and mergers
and acquisitions on a case by case basis, considering the
impact of the changes on corporate governance and shareholder
rights, anticipated financial and operating benefits,
portfolio manager views, level of dilution, and a company's
industry and performance in terms of shareholder returns.
o We will vote for merger and acquisition proposals
that the proxy committee and relevant portfolio
managers believe, based on their review of the
materials, will result in financial and operating
benefits, have a fair offer price, have favorable
prospects for the combined companies, and will not
have a negative impact on corporate governance or
shareholder rights.
o We will vote against proposals to increase the number
of authorized shares of any class of stock that has
superior voting rights to another class of stock.
o We will vote for proposals to increase common share
authorization for a stock split, provided that the
increase in authorized shares would not result in
excessive dilution given a company's industry and
performance in terms of shareholder returns.
o We will vote for proposals to institute open-market
share repurchase plans in which all shareholders
participate on an equal basis.
V. SHAREHOLDER PROPOSALS
Shareholder proposals can be extremely complex, and the impact
on share value can rarely be anticipated with any high degree
of confidence. The proxy committee reviews shareholder
proposals on a case-by-case basis, giving careful
consideration to such factors as: the proposal's impact on the
company's short-term and long-term share value, its effect on
the company's reputation, the economic effect of the proposal,
industry and regional norms applicable to the company, the
company's overall corporate governance provisions, and the
reasonableness of the request.
o We will generally abstain from shareholder social and
environmental proposals.
o We will generally support the board's discretion
regarding shareholder proposals that involve ordinary
business practices.
o We will generally vote for shareholder proposals that
are designed to protect shareholder rights if the
company's corporate governance standards indicate
that such additional protections are warranted.
o We will generally vote for proposals to lower
barriers to shareholder action.
E-2
o We will generally vote for proposals to subject
shareholder rights plans to a shareholder vote. In
evaluating these plans, we give favorable
consideration to the presence of "TIDE" provisions
(short-term sunset provisions, qualified
bid/permitted offer provisions, and/or mandatory
review by a committee of independent directors at
least every three years).
VI. OTHER
o We will vote against any proposal where the proxy
materials lack sufficient information upon which to
base an informed decision.
o We will vote against any proposals to authorize the
proxy to conduct any other business that is not
described in the proxy statement.
o We will vote any matters not specifically covered by
these proxy policies and procedures in the economic
best interest of advisory clients.
AIM's proxy policies, and the procedures noted below, may be
amended from time to time.
B. PROXY COMMITTEE PROCEDURES
The proxy committee currently consists of representatives from the
Legal and Compliance Department, the Investments Department and the
Finance Department. The committee members review detailed reports
analyzing the proxy issues and have access to proxy statements and
annual reports. Committee members may also speak to management of a
company regarding proxy issues and should share relevant considerations
with the proxy committee. The committee then discusses the issues and
determines the vote. The committee shall give appropriate and
significant weight to portfolio managers' views regarding a proposal's
impact on shareholders. A proxy committee meeting requires a quorum of
three committee members, voting in person or by e-mail.
AIM's proxy committee shall consider its fiduciary responsibility to
all clients when addressing proxy issues and vote accordingly. The
proxy committee may enlist the services of reputable outside
professionals and/or proxy evaluation services, such as Institutional
Shareholder Services or any of its subsidiaries ("ISS"), to assist with
the analysis of voting issues and/or to carry out the actual voting
process. To the extent the services of ISS or another provider are
used, the proxy committee shall periodically review the policies of
that provider. The proxy committee shall prepare a report for the
Funds' Board of Trustees on a periodic basis regarding issues where
AIM's votes do not follow the recommendation of ISS or another provider
because AIM's proxy policies differ from those of such provider.
In addition to the foregoing, the following shall be strictly adhered
to unless contrary action receives the prior approval of the Funds'
Board of Trustees:
1. Other than by voting proxies and participating in Creditors'
committees, AIM shall not engage in conduct that involves an
attempt to change or influence the control of a company.
2. AIM will not publicly announce its voting intentions and the
reasons therefore.
3. AIM shall not participate in a proxy solicitation or otherwise
seek proxy-voting authority from any other public company
shareholder.
4. All communications regarding proxy issues between the proxy
committee and companies or their agents, or with fellow
shareholders shall be for the sole purpose of expressing and
discussing AIM's concerns for its advisory clients' interests
and not for an attempt to influence or control management.
C. BUSINESS/DISASTER RECOVERY
If the proxy committee is unable to meet due to a temporary business
interruption, such as a power outage, a sub-committee of the proxy
committee, even if such subcommittee does not constitute a quorum of
the proxy committee, may vote proxies in accordance with the policies
stated herein. If the sub-committee of the proxy committee is not able
to vote proxies, the sub-committee shall authorize ISS to vote proxies
by default in accordance with ISS' proxy policies and procedures, which
may vary slightly from AIM's.
E-3
D. RESTRICTIONS AFFECTING VOTING
If a country's laws allow a company in that country to block the sale
of the company's shares by a shareholder in advance of a shareholder
meeting, AIM will not vote in shareholder meetings held in that
country, unless the company represents that it will not block the sale
of its shares in connection with the meeting. Administrative or other
procedures, such as securities lending, may also cause AIM to refrain
from voting. Although AIM considers proxy voting to be an important
shareholder right, the proxy committee will not impede a portfolio
manager's ability to trade in a stock in order to vote at a shareholder
meeting.
E. CONFLICTS OF INTEREST
The proxy committee reviews each proxy to assess the extent to which
there may be a material conflict between AIM's interests and those of
advisory clients. A potential conflict of interest situation may
include where AIM or an affiliate manages assets for, administers an
employee benefit plan for, provides other financial products or
services to, or otherwise has a material business relationship with, a
company whose management is soliciting proxies, and failure to vote
proxies in favor of management of the company may harm AIM's
relationship with the company. In order to avoid even the appearance of
impropriety, the proxy committee will not take AIM's relationship with
the company into account, and will vote the company's proxies in the
best interest of the advisory clients, in accordance with these proxy
policies and procedures. If AIM's proxy policies and voting record do
not guide the proxy committee's vote in a situation where a conflict of
interest exists, the proxy committee will vote the proxy in the best
interest of the advisory clients, and will provide information
regarding the issue to the Funds' Board of Trustees in the next
quarterly report. If a committee member has any conflict of interest
with respect to a company or an issue presented, that committee member
should inform the proxy committee of such conflict and abstain from
voting on that company or issue.
F. FUND OF FUNDS
When an AIM Fund (an "Investing Fund") that invests in another AIM
Fund(s) (an "Underlying Fund") has the right to vote on the proxy of
the Underlying Fund, the Investing Fund will echo the votes of the
other shareholders of the Underlying AIM Fund.
G. CONFLICT IN THESE POLICIES
If following any of the policies listed herein would lead to a vote
that the proxy committee deems to be not in the best interest of AIM's
advisory clients, the proxy committee will vote the proxy in the manner
that they deem to be the best interest of AIM's advisory clients and
will inform the Funds' Board of Trustees of such vote and the
circumstances surrounding it promptly thereafter.
E-4
APPENDIX F
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the
record and beneficial holders of 5% or more of the outstanding shares of each
class of the Trust's equity securities and the percentage of the outstanding
shares held by such holders are set forth below. Unless otherwise indicated
below, the Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
ALL INFORMATION LISTED BELOW IS AS OF AUGUST 15, 2005.
AIM Aggressive Growth Fund
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------ ------------- ----------- ----------- ---------------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------ ------------- ----------- ----------- ---------------- -------------
AMVESCAP National Trust
Company Trustee
Frost FBO B&O Management Co. - - - 6.17% -
Discretionary Contribution Pl
PO Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta 7th Fl 6.01% - - - -
333 West 34th St
New York, NY 10001-2402
JC Penney Company Inc Savings
PS & Stock Ownership Pl Tr - - - - 97.58%
105 Rosemont Rd
Westwood, MA 02090-2318
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 7.03% - 8.29% - -
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
</Table>
F-1
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------ ------------- ----------- ----------- ---------------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------ ------------- ----------- ----------- ---------------- -------------
Wilmington Trust Comp. Cust.
FBO
Olson International Employee
401(k) - - - 5.84% -
Salary Plan
c/o Mutual Funds
P. O. Box 8971
Wilmington, DE 19899-8971
</Table>
AIM BLUE CHIP FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL INVESTOR
SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------- ------------- -------------- ------------- --------------- -------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF RECORD OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ------------- -------------- ------------- --------------- -------------- --------------
AMVESCAP National Trust Co.
Trustee
FBO The McDevitt Co. Employees - - - 24.11% - -
401(k) Plan
PO Box 105779
Atlanta, GA 30348-5779
Capital Bank & Trust Co. FBO
Government Micro Resources
Inc. 401(k)
C/O Planpremier/FASCORP - - - 7.35% - -
8515 E Orchard Rd #2T2
Greenwood Village, CO
80111-5002
Charles Schwab & Co. Inc.
Special Custody FBO Customers
(SIM) - - - - - 7.76%
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta - 6.21% 7.01% - - -
7th Floor
333 West 34th Street
New York, NY 10001-2402
</Table>
F-2
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL INVESTOR
SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------- ------------- -------------- ------------- --------------- -------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF RECORD OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ------------- -------------- ------------- --------------- -------------- --------------
MCB Trust Services Cust. FBO
Fresh Meadow Mechanical Corp. - - - 6.06% - -
700 17th St. Ste 300
Denver, CO 80202-3531
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 5.38% 5.78% 11.95% - - -
Attn: Fund Administration
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL 32246-6484
Wells Fargo Bank NA FBO
WF Wealthbuilder Growth
Balanced PO - - - - 50.86% -
P. O. Box 1533
Minneapolis, MN 55480-1533
Wells Fargo Bank NA FBO
WF Wealthbuilder Equity
Portfolio - - - - 25.80% -
P. O. Box 1533
Minneapolis, MN 55480-1533
Wells Fargo Bank NA FBO
WF Wealthbuildertactical
Equity PO - - - - 11.45% -
P. O. Box 1533
Minneapolis, MN 55480-1533
Wells Fargo Bank NA FBO
WF Wealthbuilder Growth
Allocation POR - - - - 5.02% -
P. O. Box 1533
Minneapolis, MN 55480-1533
</Table>
F-3
AIM CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL INVESTOR
SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------ --------------- -------------- --------------- ------------- --------------- ------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------ --------------- -------------- --------------- ------------- --------------- ------------
AIM Moderate Asset
Allocation Fund
Omnibus Account - - - - 72.36% -
c/o AIM Advisors
11 E Greenway Plz Ste 100
Houston, TX 77046-1113
AMVESCAP National Trust Co.
TTEE FBO Equator
Technologies, Inc. 401(k) - - - 8.04% - -
Retirement Plan
PO Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust Co.
TTEE
FBO Palmer & Cay Inc. Ret Plan - - - - 17.78% -
P. O. Box 105779
Atlanta, GA 30348-5779
Capital Bank & Trust Co.
Trustee FBO Sakson & Taylor
Inc. 401(k) PSP
C/O Planpremier/FASCORP - - - 11.59% - -
8515 E Orchard Rd Ste 2T2
Greenwood Village, CO
80111-5002
Citigroup Global Markets
House Acct
Attn: Cindy Tempesta - 6.08% - - - -
7th Floor
333 West 34th St
New York, NY 10001-2402
Coastgear & Company
State Street Bank & Trust
Attn: Kevin Smith - - 8.12% - - -
105 Rosemont Avenue
Westwood, MA 02090-2318
</Table>
F-4
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL INVESTOR
SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------ --------------- -------------- --------------- ------------- --------------- ------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------ --------------- -------------- --------------- ------------- --------------- ------------
FTB&T Trustee for Defined
Contribution Services 401(k)
FBO
North Pointe Financial - - - 11.63% - -
Services, Inc.
Attn: Securities Settlement
3555 Data Dr.
Rancho Cordova, CA 95670-7312
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 5.54% 6.82% 12.08% - - -
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
MG Trustco TTEE
SONITEK 401k PL - - - 5.64% - -
700 17th St. Ste. 300
Denver, CO 80202-3531
</Table>
AIM CHARTER FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- -------------------------------- ------------ ----------- ------------ ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- -------------------------------- ------------ ----------- ------------ ---------------- --------------
AIM Conservative Asset
Allocation Fund Omnibus Acct
C/O AIM Advisors - - - - 6.36%
11 E Greenway Plz, Ste 100
Houston, TX 77046-1113
AMVESCAP National Trust Co. TTEE
FBO Equator Technologies, Inc.
401(k) Retirement Plan - - - 9.70% -
PO Box 105779
Atlanta, GA 30348-5779
</Table>
F-5
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- -------------------------------- ------------ ----------- ------------ ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- -------------------------------- ------------ ----------- ------------ ---------------- --------------
AMVESCAP National Trust Co.
Trustee
FBO Hartman-Walsh Corp. - - - 5.10% -
401(k)
PO Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta 6.10% - 7.12% - -
7th Floor
333 West 34th Street
New York, NY 10001-2402
First Command Bank Trust
Attention: Trust Department - - - - 90.78%
P.O. Box 901075
Fort Worth, TX 76101-2075
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration 7.57% 5.11% 11.70% - -
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
Reliance Trust Company Custodian
FBO Morley Incentives 401(k)
Profit Sharing Plan & Trust - - - 18.80% -
PO Box 48529
Atlanta, GA 30362-1529
</Table>
F-6
AIM CONSTELLATION FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OWNED PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
American Express Trust American
Express - - - - 8.08%
996 AXP Financial Ctr
Minneapolis, MN 55474-0009
AMVESCAP National Trust Co.
Trustee
FBO Guys Inc. 401(k) Plan - - - 7.86% -
PO Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust Co.
Trustee
FBO Speidel Inc. 401(k) Plan - - - 7.36% -
PO Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets
House Account
Attn: Cindy Tempesta 5.92% - 6.29% - -
7th Floor
333 West 34th Street
New York, NY 10001-2402
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 8.79% - 13.91% - 22.19%
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
Ohio Public
Employees Deferred Compensation
Plan - - - - 54.63%
250 Civic Center Dr, Ste 350
Columbus, OH 43215-5450
Wells Fargo Bank West NA
Custodian
City of Houston
457 Deferred Compensation Plan - - - - 9.32%
C/O Great West, Recordkeeper
8515 E Orchard Rd 2T2
Englewood, CO 80111-0000
</Table>
F-7
AIM DIVERSIFIED DIVIDEND FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES INSTITUTIONAL INVESTOR CLASS
CLASS SHARES*
SHARES
- -------------------------- -------------- -------------- -------------- --------------- -------------- ----------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OWNED
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OF
RECORD RECORD RECORD RECORD RECORD RECORD
- -------------------------- -------------- -------------- -------------- --------------- -------------- ----------------
AMVESCAP National Trust Co.
FBO AMVESCAP 401(k) Plan 7.07% - - - - -
P.O. Box 105779
Atlanta, GA 30348-5779
Charles Schwab & Co., Inc.
Special Custody FBO
Customers (SIM)
Attn. Mutual Funds 5.41% - - - - -
101 Montgomery St.
San Francisco, CA
94104-4122
Merrill Lynch Pierce
Fenner & Smith
FBO The Sole Benefit of
Customers
Attn: Fund Administration - 9.19% 7.16% - - -
4800 Deer Lake Dr East,
2nd Floor
Jacksonville, FL
32246-6484
Morgan Stanley DW
Attn: Mutual Funds
Operations - - 5.98% - - -
3 Harborside PL FL 6
Jersey City, NJ 07311-3907
</Table>
* Investor Class shares commenced operations on July 18, 2005. Class R shares
and Institutional Class shares commenced operations on October 25, 2005.
F-8
AIM LARGE CAP BASIC VALUE FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
AIM Growth Allocation Fund
Omnibus Acct
C/O AIM Advisors - - - - 39.22% -
11 E Greenway Plz, Ste 100
Houston, TX 77046-1113
AIM Moderate Asset Allocation
Fund
Omnibus Acct - - - - 40.56% -
C/O AIM Advisors
11 E Greenway Plz, Ste 100
Houston, TX 77046-1113
AMVESCAP National Trust Co. FBO
Itasca Bank & Trust Co. 401(k)
Plan - - - 10.52% - -
PO Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust Co. TTEE
FBO Palmer & Cay Inc. Ret Plan - - - - 10.16% -
P. O. Box 105779
Atlanta, GA 30348-5779
Charles Schwab & Co. Inc.
Special Custody FBO Customers
(SIM) - - - - - 7.54%
Attn: Mutual Funds
101 Montgomery St
San Francisco, CA 94104-4122
Federated Lighting Inc.
401(k) Profit Sharing Plan
1600 Trade Zone Ave. - - - 13.96% - -
Ste 406
Upper Marlboro, MD 20774-8789
INVESCO Trust Co.
FBO Hanger Orthopedic Group
Inc. & Sel. Sub Tax Deferred
Savings Plan Trust 401(k) - - - - - 6.88%
400 Colony Sq, Ste 2200
1201 Peachtree, Ste NE
Atlanta, GA 30361-6302
</Table>
F-9
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
INVESCO Trust Co. Trustee
Magellan Health Services
Retirement Savings Plan Trust - - - - - 25.59%
401(k)
PO Box 105779
Atlanta, GA 30348-5779
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 15.65% 13.49% 17.23% - - -
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246-6484
Reliance Trust Company
Custodian FBO Rosin Optical Co.
Inc. Profit Sharing Plan - - - 9.56% - -
PO Box 48529
Atlanta, GA 30362-1529
</Table>
AIM LARGE CAP GROWTH FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
AIM Growth Allocation Fund
Omnibus Acct
C/O AIM Advisors - - - - 33.41% -
11 E Greenway Plz, Ste 100
Houston, TX 77046-1113
AIM Moderate Asset Allocation
Fund Omnibus Acct
C/O AIM Advisors - - - - 37.80% -
11 E Greenway Plz, Ste 100
Houston, TX 77046-1113
AMVESCAP National Trust Co.
FBO AMVESCAP 401(k) Plan - - - - 17.24% -
P.O. Box 105779
Atlanta, GA 30348-5779
</Table>
F-10
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------------------- ----------- ------------- ------------ ------------- ------------ -----------
AMVESCAP National Trust Co.
FBO AMVESCAP Money Purchase
Plan - - - - 5.21% -
P.O. Box 105779
Atlanta, GA 30348-5779
AMVESCAP National Trust Co.
Trustee
FBO Spiedel, Inc. - - - 5.01% - -
401(k)
PO Box 105779
Atlanta, GA 30348-5779
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta - 5.83% 10.49% - - -
7th Floor
333 West 34th Street
New York, NY 10001-2402
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers - 10.05% 10.49% - - -
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246
Reliance Trust Company
Custodian FBO Continental
Products Inc. 401(k) Plan - - - 8.97% - -
PO Box 48529
Atlanta, GA 30362-1529
Reliance Trust Company
Custodian FBO Morley
Incentives 401(k) Profit - - - 28.10% - -
Sharing Plan & Trust
PO Box 48529
Atlanta, GA 30362-1529
RR-USA Inc. 401k
Carlo Pecorari TTEE
Omnibus Account - - - 6.51% - -
8 Creek Pkwy
Boothwyn, PA 19061-3132
</Table>
F-11
AIM MID CAP GROWTH FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS R SHARES INSTITUTIONAL
CLASS SHARES
- --------------------------------- -------------- -------------- -------------- -------------- -------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OWNED OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- --------------------------------- -------------- -------------- -------------- -------------- -------------
A I M Advisors, Inc.(1)
Attn: Corporate Comptroller - - - - 100.00%
11 E. Greenway Plz ,Ste 100
Houston, TX 77046-1103
AMVESCAP National Trust Co. FBO
West Boylston Insurance Agency
Inc. - - - 9.69% -
401(k) Plan
PO Box 105779
Atlanta, GA 30348-5779
MCB Trust Services Custodian FBO
Sandberg Gonzalez & Creeden PC - - - 6.26% -
700 17th St, Ste 300
Denver, CO 80202-3531
MCB Trust Services Custodian FBO
Standard Tool & Die, Inc.
Employees 401k Plan - - - 14.74% -
700 17th St, Ste 300
Denver, CO 80202-3531
Merrill Lynch Pierce Fenner &
Smith FBO The Sole Benefit of
Customers
Attn: Fund Administration 6.39% 6.80% 15.21% - -
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246
</Table>
(1) Owned of record and beneficially.
F-12
AIM SELECT BASIC VALUE FUND
<Table>
<Caption>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- -------------------------------------- --------------------- ---------------------- ---------------------
NAME AND ADDRESS OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF PERCENTAGE OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD
- -------------------------------------- --------------------- ---------------------- ---------------------
Citigroup Global Markets House Acct. 5.11% - -
Attn: Cindy Tempesta
7th Floor
333 W. 34th St.
New York, NY 10001-2402
Merrill Lynch Pierce Fenner & Smith
FBO The Sole Benefit of Customers
Attn: Fund Administration 5.42% 5.29% 6.21%
4800 Deer Lake Dr. East 2nd Floor
Jacksonville, FL 32246-6484
</Table>
AIM WEINGARTEN FUND
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OWNED PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
AIM Foundation
Attn: Patricia Lewis - - - - 29.08%
11 Greenway Plz, Ste 2600
Houston, TX 77046-1100
Citigroup Global Markets House
Acct
Attn: Cindy Tempesta 7.34% 6.99% 8.73% - -
7th Floor
333 West 34th Street
New York, NY 10001-2483
City of Cambridge, Trustee FBO
City of Cambridge 457 Deferred
Compensation Plan - - - - 8.63%
C/O Great West, Recordkeeper
8515 E Orchard Rd 2T2
Englewood, CO 80111-5002
City of Springfield, Trustee
FBO City of Springfield 457 DCP
C/O Great West, Recordkeeper - - - - 7.70%
8515 E Orchard Rd. 2T2
Engelwood, CO 80111-5002
</Table>
F-13
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OWNED PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
Cortina Tool & Molding Co.
Michael Giannelli - - - 5.40% -
912 Tamer Ln
Glenview, IL 60025-3767
David Leary, Trustee
FBO Town of Weymouth
457 Deferred Compensation Plan - - - - 10.54%
C/O Great West, Recordkeeper
8515 E Orchard Rd 2T2
Englewood, CO 80111-5002
First Command Bank Trust
Attn: Trust Department - - - - 6.67%
PO Box 901075
Fort Worth, TX 76101-2075
Macquarium Inc. 401(k)
Louis K or
Mark F Adler Trustees - - - 9.22% -
Omnibus Acct
910 Travis St, Ste 1950
Houston, TX 77002-5806
MCB Trust Services Custodian
FBO Harmony Printing &
Development - - - 15.63% -
700 17th St, Ste 300
Denver, CO 80202-3531
Merrill Lynch Pierce Fenner &
Smith
FBO The Sole Benefit of
Customers 8.92% 5.76% 14.85% 15.11% -
Attn: Fund Administration
4800 Deer Lake Dr East
2nd Floor
Jacksonville, FL 32246
Reginald B Berka or William
Nichtberger Trustees FBO
Aphelion Inc. Employees Savings - - - 6.75% -
Trust
1100 Nasa Rd 1, Ste 606
Houston, TX 77058-3325
</Table>
F-14
<Table>
<Caption>
CLASS A CLASS B CLASS C CLASS R SHARES INSTITUTIONAL
SHARES SHARES SHARES CLASS SHARES
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
NAME AND ADDRESS OF PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE OWNED PERCENTAGE
PRINCIPAL HOLDER OWNED OF OWNED OF OWNED OF OF RECORD OWNED OF
RECORD RECORD RECORD RECORD
- ------------------------------- ------------ ----------- ----------- ---------------- --------------
Town of Watertown, Trustee
FBO Town of Watertown
457 Deferred Compensation Plan - - - - 5.32%
C/O Great West, Recordkeeper
8515 E Orchard Rd 2T2
Englewood, CO 80111-5002
William Wilson Assoc Architects
401(k)
James Leslie TTEE - - - 7.02% -
Omnibus Acct
374 Congress St, Ste 400
Boston, MA 02210-1807
</Table>
MANAGEMENT OWNERSHIP
As of August 15, 2005, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of each Fund.
F-15
APPENDIX G
MANAGEMENT FEES
For the last three fiscal years ended October 31, the management fees
payable by each Fund, the amounts waived by AIM and the net fees paid by each
Fund were as follows:
<Table>
<Caption>
FUND NAME 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEE MANAGEMENT NET MANAGEMENT FEE MANAGEMENT FEE MANAGEMENT FEE NET MANAGEMENT FEE
PAYABLE FEE WAIVERS PAID PAYABLE WAIVERS PAID
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Aggressive
Growth Fund $ 14,026,309 $ 12,113 $ 14,014,196 $ 13,458,191 $ 16,521 $ 13,441,670
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Blue Chip Fund 18,508,235 11,809 18,496,426 17,924,075 21,702 17,902,373
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Capital
Development Fund 7,018,923 8,699 7,010,224 6,014,863 11,378 6,003,485
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Charter Fund 20,136,790 44,820 20,091,970 20,917,533 71,387 20,846,146
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Constellation
Fund 46,243,987 623,391 45,620,596 46,349,081 638,100 45,710,981
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Diversified
Dividend Fund 600,345 531,230 69,115 215,768 175,090 40,678
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Basic Value Fund $ 2,109,274 $ 2,312 $ 2,106,962 $ 1,211,828 $ 1,844 $ 1,209,984
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Large Cap
Growth Fund 5,663,512 3,368 5,660,144 1,987,347 1,994 1,985,353
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Growth
Fund 1,780,749 2,147 1,778,602 1,343,201 2,625 1,340,576
- ------------------------------------------------------------------------------------------------------------------------------------
<Caption>
FUND NAME 2002
- -------------------------------------------------------------------------
MANAGEMENT MANAGEMENT FEE NET MANAGEMENT FEE
FEE PAYABLE WAIVERS PAID
- -------------------------------------------------------------------------
AIM Aggressive
Growth Fund $17,081,494 $ 16,40 $ 17,065,094
- -------------------------------------------------------------------------
AIM Blue Chip Fund 24,803,281 26,519 24,776,762
- -------------------------------------------------------------------------
AIM Capital
Development Fund 7,368,692 11,465 7,357,227
- -------------------------------------------------------------------------
AIM Charter Fund 29,583,893 58,255 29,525,638
- -------------------------------------------------------------------------
AIM Constellation
Fund 63,117,935 1,334,866 61,783,069
- -------------------------------------------------------------------------
AIM Diversified
Dividend Fund 44,236 44,236 -0-
- -------------------------------------------------------------------------
AIM Large Cap
Basic Value Fund $ 1,168,281 $ 793 $ 1,167,488
- -------------------------------------------------------------------------
AIM Large Cap
Growth Fund 2,371,037 3,052 2,367,985
- -------------------------------------------------------------------------
AIM Mid Cap Growth
Fund 1,620,211 2,679 1,617,532
- -------------------------------------------------------------------------
</Table>
G-1
<Table>
<Caption>
FUND NAME 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEE MANAGEMENT NET MANAGEMENT FEE MANAGEMENT FEE MANAGEMENT FEE NET MANAGEMENT FEE
PAYABLE FEE WAIVERS PAID PAYABLE WAIVERS PAID
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Select Basic
Value Fund(1) 9,586 9,586 -0- 7,610 7,610 $-0-
- ------------------------------------------------------------------------------------------------------------------------------------
AIM Weingarten Fund 17,028,857 5,987 17,022,870 17,030,956 8,168 17,022,788
- ------------------------------------------------------------------------------------------------------------------------------------
<Caption>
FUND NAME 2002
- -------------------------------------------------------------------------
MANAGEMENT MANAGEMENT FEE NET MANAGEMENT FEE
FEE PAYABLE WAIVERS PAID
- -------------------------------------------------------------------------
AIM Select Basic
Value Fund(1) 1,164 1,164 -0-
- -------------------------------------------------------------------------
AIM Weingarten Fund 26,086,537 28,985 26,057,552
- -------------------------------------------------------------------------
</Table>
(1) Commenced operations on August 30, 2002
G-2
APPENDIX H
PORTFOLIO MANAGERS
As of October 31, 2004
INVESTMENTS IN EACH FUND
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF INVESTMENTS IN EACH FUND(1)
- --------------------------------------------------------------------------------------------------------------
AIM AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
Kirk L. Anderson(2) None
- --------------------------------------------------------------------------------------------------------------
James G. Birdsall(2) None
- --------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz(2) None
- --------------------------------------------------------------------------------------------------------------
AIM BLUE CHIP FUND
- --------------------------------------------------------------------------------------------------------------
Kirk L. Anderson $1.00 - $10,000
- --------------------------------------------------------------------------------------------------------------
AIM CAPITAL DEVELOPMENT FUND
- --------------------------------------------------------------------------------------------------------------
Paul J. Rasplicka $100,001 - $500,000
- --------------------------------------------------------------------------------------------------------------
AIM CHARTER FUND
- --------------------------------------------------------------------------------------------------------------
Ronald S. Sloan $500,001 - $1,000,000
- --------------------------------------------------------------------------------------------------------------
AIM CONSTELLATION FUND
- --------------------------------------------------------------------------------------------------------------
Kirk L. Anderson(3) None
- --------------------------------------------------------------------------------------------------------------
James G. Birdsall(3) None
- --------------------------------------------------------------------------------------------------------------
Robert J. Lloyd(3) None
- --------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz(3) None
- --------------------------------------------------------------------------------------------------------------
AIM DIVERSIFIED DIVIDEND FUND
- --------------------------------------------------------------------------------------------------------------
Meggan M. Walsh $100,001 - $500,000
- --------------------------------------------------------------------------------------------------------------
</Table>
- --------
(1) This column reflects investments in a Fund's shares owned directly by a
portfolio manager or beneficially owned by a portfolio manager (as
determined in accordance with Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934, as amended). A portfolio manager is presumed to
be a beneficial owner of securities that are held by his or her
immediate family members sharing the same household.
(2) Mr. Anderson, Mr. Birdsall and Mr. Sachnowitz each began serving as
portfolio managers on AIM Aggressive Growth Fund on September 16, 2005.
Ownership information has been provided as of August 31, 2005.
(3) Mr. Anderson, Mr. Birdsall and Mr. Sachnowitz each began serving as
portfolio managers on AIM Constellation Fund on September 16, 2005.
Ownership information has been provided as of August 31, 2005.
H-1
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF INVESTMENTS FUND(1)
- --------------------------------------------------------------------------------------------------------------
AIM LARGE CAP BASIC VALUE FUND
- --------------------------------------------------------------------------------------------------------------
R. Canon Coleman II $50,001 - $100,000
- --------------------------------------------------------------------------------------------------------------
Matthew W. Seinsheimer $10,001 - $50,000
- --------------------------------------------------------------------------------------------------------------
Michael J. Simon $10,001 - $50,000
- --------------------------------------------------------------------------------------------------------------
Bret W. Stanley $500,001 - $1,000,000
- --------------------------------------------------------------------------------------------------------------
AIM LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
Geoffrey V. Keeling $100,001 - $500,000
- --------------------------------------------------------------------------------------------------------------
Robert L. Shoss $100,001 - $500,000
- --------------------------------------------------------------------------------------------------------------
AIM MID CAP GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
Karl Farmer $50,001 - $100,000
- --------------------------------------------------------------------------------------------------------------
Paul Rasplicka(3) $1.00 - $10,000
- --------------------------------------------------------------------------------------------------------------
AIM SELECT BASIC VALUE FUND(4)
- --------------------------------------------------------------------------------------------------------------
R. Canon Coleman II None
- --------------------------------------------------------------------------------------------------------------
Matthew W. Seinsheimer None
- --------------------------------------------------------------------------------------------------------------
Michael J. Simon None
- --------------------------------------------------------------------------------------------------------------
Bret W. Stanley None
- --------------------------------------------------------------------------------------------------------------
AIM WEINGARTEN FUND
- --------------------------------------------------------------------------------------------------------------
James G. Birdsall $100,001 - $500,000
- --------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz $500,001 - $1,000,000
- --------------------------------------------------------------------------------------------------------------
</Table>
DESCRIPTION OF COMPENSATION STRUCTURE
AIM seeks to maintain a compensation program that is competitively positioned to
attract and retain high-caliber investment professionals. Portfolio managers
receive a base salary, an incentive bonus opportunity, an equity compensation
opportunity, and a benefits package. Portfolio manager compensation is reviewed
and may be modified each year as appropriate to reflect changes in the market,
as well as to adjust the factors used to determine bonuses to promote good
sustained fund performance. AIM evaluates competitive market compensation by
reviewing compensation survey results conducted by an independent third party of
investment industry compensation. Each portfolio manager's compensation consists
of the following five elements:
- ----------
(1) This column reflects investments in a Fund's shares owned directly by a
portfolio manager or beneficially owned by a portfolio manager (as
determined in accordance with Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934, as amended). A portfolio manager is presumed to
be a beneficial owner of securities that are held by his or her
immediate family members sharing the same household.
(3) Mr. Rasplicka began serving as portfolio manager on AIM Mid Cap Growth
Fund on April 29, 2005. Ownership information has been provided as of
March 31, 2005.
(4) The Fund is not currently open to investors.
H-2
>> BASE SALARY. Each portfolio manager is paid a base salary. In setting
the base salary, AIM's intention is to be competitive in light of the
particular portfolio manager's experience and responsibilities.
>> ANNUAL BONUS. Each portfolio manager is eligible to receive an annual
cash bonus which has quantitative and non-quantitative components.
Generally, 70% of the bonus is quantitatively determined, based
typically on a four-year rolling average of pre-tax performance of all
registered investment company accounts for which a portfolio manager
has day-to-day management responsibilities versus the performance of a
pre-determined peer group. In instances where a portfolio manager has
responsibility for management of more than one fund, an asset weighted
four-year rolling average is used.
High fund performance (against applicable peer group) would deliver
compensation generally associated with top pay in the industry
(determined by reference to the third-party provided compensation
survey information) and poor fund performance (versus applicable peer
group) could result in no bonus. The amount of fund assets under
management typically have an impact on the bonus potential (for
example, managing more assets increases the bonus potential); however,
this factor typically carries less weight than relative performance.
The remaining 30% portion of the bonus is discretionary as determined
by AIM and takes into account other subjective factors.
>> EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares of AMVESCAP
stock from pools determined from time to time by the Remuneration
Committee of the AMVESCAP Board of Directors. Awards of equity-based
compensation typically vest over time, so as to create incentives to
retain key talent.
>> PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are
provided life insurance coverage in the form of a group variable
universal life insurance policy, under which they may make additional
contributions to purchase additional insurance coverage or for
investment purposes.
>> PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
H-3
OTHER MANAGED ACCOUNTS
As of October 31, 2004
AIM's portfolio managers develop investment models which are used in
connection with the management of certain AIM funds as well as other mutual
funds for which AIM or an affiliate acts as sub-advisor, other pooled investment
vehicles that are not registered mutual funds, and other accounts managed for
organizations and individuals. The following chart reflects information
regarding accounts other than the Fund for which each portfolio manager has
day-to-day management responsibilities. Accounts are grouped into three
categories: (i) mutual funds, (ii) other pooled investment vehicles, and (iii)
other accounts. To the extent that any of these accounts pay advisory fees that
are based on account performance ("performance-based fees"), information on
those accounts is specifically broken out. In addition, any assets denominated
in foreign currencies have been converted into U.S. Dollars using the exchange
rates as of the applicable date.
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------
AIM AGGRESSIVE GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------
Kirk L. Anderson(4) 12 Registered Mutual Funds with $5,994,696,613 in total assets under
management
4 Unregistered Pooled Investment Vehicle with $352,982,291 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------
James G. Birdsall(5) 4 Registered Mutual Funds with $3,763,782,482 in total assets under
management
- ----------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz(5) 5 Registered Mutual Funds with $9,951,007,548 in total assets under
management
- ----------------------------------------------------------------------------------------------------------------
AIM BLUE CHIP FUND
- ----------------------------------------------------------------------------------------------------------------
Kirk L. Anderson 16 Registered Mutual Funds with $5,446,066,160 in total assets under
management
4 Unregistered Pooled Investment Vehicle with $403,532,853 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------
AIM CAPITAL DEVELOPMENT FUND
- ----------------------------------------------------------------------------------------------------------------
Paul J. Rasplicka 6 Registered Mutual Funds with $3,195,133,930 in total assets under
management
1 Other Account with $1,722,818 in total assets under management
- ----------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(4) Mr. Anderson, Mr. Birdsall and Mr. Sachnowitz each began serving as
portfolio managers on AIM Aggressive Growth Fund on September 16, 2005.
Information on other accounts they manage has been provided as of
August 31, 2005.
H-4
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER
AND TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------
AIM CHARTER FUND
- ----------------------------------------------------------------------------------------------------------------
Ronald S. Sloan 10 Registered Mutual Funds with $14,243,823,980 in total assets under
management
2 Unregistered Pooled Investment Vehicles with $54,820,135 in total assets
under management
7,696 Other Accounts with $1,605,249,642 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
AIM CONSTELLATION FUND
- ----------------------------------------------------------------------------------------------------------------
Kirk L. Anderson(7) 12 Registered Mutual Funds with $5,994,696,613 in total assets under
management
4 Unregistered Pooled Investment Vehicles with $352,982,291 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------
James G. Birdsall(7) 4 Registered Mutual Funds with $3,763,782,482 in total assets under
management
- ----------------------------------------------------------------------------------------------------------------
Robert J. Lloyd 5 Registered Mutual Funds with $3,853,316,960 in total assets under
management
2 Unregistered Pooled Investment Vehicle with $59,249,113 in total assets
under management
201 Other Accounts with $32,983,919 in total assets under management(5)
- ----------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz(7) 5 Registered Mutual Funds with $9,951,007,548 in total assets under
management
- ----------------------------------------------------------------------------------------------------------------
AIM DIVERSIFIED DIVIDEND FUND
- ----------------------------------------------------------------------------------------------------------------
Meggan M. Walsh 3 Registered Mutual Funds with $1,211,843,828 in total assets under
management
- ----------------------------------------------------------------------------------------------------------------
AIM LARGE CAP BASIC VALUE FUND
- ----------------------------------------------------------------------------------------------------------------
R. Canon Coleman II 8 Registered Mutual Funds with $10,090,324,076 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(6) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
(7) Mr. Anderson, Mr. Birdsall and Mr. Sachnowitz each began serving as
portfolio managers on AIM Constellation Fund on September 16, 2005.
Information on other accounts they manage has been provided as of
August 31, 2005.
H-5
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------
Matthew W. Seinsheimer 8 Registered Mutual Funds with $10,090,324,076 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Michael J. Simon 12 Registered Mutual Funds with $11,384,494,170 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Bret W. Stanley 11 Registered Mutual Funds with $20,628,926,879 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
AIM LARGE CAP GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------
Geoffrey V. Keeling 2 Registered Mutual Funds with $147,937,233 in total assets under management
1 Unregistered Pooled Investment Vehicle with $12,348,024 in total assets
under management
12 Other Accounts with $3,182,749 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Robert L. Shoss 2 Registered Mutual Funds with $147,937,233 in total assets under management
1 Unregistered Pooled Investment Vehicle with $12,348,024 in total assets
under management
12 Other Accounts with $3,182,749 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(6) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
H-6
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------
AIM MID CAP GROWTH FUND
- ----------------------------------------------------------------------------------------------------------------
Karl Farmer 7 Registered Mutual Funds with $2,849,187,575 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $14,146,084 in total assets
under management
2 Other Accounts with $302,491 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Paul J. Rasplicka(8) 7 Registered Mutual Funds with $3,712,416,204 in total assets under
management
1 Other Account with $2,239,001 in total assets under management(4)
- ----------------------------------------------------------------------------------------------------------------
AIM SELECT BASIC VALUE FUND
- ----------------------------------------------------------------------------------------------------------------
R. Canon Coleman II 8 Registered Mutual Funds with $10,445,528,127 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Matthew W. Seinsheimer 8 Registered Mutual Funds with $10,445,528,127 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
Michael J. Simon 12 Registered Mutual Funds with $11,739,698,220 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
</Table>
- ----------
(6) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
(8) Mr. Rasplicka began serving as portfolio manager on AIM Mid Cap Growth
Fund on April 29, 2005. Ownership information has been provided as of
March 31, 2005.
H-7
<Table>
<Caption>
NAME OF PORTFOLIO MANAGER NUMBER OF ACCOUNTS MANAGED BY EACH PORTFOLIO MANAGER AND
TOTAL ASSETS BY CATEGORY
- ----------------------------------------------------------------------------------------------------------------
Bret W. Stanley 11 Registered Mutual Funds with $20,984,130,930 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $19,874,242 in total assets
under management
3577 Other Accounts with $969,329,361 in total assets under management(6)
- ----------------------------------------------------------------------------------------------------------------
AIM WEINGARTEN FUND
- ----------------------------------------------------------------------------------------------------------------
James G. Birdsall 5 Registered Mutual Funds with $1,842,889,409 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $18,369,509 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------
Lanny H. Sachnowitz 6 Registered Mutual Funds with $9,453,773,386 in total assets under
management
1 Unregistered Pooled Investment Vehicle with $18,369,509 in total assets
under management
- ----------------------------------------------------------------------------------------------------------------
</Table>
POTENTIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio
manager has day-to-day management responsibilities with respect to more than one
Fund or other account. More specifically, portfolio managers who manage multiple
Funds and /or other accounts may be presented with one or more of the following
potential conflicts:
>> The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management
of each Fund and/or other account. AIM seeks to manage such competing
interests for the time and attention of portfolio managers by having
portfolio managers focus on a particular investment discipline. Most
other accounts managed by a portfolio manager are managed using the
same investment models that are used in connection with the management
of the Funds.
>> If a portfolio manager identifies a limited investment opportunity
which may be suitable for more than one Fund or other account, a Fund
may not be able to take full advantage of that opportunity due to an
allocation of filled purchase or sale orders across all eligible Funds
and other accounts. To deal with these situations, AIM and the Funds
have adopted procedures for allocating portfolio transactions across
multiple accounts.
>> With respect to securities transactions for the Funds, AIM determines
which broker to use to execute each order, consistent with its duty to
seek best execution of the transaction. However, with respect to
certain other accounts (such as mutual funds for which AIM or an
affiliate acts as sub-advisor, other pooled investment vehicles that
are not registered mutual funds, and other accounts managed for
organizations and individuals), AIM may be limited by the client with
respect to the selection of
- ----------
(6) These are accounts of individual investors for which AIM's affiliate,
AIM Private Asset Management, Inc. ("APAM") provides investment advice.
APAM offers separately managed accounts that are managed according to
the investment models developed by AIM's portfolio managers and used in
connection with the management of certain AIM funds. APAM accounts may
be invested in accordance with one or more of those investment models
and investments held in those accounts are traded in accordance with
the applicable models.
H-8
brokers or may be instructed to direct trades through a particular
broker. In these cases, trades for a Fund in a particular security may
be placed separately from, rather than aggregated with, such other
accounts. Having separate transactions with respect to a security may
temporarily affect the market price of the security or the execution of
the transaction, or both, to the possible detriment of the Fund or
other account(s) involved.
>> Finally, the appearance of a conflict of interest may arise where AIM
has an incentive, such as a performance-based management fee, which
relates to the management of one Fund or account but not all Funds and
accounts with respect to which a portfolio manager has day-to-day
management responsibilities.
AIM and the Funds have adopted certain compliance procedures which are
designed to address these types of conflicts. However, there is no guarantee
that such procedures will detect each and every situation in which a conflict
arises.
H-9
APPENDIX I
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM the following amounts for administrative services
for the last three fiscal years ended October 31:
<Table>
<Caption>
FUND NAME 2004 2003 2002
- -------------------------------------------------------------------------------------------------------
AIM Aggressive Growth Fund $ 476,287 $ 453,825 $ 383,159
- -------------------------------------------------------------------------------------------------------
AIM Blue Chip Fund 575,871 540,113 441,011
- -------------------------------------------------------------------------------------------------------
AIM Capital Development Fund 282,196 240,864 205,580
- -------------------------------------------------------------------------------------------------------
AIM Charter Fund 585,397 574,103 468,551
- -------------------------------------------------------------------------------------------------------
AIM Constellation Fund 710,711 696,174 629,514
- -------------------------------------------------------------------------------------------------------
AIM Diversified Dividend Fund 50,000 50,000 41,781
- -------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value Fund 125,883 50,000 50,000
- -------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund 218,708 91,795 87,337
- -------------------------------------------------------------------------------------------------------
AIM Mid Cap Growth Fund 86,224 50,000 50,000
- -------------------------------------------------------------------------------------------------------
AIM Select Basic Value Fund(1) 50,000 50,000 8,493
- -------------------------------------------------------------------------------------------------------
AIM Weingarten Fund 533,540 519,857 450,564
- -------------------------------------------------------------------------------------------------------
</Table>
(1) Commenced operations on August 30, 2002.
I-1
APPENDIX J
BROKERAGE COMMISSIONS
Brokerage commissions(1) paid by each of the Funds listed below during
the last three fiscal years or period ended October 31, were as follows:
<Table>
<Caption>
FUND 2004 2003 2002
- ---------------------------------- -------------- -------------- -------------
AIM Aggressive Growth Fund(2) $ 7,102,771 $ 5,139,873 $ 5,920,899
AIM Blue Chip Fund(3) 2,264,163 2,832,412 4,014,589
AIM Capital Development Fund(4) 2,240,761 3,101,168 4,525,600
AIM Charter Fund(5) 3,381,601 3,525,696 12,272,154
AIM Constellation Fund(6) 10,626,009 13,209,426 16,936,943
AIM Diversified Dividend Fund 67,689 66,926 17,394
AIM Large Cap Basic Value Fund(7) 149,169 280,781 300,919
AIM Large Cap Growth Fund(8) 2,273,002 1,051,689 864,959
AIM Mid Cap Growth Fund 1,108,221 1,267,594 1,118,766
AIM Select Basic Value Fund(9) 431 570 1,313
AIM Weingarten Fund(10) 6,145,868 12,206,561 23,824,701
</Table>
(1) Disclosure regarding brokerage commissions is limited to commissions
paid on agency trades and designated as such on the trade confirm.
(2) The variation in brokerage commissions paid by AIM Aggressive Growth
Fund for the fiscal year ended October 31, 2004, as compared to the
prior fiscal year, was due to the realignment of the Fund's portfolio
to fit the investment process of the current management team that
assumed management of the Fund in April of 2004.
(3) The variation in brokerage commissions paid by AIM Blue Chip Fund for
the fiscal year ended October 31, 2003, as compared to the prior fiscal
year was due to a decrease in the average net assets of the Fund.
(4) The variation in brokerage commissions paid by AIM Capital Development
Fund for the fiscal year ended October 31, 2003, as compared to the
prior fiscal year was due to decrease in portfolio turnover.
(5) The variation in brokerage commissions paid by AIM Charter Fund for the
fiscal year ended October 31, 2003, as compared to the two prior fiscal
years was due to the repositioning of the Fund in 2002, resulting in
decreased portfolio turnover and decreased commissions.
(6) The variation in brokerage commissions paid by AIM Constellation Fund
for the fiscal year ended October 31, 2004, as compared to the prior
fiscal year, was due to a decrease in portfolio turnover.
(7) The variation in brokerage commissions paid by AIM Large Cap Basic
Value Fund for the fiscal year ended October 31, 2004, as compared to
the prior fiscal year, was due to a decrease in portfolio turnover.
(8) The variation in brokerage commissions paid by AIM Large Cap Growth
Fund for the fiscal year ended October 31, 2004, as compared to the
prior fiscal year, was due to increased trading costs as a result of
acquiring additional assets from the acquisition of INVESCO Growth
Fund.
(9) Commenced operations on August 30, 2002.
(10) The variation in brokerage commissions paid by AIM Weingarten Fund for
the fiscal year ended October 31, 2004, as compared to the prior fiscal
year, was due to a decrease in portfolio turnover.
J-1
APPENDIX K
DIRECTED BROKERAGE (RESEARCH SERVICES) AND PURCHASES OF
SECURITIES OF REGULAR BROKERS OR DEALERS
During the last fiscal year ended October 31, 2004, each Fund allocated
the following amount of transactions to broker-dealers that provided AIM with
certain research, statistics and other information:
<Table>
<Caption>
Related
Fund Transactions(1) Brokerage Commissions(1)
- -------------------------------- --------------------- ------------------------
AIM Aggressive Growth Fund $ 3,661,519,389.34 $ 7,930,626.33
AIM Blue Chip Fund 1,648,521,328.82 1,915,196.70
AIM Capital Development Fund 1,005,659,315.62 4,761,859.73
AIM Charter Fund 2,131,213,461.20 3,018,888.70
AIM Constellation Fund 6,012,345,994.81 12,147,962.04
AIM Diversified Dividend Fund 91,049,675.43 91,950.71
AIM Large Cap Basic Value Fund 156,558,434.56 129,622.91
AIM Large Cap Growth Fund 1,537,684,180.51 2,048,160.67
AIM Mid Cap Growth Fund 571,548,936.58 1,201,521.39
AIM Select Basic Value Fund 307,888.28 329.61
AIM Weingarten Fund 3,324,018,528.77 5,983,786.10
</Table>
(1) Amount is inclusive of commissions paid to, and brokerage transactions
placed with, certain brokers that provide execution, research and other
services.
During the last fiscal year ended October 31, 2004, the Funds purchased
securities issued by the following companies, which are "regular" brokers or
dealers of one or more of the Funds identified below:
<Table>
<Caption>
Fund/Issuer Security Market Value (as of October 31, 2004)
- ------------------------------------ ------------ ------------------------------------
AIM Aggressive Growth Fund
Edwards (A.G), Inc. Common Stock $ 9,065,000
Legg Mason, Inc. Common Stock 28,669,500
Lehman Brothers Holdings Inc. Common Stock 14,376,250
AIM Blue Chip Fund
Goldman Sachs Group, Inc. (The) Common Stock 30,989,700
JP Morgan Chase & Co. Common Stock 52,882,000
Merrill Lynch & Co., Inc. Common Stock 29,667,000
Morgan Stanley Common Stock 25,545,000
AIM Charter Fund
Morgan Stanley Common Stock 29,747,152
</Table>
<Table>
<Caption>
Fund/Issuer Security Market Value (as of October 31, 2004)
- ------------------------------------ ------------ ------------------------------------
AIM Constellation Fund
Goldman Sachs Group, Inc. (The) Common Stock $ 24,595,000
JP Morgan Chase & Co. Common Stock 57,900,000
</Table>
K-1
<Table>
AIM Diversified Dividend Fund
Morgan Stanley Common Stock 2,166,216
AIM Large Cap Basic Value Fund
JP Morgan Chase & Co. Common Stock 12,481,542
Merrill Lynch & Co., Inc. Common Stock 6,893,532
Morgan Stanley Common Stock 8,276,580
AIM Mid Cap Growth Fund
Legg Mason, Inc. Common Stock 2,357,270
AIM Select Basic Value Fund
JP Morgan Chase & Co. Common Stock 45,355
Merrill Lynch & Co., Inc. Common Stock 43,152
AIM Weingarten Fund
Goldman Sachs Group, Inc. (The) Common Stock 39,352,000
JP Morgan Chase & Co. Common Stock 38,600,000
Lehman Brothers Holdings Inc. Common Stock 24,645,000
Merrill Lynch & Co., Inc. Common Stock 26,970,000
</Table>
K-2
APPENDIX L
AMOUNTS PAID TO A I M DISTRIBUTORS, INC. PURSUANT TO DISTRIBUTION PLANS
A list of amounts paid by each class of shares to AIM Distributors
pursuant to the Plans for the fiscal year or period ended October 31, 2004
follows:
<Table>
<Caption>
INVESTOR
FUND CLASS A CLASS B CLASS C CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES
- --------------------------------------------------------------------------------------------------------------------
AIM Aggressive Growth Fund $ 4,656,901 $ 2,595,972 $ 763,418 $ 11,194 $ N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Blue Chip Fund 4,938,054 11,670,174 2,664,429 27,995 88,542
- --------------------------------------------------------------------------------------------------------------------
AIM Capital Development Fund(1) 2,031,361 3,967,972 729,633 14,320 N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Charter Fund 5,883,153 10,549,491 1,572,686 11,195 N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Constellation Fund 19,016,041 6,702,181 1,845,072 24,911 N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Diversified Dividend Fund(2) 134,282 318,360 98,436 N/A N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Large Cap Basic Value Fund 525,588 893,755 314,386 3,976 188,897
- --------------------------------------------------------------------------------------------------------------------
AIM Large Cap Growth Fund 606,542 1,205,821 499,243 12,219 888,532
- --------------------------------------------------------------------------------------------------------------------
AIM Mid Cap Growth Fund 394,349 802,204 291,132 2,920 N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Select Basic Value Fund 1,790 3,834 3,834 N/A N/A
- --------------------------------------------------------------------------------------------------------------------
AIM Weingarten Fund 6,122,534 5,114,549 873,155 5,355 N/A
- --------------------------------------------------------------------------------------------------------------------
</Table>
(1) Investor Class shares of AIM Capital Development Fund commenced
operations on November 30, 2004.
(2) Investor Class shares of AIM Diversified Dividend Fund commenced
operations on April 29, 2005. Class R Shares commenced operations on
October 25, 2005.
L-1
APPENDIX M
ALLOCATION OF ACTUAL FEES PAID PURSUANT TO DISTRIBUTION PLANS
An estimate by category of the allocation of actual fees paid by Class
A shares of the Funds during the fiscal year ended October 31, 2004, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATED
ADVERTISING MAILING COMPENSATION COMPENSATION SEMINARS TO MARKETING PERSONNEL
----------- ---------- ------------ ------------ -------- -------------- ----------
AIM Aggressive Growth Fund $ 0 $ 0 $ 0 $ 4,656,901 $ 0 $ 0 $ 0
AIM Blue Chip Fund 133,285 16,266 0 3,930,015 73,185 29,274 756,029
AIM Capital Development Fund 56,996 6,445 0 1,615,541 30,778 10,678 310,923
AIM Charter Fund 97,951 11,901 0 5,153,353 52,383 20,851 546,714
AIM Constellation Fund 310,717 37,958 0 16,677,007 169,055 67,798 1,753,505
AIM Diversified Dividend Fund 3,458 442 0 107,272 2,149 614 20,257
AIM Large Cap Basic Value Fund 14,465 1,658 0 417,799 8,291 3,224 80,151
AIM Large Cap Growth Fund 15,889 1,950 0 481,666 9,557 3,823 93,657
AIM Mid Cap Growth Fund 10,579 1,281 0 313,107 5,930 2,372 61,080
AIM Select Basic Value Fund 0 0 0 0 0 0 0
AIM Weingarten Fund 100,601 12,309 0 5,362,915 55,129 22,264 569,316
</Table>
M-1
An estimate by category of the allocation of actual fees paid by Class B shares
of the Funds during the fiscal year ended October 31, 2004, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATED
ADVERTISING MAILING COMPENSATION COMPENSATION SEMINARS TO MARKETING PERSONNEL
----------- ---------- ------------ ------------ -------- -------------- ---------
AIM Aggressive Growth Fund $ 6,447 $ 789 $ 1,946,979 $ 600,967 $ 3,509 $ 1,316 $ 35,965
AIM Blue Chip Fund 18,222 2,245 8,752,631 2,779,864 9,914 3,998 103,300
AIM Capital Development Fund 5,299 647 2,975,979 952,311 2,904 1,244 29,588
AIM Charter Fund 11,523 1,430 7,912,118 2,549,516 6,354 2,444 66,106
AIM Constellation Fund 13,284 1,631 5,026,636 1,574,918 7,174 2,832 75,706
AIM Diversified Dividend Fund 961 0 238,770 69,332 962 321 8,014
AIM Large Cap Basic Value Fund 1,931 291 670,316 208,498 1,211 404 11,104
AIM Large Cap Growth Fund 2,745 333 904,366 281,134 1,437 616 15,190
AIM Mid Cap Growth Fund 2,075 313 601,653 184,703 1,303 434 11,723
AIM Select Basic Value Fund 0 0 0 0 0 0 0
AIM Weingarten Fund 8,774 1,082 3,835,912 1,212,991 4,844 1,837 49,109
</Table>
M-2
An estimate by category of the allocation of actual fees paid by Class
C shares of the Funds during the fiscal year ended October 31, 2004, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATED
ADVERTISING MAILING COMPENSATION COMPENSATION SEMINARS TO MARKETING PERSONNEL
----------- ---------- ------------ ------------ -------- -------------- ---------
AIM Aggressive Growth Fund $ 3,463 $ 419 $ 89,293 $ 651,350 $ 1,553 $ 776 $ 16,564
AIM Blue Chip Fund 5,948 735 174,327 2,445,731 3,342 1,300 33,046
AIM Capital Development Fund 2,522 289 71,083 640,277 1,406 602 13,454
AIM Charter Fund 2,905 352 85,471 1,465,562 1,628 651 16,117
AIM Constellation Fund 5,592 668 171,114 1,630,368 3,246 1,391 32,693
AIM Diversified Dividend Fund 734 0 30,803 59,931 733 6,234
AIM Large Cap Basic Value Fund 1,133 53 42,686 261,029 889 296 8,300
AIM Large Cap Growth Fund 3,496 436 93,456 381,894 1,815 907 17,239
AIM Mid Cap Growth Fund 1,680 130 53,209 224,530 1,086 362 10,135
AIM Select Basic Value Fund 0 0 0 0 0 0 0
AIM Weingarten Fund 2,830 343 72,966 781,577 1,269 634 13,536
</Table>
M-3
An estimate by category of the allocation of actual fees paid by Class
R shares of the Funds during the fiscal year ended October 31, 2004, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATED
ADVERTISING MAILING COMPENSATION COMPENSATION SEMINARS TO MARKETING PERSONNEL
----------- ---------- ------------ ------------ -------- -------------- ----------
AIM Aggressive Growth Fund $ 191 $ 25 $ 0 $ 9,681 $ 102 $ 31 $ 1,164
AIM Blue Chip Fund 439 66 0 24,229 244 57 2,960
AIM Capital Development Fund 260 32 0 12,293 156 66 1,513
AIM Charter Fund 213 26 0 9,622 110 32 1,192
AIM Constellation Fund 472 55 0 21,565 236 100 2,483
AIM Diversified Dividend Fund(1) 0 0 0 0 0 0 0
AIM Large Cap Basic Value Fund 78 10 0 3,294 51 18 524
AIM Large Cap Growth Fund 187 25 0 10,710 112 37 1,148
AIM Mid Cap Growth Fund 81 9 0 2,381 39 19 391
AIM Select Basic Value Fund 0 0 0 0 0 0 0
AIM Weingarten Fund 164 16 0 4,365 71 35 705
</Table>
(1) Class R Shares of AIM Diversified Dividend Fund commenced operations on
October 25, 2005.
M-4
An estimate by category of the allocation of actual fees paid by
Investor Class shares of the Funds during the fiscal year ended October 31,
2004, follows:
<Table>
<Caption>
PRINTING & UNDERWRITERS DEALERS TRAVEL RELATED
ADVERTISING MAILING COMPENSATION COMPENSATION SEMINARS TO MARKETING PERSONNEL
----------- ---------- ------------ ------------ -------- -------------- ----------
AIM Aggressive Growth Fund $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
AIM Blue Chip Fund 4,156 0 0 52,523 2,771 1,385 27,707
AIM Capital Development Fund(1) 0 0 0 0 0 0 0
AIM Charter Fund 0 0 0 0 0 0 0
AIM Constellation Fund 0 0 0 0 0 0 0
AIM Diversified Dividend Fund(2) 0 0 0 0 0 0 0
AIM Large Cap Basic Value Fund 4,014 509 0 161,469 1,979 566 20,360
AIM Large Cap Growth Fund 39,359 4,731 0 610,418 21,198 4,240 208,586
AIM Mid Cap Growth Fund 0 0 0 0 0 0 0
AIM Select Basic Value Fund 0 0 0 0 0 0 0
AIM Weingarten Fund 0 0 0 0 0 0 0
</Table>
(1) Investor Class shares of AIM Capital Development Fund commenced
operations on November 30, 2004.
(2) Investor Class shares of AIM Diversified Dividend Fund commenced
operations on July 18, 2005.
M-5
APPENDIX N
TOTAL SALES CHARGES
The following chart reflects the total sales charges paid in connection
with the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the last three fiscal periods or years ending October 31:
<Table>
<Caption>
2004 2003 2002
---- ---- ----
SALES AMOUNT SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED CHARGES RETAINED
---------- ---------- ---------- ---------- ---------- ----------
AIM Aggressive Growth Fund $1,278,331 $ 227,703 $1,477,466 $ 247,028 $2,490,945 $ 401,540
AIM Blue Chip Fund 2,001,577 330,881 2,166,217 345,660 3,369,955 524,961
AIM Capital Development Fund 1,053,950 171,202 650,576 104,786 1,081,325 167,124
AIM Charter Fund 1,424,204 234,197 1,630,264 266,509 2,445,644 387,132
AIM Constellation Fund 4,354,421 743,284 5,079,332 829,628 7,869,917 1,272,976
AIM Diversified Dividend Fund 392,983 64,410 229,293 36,213 70,911 11,277
AIM Large Cap Basic Value Fund 464,545 78,339 350,376 57,471 447,812 72,325
AIM Large Cap Growth Fund 497,494 83,801 388,322 64,104 567,190 89,304
AIM Mid Cap Growth Fund 457,622 77,275 324,066 51,252 456,202 70,433
AIM Select Basic Value Fund(1) N/A N/A N/A N/A N/A N/A
AIM Weingarten Fund 1,486,620 252,306 1,731,309 286,925 2,965,221 482,681
</Table>
(1) Commenced operations on August 30, 2002
The following chart reflects the contingent deferred sales charges paid
by Class A, Class B, Class C and Class R shareholders and retained by AIM
Distributors for the last three fiscal periods or years ended October 31:
<Table>
<Caption>
2004 2003 2002
---------- ---------- ----------
AIM Aggressive Growth Fund $ 62,248 $ 63,023 $ 88,844
AIM Blue Chip Fund 124,827 47,754 107,445
AIM Capital Development Fund 31,883 8,033 15,360
AIM Charter Fund 70,086 15,403 69,358
AIM Constellation Fund 115,355 17,015 183,857
AIM Diversified Dividend Fund 10,486 593 83
AIM Large Cap Basic Value Fund 17,199 5,191 10,512
AIM Large Cap Growth Fund 18,165 4,838 19,917
AIM Mid Cap Growth Fund 16,576 3,045 16,428
AIM Select Basic Value Fund(1) N/A N/A N/A
AIM Weingarten Fund 64,694 11,387 61,852
</Table>
(1) Commenced operations on August 30, 2002
N-1
APPENDIX O
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURNS
The average annual total returns (including sales load) for each Fund, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -3.12% -9.25% 6.22% N/A 05/01/1984
AIM Blue Chip Fund -5.43 -10.20 6.48 N/A 02/04/1987
AIM Capital Development Fund -1.17 -0.80 N/A 8.52% 06/17/1996
AIM Charter Fund -1.51 -7.62 7.60 N/A 11/26/1968
AIM Constellation Fund -4.45 -9.97 5.53 N/A 04/30/1976
AIM Diversified Dividend Fund 2.61 N/A N/A 4.82 12/31/2001
AIM Large Cap Basic Value Fund -2.02 3.31 N/A 4.34 06/30/1999
AIM Large Cap Growth Fund -4.35 -12.07 N/A -2.07 03/01/1999
AIM Mid Cap Growth Fund -5.64 -10.74 N/A -2.49 11/01/1999
AIM Select Basic Value Fund -3.67 N/A N/A 9.10 08/30/2002
AIM Weingarten Fund -3.42 -15.98 3.70 N/A 06/17/1969
</Table>
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class B
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -3.22% -9.21% N/A 2.85% 03/01/1999
AIM Blue Chip Fund -5.55 -10.14 N/A 3.68 10/01/1996
AIM Capital Development Fund -0.87 -0.62 N/A 7.33 10/01/1996
AIM Charter Fund -1.45 -7.58 N/A 6.84 06/26/1995
AIM Constellation Fund -4.59 -9.88 N/A 0.16 11/03/1997
AIM Diversified Dividend Fund 2.99 N/A N/A 5.40 12/31/2001
AIM Large Cap Basic Value Fund -2.08 N/A N/A 3.06 08/01/2000
AIM Large Cap Growth Fund -4.43 -12.00 N/A -3.50 04/05/1999
AIM Mid Cap Growth Fund -5.64 -10.68 N/A -2.34 11/01/1999
AIM Select Basic Value Fund -2.95 N/A N/A 10.48 08/30/2002
AIM Weingarten Fund -3.45 -15.90 N/A 2.77 06/26/1995
</Table>
O-1
The average annual total returns (including maximum applicable
contingent deferred sales charge) for each Fund, with respect to its Class C
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
------ ------- -------- --------------- --------------
AIM Aggressive Growth Fund 0.78% -8.92% N/A 2.85% 03/01/1999
AIM Blue Chip Fund -1.57 -9.77 N/A 0.08 08/04/1997
AIM Capital Development Fund 2.90 -0.32 N/A 5.62 08/04/1997
AIM Charter Fund 2.45 -7.23 N/A 1.75 08/04/1997
AIM Constellation Fund -0.55 -9.58 N/A 0.04 08/04/1997
AIM Diversified Dividend Fund 6.91 N/A N/A 5.88 12/31/2001
AIM Large Cap Basic Value Fund 2.01 N/A N/A 3.44 08/01/2000
AIM Large Cap Growth Fund -0.55 -11.64 N/A -3.50 04/05/1999
AIM Mid Cap Growth Fund -1.67 -10.33 N/A -2.16 11/01/1999
AIM Select Basic Value Fund 0.94 N/A N/A 11.43 08/30/2002
AIM Weingarten Fund 0.55 -15.61 N/A -2.72 08/04/1997
</Table>
The average annual total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
------ ------- -------- --------------- --------------
AIM Aggressive Growth Fund(1) 2.36% -8.47% 6.54% N/A 05/01/1984(1)
AIM Blue Chip Fund(1) -0.18 -9.32 6.92 N/A 02/04/1987(1)
AIM Capital Development Fund(1) 4.41 0.17 N/A 9.04% 06/17/1996(1)
AIM Charter Fund(1) 4.00 -6.79 7.98 N/A 11/26/1968(1)
AIM Constellation Fund(1) 0.90 -9.07 5.96 N/A 04/30/1976(1)
AIM Diversified Dividend Fund(2) 8.47 N/A N/A 6.45 12/31/2001(2)
AIM Large Cap Basic Value Fund(1) 3.42 4.30 N/A 5.18 06/30/1999(1)
AIM Large Cap Growth Fund(1) 1.10 -11.18 N/A -1.29 03/01/1999(1)
AIM Mid Cap Growth Fund(1) -0.22 -9.88 N/A -1.65 11/01/1999(1)
AIM Weingarten Fund(1) 2.03 -15.19 4.08 N/A 06/17/1969(1)
</Table>
(1) The return shown for the one year period is the historical performance of
the Fund's Class R shares. The returns shown for other periods are the
blended returns of the historical performance of each Fund's Class R shares
since their inception and the restated historical performance of each Fund's
Class A shares (for the periods prior to the inception of the Class R
shares) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. The inception date shown in the table is
that of the Fund's Class A shares. The inception date of the Fund's Class R
shares is June 3, 2002.
(2) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. The inception date
shown in the table is that of the Fund's Class A shares. The inception date
for Class R shares of the Fund is October 25, 2005.
O-2
The average annual total returns for the Fund, with respect to its
Investor Class shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- --------------
AIM Blue Chip Fund(1) 0.09% -9.15% 7.10% N/A 02/04/1987(1)
AIM Capital Development Fund(2) 4.63 0.35 N/A 9.22% 06/17/1996(2)
AIM Diversified Dividend Fund(3) 8.63 N/A N/A 6.61 12/31/2001(3)
AIM Large Cap Basic Value Fund(1) 3.72 4.51 N/A 5.38 06/30/1999(1)
AIM Large Cap Growth Fund(1) 1.42 -10.97 N/A -1.07 03/01/1999(1)
</Table>
(1) The return shown for the one year period is the historical performance of
the Fund's Investor Class shares. The returns shown for other periods are
the blended returns of the historical performance of each Fund's Investor
Class shares since their inception and the restated historical performance
of each Fund's Class A shares (for the periods prior to the inception of the
Investor Class shares) at net asset value, which restated performance will
reflect the Rule 12b-1 fees applicable to the Class A shares. The inception
date shown is that of each Fund's Class A shares. The inception date of each
Fund's Investor Class shares is September 30, 2003.
(2) The returns shown for these periods are the blended returns of the
historical performance of the Fund's Investor Class shares since their
inception and the restated historical performance of the Fund's Class A
shares (for the periods prior to the inception of the Investor Class shares)
at net asset value, which restated performance will reflect the Rule 12b-1
fees applicable to the Class A shares. The inception date shown is that of
the Fund's Class A shares. The inception date of the Fund's Investor Class
shares is November 30, 2004.
(3) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, which restated performance
will reflect the Rule 12b-1 fees applicable to Class A shares. The inception
date shown is that of the Fund's Class A shares. The inception date of the
Fund's Investor Class shares is July 18, 2005.
CUMULATIVE TOTAL RETURNS
The cumulative total returns (including sales load) for each Fund, with
respect to its Class A shares, for the one, five and ten year periods (or since
inception if less than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE
------ ------- -------- --------------- --------------
AIM Aggressive Growth Fund -3.12% -38.45% 82.83% N/A 05/01/1984
AIM Blue Chip Fund -5.43 -41.62 87.33 N/A 02/04/1987
AIM Capital Development Fund -1.17 -3.91 N/A 106.43% 06/17/1996
AIM Charter Fund -1.51 -32.72 108.08 N/A 11/26/1968
AIM Constellation Fund -4.45 -40.86 71.37 N/A 04/30/1976
AIM Diversified Dividend Fund 2.61 N/A N/A 16.96 12/31/2001
AIM Large Cap Basic Value Fund -2.02 17.71 N/A 28.16 06/30/1999
AIM Large Cap Growth Fund -4.35 -47.44 N/A -12.08 03/01/1999
AIM Mid Cap Growth Fund -5.64 -43.32 N/A -12.95 11/01/1999
AIM Select Basic Value Fund -3.67 N/A N/A 26.13 08/30/2002
AIM Weingarten Fund -3.42 -58.12 43.77 N/A 06/17/1969
</Table>
O-3
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class B shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -3.22% -38.33% N/A 18.89% 03/01/1999
AIM Blue Chip Fund -5.55 -41.41 N/A 36.31 10/01/1996
AIM Capital Development Fund -0.87 -3.05 N/A 83.52 10/01/1996
AIM Charter Fund -1.45 -32.56 N/A 91.91 06/26/1995
AIM Constellation Fund -4.59 -40.55 N/A 1.23 11/03/1997
AIM Diversified Dividend Fund 2.99 N/A N/A 19.15 12/31/2001
AIM Large Cap Basic Value Fund -2.08 N/A N/A 15.38 08/01/2000
AIM Large Cap Growth Fund -4.43 -47.23 N/A -19.42 04/05/1999
AIM Mid Cap Growth Fund -5.64 -43.15 N/A -12.19 11/01/1999
AIM Select Basic Value Fund -2.95 N/A N/A 30.45 08/30/2002
AIM Weingarten Fund -3.45 -57.93 N/A 30.86 06/26/1995
</Table>
The cumulative total returns (including maximum applicable contingent
deferred sales charge) for each Fund, with respect to its Class C shares, for
the one, five and ten year periods (or since inception if less than ten years)
ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund 0.78% -37.31% N/A 18.91% 03/01/1999
AIM Blue Chip Fund -1.57 -40.21 N/A 0.60 08/04/1997
AIM Capital Development Fund 2.90 -1.60 N/A 52.64 08/04/1997
AIM Charter Fund 2.45 -31.29 N/A 14.36 08/04/1997
AIM Constellation Fund -0.55 -39.56 N/A 0.31 08/04/1997
AIM Diversified Dividend Fund 6.91 N/A N/A 20.95 12/31/2001
AIM Large Cap Basic Value Fund 2.01 N/A N/A 17.38 08/01/2000
AIM Large Cap Growth Fund -0.55 -46.15 N/A -19.42 04/05/1999
AIM Mid Cap Growth Fund -1.67 -42.03 N/A -11.30 11/01/1999
AIM Select Basic Value Fund 0.94 N/A N/A 33.45 08/30/2002
AIM Weingarten Fund 0.55 -57.20 N/A -19.20 08/04/1997
</Table>
O-4
The cumulative total returns (not including the 0.75% contingent
deferred sales charge that may be imposed on a total redemption of retirement
plan assets within the first year) for each Fund, with respect to its Class R
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS R SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ---------
AIM Aggressive Growth Fund(1) 2.36% -35.76% 88.47% N/A 05/01/1984
AIM Blue Chip Fund(1) -0.18 -38.69 95.28 N/A 02/04/1987
AIM Capital Development Fund(1) 4.41 0.86 N/A 115.43% 06/17/1996
AIM Charter Fund(1) 4.00 -29.65 115.40 N/A 11/26/1968
AIM Constellation Fund(1) 0.90 -37.83 78.38 N/A 04/30/1976
AIM Diversified Dividend Fund(2) 8.47 N/A N/A 23.12 12/31/2001
AIM Large Cap Basic Value Fund(1) 3.42 23.45 N/A 34.28 06/30/1999
AIM Large Cap Growth Fund(1) 1.10 -44.73 N/A -7.71 03/01/1999
AIM Mid Cap Growth Fund(1) -0.22 -40.55 N/A -8.76 11/01/1999
AIM Weingarten Fund(1) 2.03 -56.12 49.15 N/A 06/17/1969
</Table>
(1) The return shown for the one year period is the historical performance of
the fund's Class R shares. The returns shown for other periods are the
blended returns of the historical performance of each Fund's Class R shares
since their inception and the restated historical performance of each Fund's
Class A shares (for the periods prior to the inception of the Class R
shares) at net asset value, adjusted to reflect the higher Rule 12b-1 fees
applicable to the Class R shares. The inception date shown in the table is
that of the Fund's Class A shares. The inception date of the Fund's Class R
shares is June 3, 2002.
(2) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to Class R shares. The inception date
shown in the table is that of the Fund's Class A shares. The inception date
for Class R shares of the Fund is October 25, 2005.
The cumulative total returns for the Fund, with respect to its Investor
Class shares, for the one, five and ten year periods (or since inception if less
than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION INCEPTION DATE(4)
------ ------- -------- --------------- -----------------
AIM Blue Chip Fund(1) 0.09% -38.11% 98.63% N/A 02/04/1987
AIM Capital Development Fund(2) 4.63 1.74 N/A 118.53% 06/17/1996
AIM Diversified Dividend Fund(3) 8.63 N/A N/A 23.74 12/31/2001
AIM Large Cap Basic Value Fund(1) 3.72 24.70 N/A 35.81 06/30/1999
AIM Large Cap Growth Fund(1) 1.42 -44.07 N/A -6.45 03/01/1999
</Table>
(1) The return shown for the one year period is the historical performance of
the Fund's Investor Class shares. The returns shown for other periods are
the blended returns of the historical performance of each Fund's Investor
Class shares since their inception and the restated historical performance
of each Fund's Class A shares (for the periods prior to the inception of the
Investor Class shares) at net asset value, which restated performance will
reflect the Rule 12b-1 fees applicable to the Class A shares. The inception
date shown is that of each Fund's Class A shares. The inception date of each
Fund's Investor Class shares is September 30, 2003.
(2) The returns shown for these periods are the blended returns of the
historical performance of the Fund's Investor Class shares since their
inception and the restated historical performance of the Fund's Class A
shares (for the periods prior to the inception of the Investor Class shares)
at net asset value, which restated performance will reflect the Rule 12b-1
fees applicable to the Class A shares. The inception date shown is that of
the Fund's Class A shares. The inception date of the Fund's Investor Class
shares is November 30, 2004.
(3) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, which restated performance
will reflect the Rule 12b-1 fees applicable to Class A shares. The inception
date shown is that of the Fund's Class A shares. The inception date of the
Fund's Investor Class shares is July 18, 2005.
O-5
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS)
The average annual total returns (after taxes on distributions and
including sales load) for each Fund, with respect to its Class A shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -3.12% -10.02% 5.22% N/A 05/01/1984
AIM Blue Chip Fund -5.43 -10.20 5.74 N/A 02/04/1987
AIM Capital Development Fund -2.26 -1.92 N/A 7.82% 06/17/1996
AIM Charter Fund -1.63 -7.85 6.11 N/A 11/26/1968
AIM Constellation Fund -4.45 -10.72 4.48 N/A 04/30/1976
AIM Diversified Dividend Fund 1.96 N/A N/A 4.56 12/31/2001
AIM Large Cap Basic Value Fund -2.02 3.27 N/A 4.09 06/30/1999
AIM Large Cap Growth Fund -4.35 -12.07 N/A -2.07 03/01/1999
AIM Mid Cap Growth Fund -5.64 -10.74 N/A -2.49 11/01/1999
AIM Select Basic Value Fund -4.31 N/A N/A 8.64 08/30/2002
AIM Weingarten Fund -3.42 -16.47 1.71 N/A 06/17/1969
</Table>
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class B shares, for the one, five and ten year periods (or
since inception if less than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -3.22% -10.01% N/A 1.78% 03/01/1999
AIM Blue Chip Fund -5.55 -10.14 N/A 3.31 10/01/1996
AIM Capital Development Fund -2.09 -1.81 N/A 6.60 10/01/1996
AIM Charter Fund -1.47 -7.79 N/A 5.44 06/26/1995
AIM Constellation Fund -4.59 -10.66 N/A -0.95 11/03/1997
AIM Diversified Dividend Fund 2.46 N/A N/A 5.22 12/31/2001
AIM Large Cap Basic Value Fund -2.08 N/A N/A 3.02 08/01/2000
AIM Large Cap Growth Fund -4.43 -12.00 N/A -3.50 04/05/1999
AIM Mid Cap Growth Fund -5.64 -10.68 N/A -2.34 11/01/1999
AIM Select Basic Value Fund -3.63 N/A N/A 10.01 08/30/2002
AIM Weingarten Fund -3.45 -16.43 N/A 0.74 06/26/1995
</Table>
O-6
The average annual total returns (after taxes on distributions and
including maximum applicable contingent deferred sales charge) for each Fund,
with respect to its Class C shares, for the one, five and ten year periods (or
since inception if less than ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund 0.78% -9.70% N/A 1.79% 03/01/1999
AIM Blue Chip Fund -1.57 -9.77 N/A 0.00 08/04/1997
AIM Capital Development Fund 1.69 -1.50 N/A 4.81 08/04/1997
AIM Charter Fund 2.43 -7.44 N/A 0.76 08/04/1997
AIM Constellation Fund -0.55 -10.35 N/A -1.03 08/04/1997
AIM Diversified Dividend Fund 6.38 N/A N/A 5.70 12/31/2001
AIM Large Cap Basic Value Fund 2.01 N/A N/A 3.40 08/01/2000
AIM Large Cap Growth Fund -0.55 -11.64 N/A -3.50 04/05/1999
AIM Mid Cap Growth Fund -1.67 -10.33 N/A -2.16 11/01/1999
AIM Select Basic Value Fund 0.26 N/A N/A 10.96 08/30/2002
AIM Weingarten Fund 0.55 -16.13 N/A -4.15 08/04/1997
</Table>
The average annual total returns (after taxes on distributions) for the
Fund, with respect to its Investor Class shares, for the one, five and ten year
periods (or since inception if less than ten years) ended April 30 are as
follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Blue Chip Fund(1) 0.09% -9.15% 6.36% N/A 02/04/1987
AIM Capital Development Fund(2) 3.48 -0.80 N/A 8.51% 06/17/1996
AIM Diversified Dividend Fund(3) 7.93 N/A N/A 6.34 12/31/2001
AIM Large Cap Basic Value Fund(1) 3.72 4.47 N/A 5.13 06/30/1999
AIM Large Cap Growth Fund(1) 1.42 -10.97 N/A -1.07 03/01/1999
</Table>
(1) The return shown for the one year period is the historical performance of
the Fund's Investor Class shares. The returns shown for other periods are
the blended returns of the historical performance of each Fund's Investor
Class shares since their inception and the restated historical performance
of each Fund's Class A shares (for the periods prior to the inception of the
Investor Class shares) at net asset value, which restated performance will
reflect the Rule 12b-1 fees applicable to the Class A shares. The inception
date shown is that of each Fund's Class A shares. The inception date of each
Fund's Investor Class shares is September 30, 2003.
(2) The returns shown for these periods are the blended returns of the
historical performance of the Fund's Investor Class shares since their
inception and the restated historical performance of the Fund's Class A
shares (for the periods prior to the inception of the Investor Class shares)
at net asset value, which restated performance will reflect the Rule 12b-1
fees applicable to the Class A shares. The inception date shown is that of
the Fund's Class A shares. The inception date of the Fund's Investor Class
shares is November 30, 2004.
(3) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, which restated performance
will reflect the Rule 12b-1 fees applicable to Class A shares. The inception
date shown is that of the Fund's Class A shares. The inception date of the
Fund's Investor Class shares is July 18, 2005.
O-7
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
The average annual total returns (after taxes on distributions and
redemption and including sales load) for each Fund, with respect to its Class A
shares, for the one, five and ten year periods (or since inception if less than
ten years) ended April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS A SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -2.02% -7.66% 5.22% N/A 05/01/1984
AIM Blue Chip Fund -3.53 -8.36 5.24 N/A 02/04/1987
AIM Capital Development Fund 0.81 -1.09 N/A 7.25% 06/17/1996
AIM Charter Fund -0.81 -6.33 5.88 N/A 11/26/1968
AIM Constellation Fund -2.90 -8.20 4.61 N/A 04/30/1976
AIM Diversified Dividend Fund 2.16 N/A N/A 4.06 12/31/2001
AIM Large Cap Basic Value Fund -1.31 2.82 N/A 3.57 06/30/1999
AIM Large Cap Growth Fund -2.83 -9.81 N/A -1.74 03/01/1999
AIM Mid Cap Growth Fund -3.66 -8.78 N/A -2.10 11/01/1999
AIM Select Basic Value Fund -1.48 N/A N/A 7.69 08/30/2002
AIM Weingarten Fund -2.22 -12.67 2.57 N/A 06/17/1969
</Table>
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class B shares, for the one, five and ten
year periods (or since inception if less than ten years) ended April 30 are as
follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS B SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund -2.09% -7.61% N/A 2.37% 03/01/1999
AIM Blue Chip Fund -3.60 -8.31 N/A 2.98 10/01/1996
AIM Capital Development Fund 1.20 -0.96 N/A 6.16 10/01/1996
AIM Charter Fund -0.93 -6.30 N/A 5.27 06/26/1995
AIM Constellation Fund -2.99 -8.11 N/A 0.02 11/03/1997
AIM Diversified Dividend Fund 2.36 N/A N/A 4.59 12/31/2001
AIM Large Cap Basic Value Fund -1.35 N/A N/A 2.60 08/01/2000
AIM Large Cap Growth Fund -2.88 -9.75 N/A -2.93 04/05/1999
AIM Mid Cap Growth Fund -3.66 -8.73 N/A -1.97 11/01/1999
AIM Select Basic Value Fund -0.96 N/A N/A 8.89 08/30/2002
AIM Weingarten Fund -2.24 -12.59 N/A 1.80 06/26/1995
</Table>
O-8
The average annual total returns (after taxes on distributions and
redemption and including maximum applicable contingent deferred sales charge)
for each Fund, with respect to its Class C shares, for the one, five and ten
year periods (or since inception if less than ten years) ended April 30 are as
follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
CLASS C SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Aggressive Growth Fund 0.51% -7.37% N/A 2.38% 03/01/1999
AIM Blue Chip Fund -1.02 -8.02 N/A 0.03 08/04/1997
AIM Capital Development Fund 3.65 -0.70 N/A 4.58 08/04/1997
AIM Charter Fund 1.61 -6.02 N/A 1.08 08/04/1997
AIM Constellation Fund -0.35 -7.87 N/A -0.08 08/04/1997
AIM Diversified Dividend Fund 4.91 N/A N/A 5.00 12/31/2001
AIM Large Cap Basic Value Fund 1.30 N/A N/A 2.92 08/01/2000
AIM Large Cap Growth Fund -0.36 -9.48 N/A -2.93 04/05/1999
AIM Mid Cap Growth Fund -1.08 -8.46 N/A -1.82 11/01/1999
AIM Select Basic Value Fund 1.57 N/A N/A 9.72 08/30/2002
AIM Weingarten Fund 0.36 -12.38 N/A -2.39 08/04/1997
</Table>
The average annual total returns (after taxes on distributions and
redemption) for the Fund, with respect to its Investor Class shares, for the
one, five and ten year periods (or since inception if less than ten years) ended
April 30 are as follows:
<Table>
<Caption>
PERIODS ENDED APRIL 30, 2005
INCEPTION
INVESTOR CLASS SHARES: 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION DATE
------ ------- -------- --------------- ----------
AIM Blue Chip Fund(1) 0.06% -7.53% 5.81% N/A 02/04/1987
AIM Capital Development Fund(2) 4.67 -0.13 N/A 7.88% 06/17/1996
AIM Diversified Dividend Fund(3) 6.09 N/A N/A 5.61 12/31/2001
AIM Large Cap Basic Value Fund(1) 2.42 3.86 N/A 4.48 06/30/1999
AIM Large Cap Growth Fund(1) 0.92 -8.96 N/A -0.91 03/01/1999
</Table>
(1) The return shown for the one year period is the historical performance of
the Fund's Investor Class shares. The returns shown for other periods are
the blended returns of the historical performance of each Fund's Investor
Class shares since their inception and the restated historical performance
of each Fund's Class A shares (for the periods prior to the inception of the
Investor Class shares) at net asset value, which restated performance will
reflect the Rule 12b-1 fees applicable to the Class A shares. The inception
date shown is that of each Fund's Class A shares. The inception date of each
Fund's Investor Class shares is September 30, 2003.
(2) The returns shown for these periods are the blended returns of the
historical performance of the Fund's Investor Class shares since their
inception and the restated historical performance of the Fund's Class A
shares (for the periods prior to the inception of the Investor Class shares)
at net asset value, which restated performance will reflect the Rule 12b-1
fees applicable to the Class A shares. The inception date shown is that of
the Fund's Class A shares. The inception date of the Fund's Investor Class
shares is November 30, 2004.
(3) The returns shown for these periods are the restated historical performance
of the Fund's Class A shares at net asset value, which restated performance
will reflect the Rule 12b-1 fees applicable to Class A shares. The inception
date shown is that of the Fund's Class A shares. The inception date of the
Fund's Investor Class shares is July 18, 2005.
O-9
APPENDIX P-1
PENDING LITIGATION ALLEGING MARKET TIMING
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more AIM
Funds, IFG, AIM, AIM Management, AMVESCAP, certain related entities, certain of
their current and former officers and/or certain unrelated third parties and are
based on allegations of improper market timing and related activity in the AIM
Funds. These lawsuits either have been served or have had service of process
waived as of September 20, 2005 (with the exception of the Sayegh lawsuit
discussed below).
RICHARD LEPERA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., INVESCO BOND
FUNDS, INC., INVESCO SECTOR FUNDS, INC. AND DOE DEFENDANTS 1-100, in
the District Court, City and County of Denver, Colorado, (Civil Action
No. 03-CV-7600), filed on October 2, 2003. This claim alleges: common
law breach of fiduciary duty; common law breach of contract; and common
law tortious interference with contract. The plaintiff in this case is
seeking: compensatory and punitive damages; injunctive relief;
disgorgement of revenues and profits; and costs and expenses, including
counsel fees and expert fees.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, V. JANUS CAPITAL
CORPORATION, JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND,
EDWARD J. STERN, CANARY CAPITAL PARTNERS LLC, CANARY INVESTMENT
MANAGEMENT LLC, CANARY CAPITAL PARTNERS LTD., KAPLAN & CO. SECURITIES
INC., BANK ONE CORPORATION, BANC ONE INVESTMENT ADVISORS, THE ONE GROUP
MUTUAL FUNDS, BANK OF AMERICA CORPORATION, BANC OF AMERICA CAPITAL
MANAGEMENT LLC, BANC OF AMERICA ADVISORS LLC, NATIONS FUND INC., ROBERT
H. GORDON, THEODORE H. SIHPOL III, CHARLES D. BRYCELAND, SECURITY TRUST
COMPANY, STRONG CAPITAL MANAGEMENT INC., JB OXFORD & COMPANY, ALLIANCE
CAPITAL MANAGEMENT HOLDING L.P., ALLIANCE CAPITAL MANAGEMENT L.P.,
ALLIANCE CAPITAL MANAGEMENT CORPORATION, AXA FINANCIAL INC.,
ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES SCHAFFRAN, MARSH
& MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST, PUTNAM INVESTMENT
MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500, in the
Superior Court of the State of California, County of Los Angeles (Case
No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham
for unnamed Doe defendants. This claim alleges unfair business
practices and violations of Sections 17200 and 17203 of the California
Business and Professions Code. The plaintiff in this case is seeking:
injunctive relief; restitution, including pre-judgment interest; an
accounting to determine the amount to be returned by the defendants and
the amount to be refunded to the public; the creation of an
administrative process whereby injured customers of the defendants
receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY
FUND, V. WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER,
CARL E. MUNDY, JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B.
WALKER, EDMUND L. BENSON, III, ROBERT H. GORDON, JAMES B. SOMMERS,
THOMAS S. WORD, JR., EDWARD D. BEDARD, GERALD MURPHY, ROBERT B.
CARROLL, INVESCO GLOBAL ASSET MANAGEMENT, PUTNAM INVESTMENT MANAGEMENT,
BANK OF AMERICA CORPORATION, MARSICO CAPITAL MANAGEMENT, LLC, BANC OF
AMERICA ADVISORS, LLC, BANC OF AMERICA CAPITAL MANAGEMENT, LLC, AND
NATIONS FUNDS TRUST, in the Superior Court Division, State of North
Carolina (Civil Action No. 03-CVS-19622), filed on November 14, 2003.
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This claim alleges common law breach of fiduciary duty; abuse of
control; gross mismanagement; waste of fund assets; and unjust
enrichment. The plaintiff in this case is seeking: injunctive relief,
including imposition of a constructive trust; damages; restitution and
disgorgement; and costs and expenses, including counsel fees and expert
fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. V.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the
United States District Court, District of Colorado (Civil Action No.
03-MK-2406), filed on November 28, 2003. This claim alleges violations
of Section 36(b) of the Investment Company Act of 1940 ("Investment
Company Act"), and common law breach of fiduciary duty. The plaintiff
in this case is seeking damages and costs and expenses, including
counsel fees and expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 03-F-2441), filed on December 2,
2003. This claim alleges violations of: Sections 11 and 15 of the
Securities Act of 1933 (the "Securities Act"); Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 (the "Exchange Act"); Rule 10b-5
under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of the
Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF
ALL OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES
FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY
FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS
FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY
FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND,
INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES
FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM
INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S
TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO
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GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO
U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO
LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"),
AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS
THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD STERN,
AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, District of Colorado (Civil Action No. 03-F-2456), filed on
December 4, 2003. This claim alleges violations of: Sections 11 and 15
of Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Section 206 of the Investment
Advisers Act of 1940, as amended (the "Advisers Act"). The plaintiffs
in this case are seeking: compensatory damages; rescission; return of
fees paid; accounting for wrongfully gotten gains, profits and
compensation; restitution and disgorgement; and other costs and
expenses, including counsel fees and expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM
MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO
TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S
TAX-EXEMPT RESERVE FUND, AIM INVESCO U.S. GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND,
INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO
U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO; INVESCO
LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"),
AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS
THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP,
INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, Southern District of New York (Civil Action No. 03-CV-9634),
filed on December 4, 2003. This claim alleges violations of: Sections
11 and 15 of the Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Advisers Act. The plaintiffs in this case are seeking: compensatory
damages; rescission; return of fees paid; accounting for wrongfully
gotten gains, profits and compensation; restitution and disgorgement;
and other costs and expenses, including counsel fees and expert fees.
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JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in
the District Court, City and County of Denver, Colorado (Case Number
03CV9268), filed on December 5, 2003. This claim alleges common law
breach of fiduciary duty and aiding and abetting breach of fiduciary
duty. The plaintiffs in this case are seeking: injunctive relief;
accounting for all damages and for all profits and any special benefits
obtained; disgorgement; restitution and damages; costs and
disbursements, including counsel fees and expert fees; and equitable
relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND
DENNY P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS
MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS TAX-EXEMPT RESERVE
FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND,
INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM
COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA
INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN
DOES 1-100, in the United States District Court, District of Colorado
(Civil Action No. 03-N-2559), filed on December 17, 2003. This claim
alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the
Exchange Act; and Section 206 of the Advisers Act. The plaintiffs in
this case are seeking: compensatory damages; rescission; return of fees
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURERS
MONEY MARKET RESERVE FUND,
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AIM INVESCO TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US
GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND,
INVESCO GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND,
INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO
TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND,
INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY
KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES
TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA
INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN
DOES 1-100, in the United States District Court, Southern District of
New York (Civil Action No. 03-CV-10045), filed on December 18, 2003.
This claim alleges violations of: Sections 11 and 15 of the Securities
Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the
Exchange Act; and Section 206 of the Advisers Act. The plaintiffs in
this case are seeking: compensatory damages; rescission; return of fees
paid; accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC.,
AMVESCAP NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER,
JEFFREY G. CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM,
AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 03-M-2604), filed on December 24, 2003. This
claim alleges violations of Sections 404, 405 and 406B of the Employee
Retirement Income Security Act ("ERISA"). The plaintiffs in this case
are seeking: declarations that the defendants breached their ERISA
fiduciary duties and that they are not entitled to the protection of
Section 404(c)(1)(B) of ERISA; an order compelling the defendants to
make good all losses to a particular retirement plan described in this
case (the "Retirement Plan") resulting from the defendants' breaches of
their fiduciary duties, including losses to the Retirement Plan
resulting from imprudent investment of the Retirement Plan's assets,
and to restore to the Retirement Plan all profits the defendants made
through use of the Retirement Plan's assets, and to restore to the
Retirement Plan all profits which the participants would have made if
the defendants had fulfilled their fiduciary obligations; damages on
behalf of the Retirement Plan; imposition of a constructive trust,
injunctive relief, damages suffered by the Retirement Plan, to be
allocated proportionately to the participants in the Retirement Plan;
restitution and other costs and expenses, including counsel fees and
expert fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH V. INVESCO FUNDS GROUP, INC. AND
AIM ADVISER, INC., in the United States District Court, District of
Colorado (Civil Action No. 03-MK-2612), filed on December 24, 2003.
This claim alleges violations of Sections 15(a), 20(a) and 36(b) of the
Investment Company Act. The plaintiffs in this case are seeking:
rescission and/or voiding of the investment advisory agreements; return
of fees paid; damages; and other costs and expenses, including counsel
fees and expert fees.
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION
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STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC., AMVESCAP PLC, TIMOTHY MILLER, RAYMOND
CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN
MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in
the United States District Court, Southern District of New York (Civil
Action No. 04-CV-00492), filed on January 21, 2004. This claim alleges
violations of: Sections 11 and 15 of the 1933 Act; Sections 10(b) and
20(a) of the Exchange Act; Rule 10b-5 under the Exchange Act; and
Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid;
accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS,
INC., AIM MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS,
INC., AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO
CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL
PARTNERS, LLC, AND DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0152), filed on January
28, 2004. This claim alleges violations of: Sections 11 and 15 of the
Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b) of
the Investment Company Act. The claim also alleges common law breach of
fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC.,
AMVESCAP PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME
FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE
OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND,
INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY
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INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY
CAPITAL PARTNERS, LLC, AND DOES 1-100, in the United States District
Court, District of Colorado (Civil Action No. 04-MK-0151), filed on
January 28, 2004. This claim alleges violations of: Sections 11 and 15
of the Securities Act; Sections 10(b) and 20(a) of the Exchange Act;
Rule 10b-5 under the Exchange Act; and Sections 34(b), 36(a) and 36(b)
of the Investment Company Act. The claim also alleges common law breach
of fiduciary duty. The plaintiffs in this case are seeking: damages;
pre-judgment and post-judgment interest; counsel fees and expert fees;
and other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY
KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE FUND,
INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO S&P
500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY
MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S
MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE
FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND,
INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH FUND,
INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN
GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK
FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND
FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET
FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE
"INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC.,
TIMOTHY MILLER, RAYMOND CUNNINGHAM AND THOMAS KOLBE, in the United
States District Court, Southern District of New York (Civil Action No.
04-CV-0713), filed on January 30, 2004. This claim alleges violations
of Sections 11 and 15 of the Securities Act. The plaintiffs in this
case are seeking: compensatory damages, rescission; return of fees
paid; and other costs and expenses, including counsel fees and expert
fees.
SCOTT WALDMAN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO DYNAMICS FUND, INVESCO EUROPEAN
FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, AIM
STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM
BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC., AMVESCAP PLC, AND
RAYMOND CUNNINGHAM, in the United States District Court, Southern
District of New York (Civil Action No. 04-CV-00915), filed on February
3, 2004. This claim alleges violations of Sections 11 and 15 of the
Securities Act and common law breach of fiduciary duty. The plaintiffs
in this case are seeking compensatory damages; injunctive relief; and
costs and expenses, including counsel fees and expert fees.
CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND
ALL OTHERS SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO
STOCK FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States
District Court, District of Colorado (Civil Action No. 04-CV-812),
filed on February 5, 2004. This claim
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alleges: common law breach of fiduciary duty; breach of contract; and
tortious interference with contract. The plaintiffs in this case are
seeking: injunctive relief; damages; disgorgement; and costs and
expenses, including counsel fees and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO
STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO
FUNDS GROUP, INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND
INVESCO ENERGY FUND, INVESCO STOCK FUNDS, INC., AND INVESCO MUTUAL
FUNDS, NOMINAL DEFENDANTS, in the United States District Court,
District of Colorado (Civil Action No. 04-MK-0397), filed on March 4,
2004. This claim alleges violations of Section 36(b) of the Investment
Company Act and common law breach of fiduciary duty. The plaintiff in
this case is seeking damages and costs and expenses, including counsel
fees and expert fees.
CYNTHIA L. ESSENMACHER, DERIVATIVELY ON BEHALF OF THE INVESCO DYNAMICS
FUND AND THE REMAINING "INVESCO FUNDS" V. INVESCO FUNDS GROUPS, INC.,
AMVESCAP PLC, AIM MANAGEMENT GROUP, INC., RAYMOND CUNNINGHAM, TIMOTHY
MILLER, THOMAS KOLBE AND MICHAEL LEGOSKI, DEFENDANTS, AND INVESCO
DYNAMICS FUND AND THE "INVESCO FUNDS", NOMINAL DEFENDANTS, in the
United States District Court, District of Delaware (Civil Action No.
04-CV-188), filed on March 29, 2004. This claim alleges: violations of
Section 36(b) of the Investment Company Act; violations of Section 206
of the Advisers Act; common law breach of fiduciary duty; and civil
conspiracy. The plaintiff in this case is seeking: damages; injunctive
relief; and costs and expenses, including counsel fees and expert fees.
ANNE G. PERENTESIS (WIDOW) V. AIM INVESTMENTS, ET AL (INVESCO FUNDS
GROUP, INC.), in the District Court of Maryland for Baltimore County
(Case No. 080400228152005), filed on July 21, 2005. This claim alleges
financial losses, mental anguish and emotional distress as a result of
unlawful market timing and related activity by the defendants. The
plaintiff in this case is seeking damages and costs and expenses.
Pursuant to an Order of the MDL Court, plaintiffs in the above lawsuits
(with the exception of Carl E. Vonder Haar, et al. v. INVESCO Funds Group, Inc.
et al. and Mike Sayegh v. Janus Capital Corporation, et al.) consolidated their
claims for pre-trial purposes into three amended complaints against various AIM-
and IFG-related parties: (i) a Consolidated Amended Class Action Complaint
purportedly brought on behalf of shareholders of the AIM Funds (the Lepera
lawsuit discussed below); (ii) a Consolidated Amended Fund Derivative Complaint
purportedly brought on behalf of the AIM Funds and fund registrants (the
Essenmacher lawsuit discussed below); and (iii) an Amended Class Action
Complaint for Violations of the Employee Retirement Income Securities Act
("ERISA") purportedly brought on behalf of participants in AMVESCAP's 401(k)
plan (the Calderon lawsuit discussed below). The plaintiffs in the Vonder Haar
and Sayegh lawsuits continue to seek remand of their lawsuits to state court.
Set forth below is detailed information about these three amended complaints.
RICHARD LEPERA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED (LEAD PLAINTIFF: CITY OF CHICAGO DEFERRED COMPENSATION PLAN),
V. INVESCO FUNDS GROUP, INC., AMVESCAP, PLC, AIM INVESTMENTS, AIM
ADVISORS, INC., INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS
MANAGEMENT LIMITED, INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM STOCK
FUNDS, AIM MUTUAL FUNDS, AIM COMBINATION STOCK & BOND FUNDS, AIM SECTOR
FUNDS, AIM TREASURER'S SERIES TRUST, INVESCO DISTRIBUTORS, INC., AIM
DISTRIBUTORS, INC., RAYMOND R. CUNNINGHAM, TIMOTHY J. MILLER, THOMAS A.
KOLBE, MICHAEL D. LEGOSKI, MICHAEL K.
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BRUGMAN, MARK WILLIAMSON, EDWARD J. STERN, CANARY CAPITAL PARTNERS,
LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD.,
RYAN GOLDBERG, MICHAEL GRADY, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS
HOLDINGS, INC., SALOMON SMITH BARNEY, INC., MORGAN STANLEY DW, ANNA
BRUGMAN, ANB CONSULTING, LLC, KAPLAN & CO. SECURITIES INC., SECURITY
TRUST COMPANY, N.A., GRANT D. SEEGER, JB OXFORD HOLDINGS, INC.,
NATIONAL CLEARING CORPORATION, JAMES G. LEWIS, KRAIG L. KIBBLE, JAMES
Y. LIN, BANK OF AMERICA CORPORATION, BANC OF AMERICA SECURITIES LLC,
THEODORE C. SIHPOL, III, BEAR STEARNS & CO., INC., BEAR STEARNS
SECURITIES CORP., CHARLES SCHWAB & CO., CREDIT SUISSE FIRST BOSTON
(USA) INC., PRUDENTIAL FINANCIAL, INC., PRUDENTIAL SECURITIES, INC.,
CANADIAN IMPERIAL BANK OF COMMERCE, JP MORGAN CHASE AND CO., AND JOHN
DOE DEFENDANTS 1-100, in the MDL Court (Case No. 04-MD-15864; No.
04-CV-00814-JFM) (originally in the United States District Court for
the District of Colorado), filed on September 29, 2004. This lawsuit
alleges violations of Sections 11, 12(a) (2), and 15 of the Securities
Act; Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder; Section 20(a) of the Exchange Act; Sections 34(b), 36(a),
36(b) and 48(a) of the Investment Company Act; breach of fiduciary
duty/constructive fraud; aiding and abetting breach of fiduciary duty;
and unjust enrichment. The plaintiffs in this lawsuit are seeking:
compensatory damages, including interest; and other costs and expenses,
including counsel and expert fees.
CYNTHIA ESSENMACHER, SILVANA G. DELLA CAMERA, FELICIA BERNSTEIN AS
CUSTODIAN FOR DANIELLE BROOKE BERNSTEIN, EDWARD CASEY, TINA CASEY,
SIMON DENENBERG, GEORGE L. GORSUCH, PAT B. GORSUCH, L. SCOTT KARLIN,
HENRY KRAMER, JOHN E. MORRISEY, HARRY SCHIPPER, BERTY KREISLER, GERSON
SMITH, CYNTHIA PULEO, ZACHARY ALAN STARR, JOSHUA GUTTMAN, AND AMY
SUGIN, DERIVATIVELY ON BEHALF OF THE MUTUAL FUNDS, TRUSTS AND
CORPORATIONS COMPRISING THE INVESCO AND AIM FAMILY OF MUTUAL FUNDS V.
AMVESCAP, PLC, INVESCO FUNDS GROUP, INC., INVESCO DISTRIBUTORS, INC.,
INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED,
INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM MANAGEMENT GROUP, INC.,
AIM ADVISERS, INC., AIM INVESTMENT SERVICES, INC., AIM DISTRIBUTORS,
INC., FUND MANAGEMENT COMPANY, MARK H. WILLIAMSON, RAYMOND R.
CUNNINGHAM, TIMOTHY MILLER, THOMAS KOLBE, MICHAEL LEGOSKI, MICHAEL
BRUGMAN, FRED A. DEERING, VICTOR L. ANDREWS, BOB R. BAKER, LAWRENCE H.
BUDNER, JAMES T. BUNCH, GERALD J. LEWIS, JOHN W. MCINTYRE, LARRY SOLL,
RONALD L. GROOMS, WILLIAM J. GALVIN, JR., ROBERT H. GRAHAM, FRANK S.
BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JACK M.
FIELDS, CARL FRISCHILING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H.
QUIGLEY, LOUIS S. SKLAR, OWEN DALY II, AURUM SECURITIES CORP., AURUM
CAPITAL MANAGEMENT CORP., GOLDEN GATE FINANCIAL GROUP, LLC, BANK OF
AMERICA CORP., BANC OF AMERICA SECURITIES LLC, BANK OF AMERICA, N.A.,
BEAR STEARNS & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY CAPITAL
PARTNERS, LTD., CANARY INVESTMENT MANAGEMENT, LLC, EDWARD J. STERN,
CANADIAN IMPERIAL BANK OF COMMERCE, CIRCLE TRUST COMPANY, RYAN
GOLDBERG, MICHAEL GRADY, KAPLAN & CO. SECURITIES, INC., JP MORGAN CHASE
& CO., OPPENHEIMER & CO., INC., PRITCHARD CAPITAL PARTNERS LLC, TIJA
MANAGEMENT, TRAUTMAN WASSERMAN & COMPANY, INC., DEFENDANTS, AND THE
INVESCO FUNDS AND THE AIM FUNDS AND ALL TRUSTS AND CORPORATIONS THAT
COMPRISE THE INVESCO FUNDS AND AIM FUNDS THAT WERE MANAGED BY INVESCO
AND AIM, NOMINAL DEFENDANTS, in the MDL Court (Case No.
04-MD-15864-FPS; No. 04-819), filed on September 29, 2004. This lawsuit
alleges violations of Sections 206 and 215 of the Investment Advisers
Act; Sections
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36(a), 36(b) and 47 of the Investment Company Act; control person
liability under Section 48 of the Investment Company Act; breach of
fiduciary duty; aiding and abetting breach of fiduciary duty; breach of
contract; unjust enrichment; interference with contract; and civil
conspiracy. The plaintiffs in this lawsuit are seeking: removal of
director defendants; removal of adviser, sub-adviser and distributor
defendants; rescission of management and other contracts between the
Funds and defendants; rescission of 12b-1 plans; disgorgement of
management fees and other compensation/profits paid to adviser
defendants; compensatory and punitive damages; and fees and expenses,
including attorney and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP NATIONAL
TRUST COMPANY, INVESCO FUNDS GROUP, INC., AMVESCAP, ROBERT F.
MCCULLOUGH, GORDON NEBEKER, JEFFREY G. CALLAHAN, AND RAYMOND R.
CUNNINGHAM, in the MDL Court (Case No. 1:04-MD-15864-FPS), filed on
September 29, 2004. This lawsuit alleges violations of ERISA Sections
404, 405 and 406. The plaintiffs in this lawsuit are seeking:
declaratory judgment; restoration of losses suffered by the plan;
disgorgement of profits; imposition of a constructive trust; injunctive
relief; compensatory damages; costs and attorneys' fees; and equitable
restitution.
On August 25, 2005, the MDL Court issued rulings on the common issues
of law presented in defendants' motions to dismiss the shareholder
class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations
apply at the omnibus level to all cases within his track, including the
AIM and IFG cases. The Court dismissed for failure to make pre-suit
demand on the fund board all derivative causes of action but one: the
excessive fee claim under Section 36(b) of the Investment Company Act
of 1940 (the "1940 Act"), as to which the demand requirement does not
apply. The Court dismissed all claims asserted in the class complaint
but two: (i) the securities fraud claims under Section 10(b) of the
Securities Exchange Act of 1934, and (ii) the excessive fee claim under
Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable
to timing assets, as opposed to all fees on funds in which any timing
occurred. The question whether the duplicative Section 36(b) claim
properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date. The Court will subsequently
issue an order applying his legal rulings to the allegations in the AIM
and IFG complaints.
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APPENDIX P-2
PENDING LITIGATION ALLEGING INADEQUATELY EMPLOYED FAIR VALUE PRICING
The following civil class action lawsuits involve, depending on the
lawsuit, one or more AIM Funds, IFG and/or AIM and allege that the defendants
inadequately employed fair value pricing. These lawsuits either have been served
or have had service of process waived as of September 20, 2005.
T.K. PARTHASARATHY, EDMUND WOODBURY, STUART ALLEN SMITH AND SHARON
SMITH, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V.
T. ROWE PRICE INTERNATIONAL FUNDS, INC., T. ROWE PRICE INTERNATIONAL,
INC., ARTISAN FUNDS, INC., ARTISAN PARTNERS LIMITED PARTNERSHIP, AIM
INTERNATIONAL FUNDS, INC. AND AIM ADVISORS, INC., in the Third Judicial
Circuit Court for Madison County, Illinois (Case No. 2003-L-001253),
filed on September 23, 2003. This claim alleges: common law breach of
duty and common law negligence and gross negligence. The plaintiffs in
these cases are seeking: compensatory and punitive damages; interest;
and attorneys' fees and costs. The Third Judicial Circuit Court for
Madison County, Illinois has issued an order severing the claims of
plaintiff Parthasarathy from the claims of the other plaintiffs against
AIM and other defendants. As a result, AIM is a defendant in the
following severed action: EDMUND WOODBURY, STUART ALLEN SMITH and
SHARON SMITH, Individually and On Behalf of All Others Similarly
Situated, v. AIM INTERNATIONAL FUNDS, INC., ET AL., in the Third
Judicial Circuit Court for Madison County, Illinois (Case No.
03-L-1253A). The claims made by plaintiffs and the relief sought in the
Woodbury lawsuit are identical to those in the Parthasarathy lawsuit.
On April 22, 2005, Defendants in the Woodbury lawsuit removed the
action to Federal Court (U.S. District Court, Southern District of
Illinois, No. 05-CV-302-DRH). Based on a recent Federal appellate court
decision (the "Kircher" case), AIM and the other defendants in the
Woodbury lawsuit removed the action to Federal court (U.S. District
Court, Southern District of Illinois, Cause No. 05-CV-302-DRH) on April
22, 2005. On April 26, 2005, AIM and the other defendants filed their
Motion to Dismiss the plaintiffs' state law based claims. On June 10,
2005, the Court dismissed the Woodbury lawsuit based upon the Kircher
ruling and ordered the court clerk to close this case. Plaintiffs filed
a Motion to Amend the Judgment arguing that the Kircher ruling does not
apply to require the dismissal of the claims against AIM in the
Woodbury lawsuit. On July 7, 2005, the Court denied this Motion. On
September 2, 2005, the Court consolidated the nine cases on this
subject matter, including the case against AIM.
JOHN BILSKI, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AIM INTERNATIONAL FUNDS, INC., AIM ADVISORS, INC., INVESCO
INTERNATIONAL FUNDS, INC., INVESCO FUNDS GROUP, INC., T. ROWE PRICE
INTERNATIONAL FUNDS, INC. AND T. ROWE PRICE INTERNATIONAL, INC., in the
United States District Court, Southern District of Illinois (East St.
Louis) (Case No. 03-772), filed on November 19, 2003. This claim
alleges: violations of Sections 36(a) and 36(b) of the Investment
Company Act of 1940; common law breach of duty; and common law
negligence and gross negligence. The plaintiff in this case is seeking:
compensatory and punitive damages; interest; and attorneys' fees and
costs. This lawsuit has been transferred to the MDL Court by order of
the United States District Court, Southern District of Illinois (East
St. Louis).
P-11
APPENDIX P-3
PENDING LITIGATION ALLEGING EXCESSIVE ADVISORY AND/OR DISTRIBUTION FEES
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
IFG, AIM, IINA, ADI and/or INVESCO Distributors and allege that the defendants
charged excessive advisory and/or distribution fees and failed to pass on to
shareholders the perceived savings generated by economies of scale and, in some
cases, also allege that the defendants adopted unlawful distribution plans.
These lawsuits either have been served or have had service of process waived as
of September 20, 2005.
All of the lawsuits discussed below have been transferred to the United
States District Court for the Southern District of Texas, Houston Division by
order of the applicable United States District Court in which they were
initially filed. By order of the United States District Court for the Southern
District of Texas, Houston Division, the Kondracki and Papia lawsuits discussed
below have been consolidated for pre-trial purpose into the Berdat lawsuit
discussed below and administratively closed.
RONALD KONDRACKI V. AIM ADVISORS, INC. AND AIM DISTRIBUTOR, INC., in
the United States District Court for the Southern District of Illinois
(Civil Action No. 04-CV-263-DRH), filed on April 16, 2004. This claim
alleges violations of Section 36(b) of the Investment Company Act of
1940 (the "Investment Company Act"). The plaintiff in this case is
seeking: damages; injunctive relief; prospective relief in the form of
reduced fees; rescission of the investment advisory agreements and
distribution plans; and costs and expenses, including counsel fees.
DOLORES BERDAT, MARVIN HUNT, MADELINE HUNT, RANDAL C. BREVER AND RHONDA
LECURU V. INVESCO FUNDS GROUP, INC., INVESCO INSTITUTIONAL (N.A.),
INC., INVESCO DISTRIBUTORS, INC., AIM ADVISORS, INC. AND AIM
DISTRIBUTORS, INC., in the United States District Court for the Middle
District of Florida, Tampa Division (Case No. 8:04-CV-978-T24-TBM),
filed on April 29, 2004. This claim alleges violations of Sections
36(b) and 12(b) of the Investment Company Act. The plaintiffs in this
case are seeking: damages; injunctive relief; rescission of the
investment advisory agreements and distribution plans; and costs and
expenses, including counsel fees.
FERDINANDO PAPIA, FRED DUNCAN, GRACE GIAMANCO, JEFFREY S. THOMAS,
COURTNEY KING, KATHLEEN BLAIR, HENRY BERDAT, RUTH MOCCIA, MURRAY
BEASLEY AND FRANCES J. BEASLEY V. A I M ADVISORS, INC. AND A I M
DISTRIBUTORS, INC., in the United States District Court for the Middle
District of Florida, Tampa Division (Case No. 8:04-CV-977-T17-MSS),
filed on April 29, 2004. This claim alleges violations of Sections
36(b) and 12(b) of the Investment Company Act. The plaintiffs in this
case are seeking: damages; injunctive relief; rescission of the
investment advisory agreements and distribution plans; and costs and
expenses, including counsel fees.
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APPENDIX P-4
PENDING LITIGATION ALLEGING IMPROPER CHARGING OF DISTRIBUTION FEES
ON LIMITED OFFERING FUNDS OR SHARE CLASSES
The following civil lawsuits, including shareholder derivative suits,
involve, depending on the lawsuit, one or more of IFG, AIM, ADI and/or certain
of the trustees of the AIM Funds and allege that the defendants breached their
fiduciary duties by charging distribution fees while AIM Funds and/or specific
share classes were closed generally to new investors and/or while other share
classes of the same AIM Fund were not charged the same distribution fees. These
lawsuits either have been served or have had service of process waived as of
September 20, 2005.
By order of the United States District Court for the Southern District
of Texas, Houston Division, the Lieber lawsuit discussed below has been
consolidated for pre-trial purposes into the Zucker lawsuit discussed below and
administratively closed.
LAWRENCE ZUCKER, ON BEHALF OF AIM SMALL CAP GROWTH FUND AND AIM LIMITED
MATURITY TREASURY FUND, V. A I M ADVISORS, INC., in the United States
District Court, Southern District of Texas, Houston Division (Civil
Action No. H-03-5653), filed on December 10, 2003. This claim alleges
violations of Section 36(b) of the Investment Company Act of 1940 (the
"Investment Company Act") and common law breach of fiduciary duty. The
plaintiff in this case is seeking: damages; injunctive relief; and
costs and expenses, including counsel fees. In March 2005, the parties
entered a Stipulation whereby, among other things, the plaintiff agreed
to dismiss without prejudice all claims against all of the individual
defendants and his claims based on state law causes of action. This
effectively limits this case to alleged violations of Section 36(b)
against ADI.
STANLEY LIEBER, ON BEHALF OF INVESCO BALANCED FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO EUROPEAN
FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS
FUND, INVESCO GROWTH & INCOME FUND, INVESCO GROWTH FUND, INVESCO HEALTH
SCIENCE FUND, INVESCO HIGH YIELD FUND, INVESCO INTERNATIONAL BLUE CHIP
VALUE FUND, INVESCO LEISURE FUND, INVESCO REAL ESTATE OPPORTUNITY FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SELECT INCOME FUND, INVESCO TAX
FREE BOND FUND, INVESCO TECHNOLOGY FUND, INVESCO TELECOMMUNICATIONS
FUND, INVESCO TOTAL RETURN FUND, INVESCO US GOVERNMENT SECURITIES FUND,
INVESCO UTILITIES FUND, INVESCO VALUE EQUITY FUND, V. INVESCO FUNDS
GROUP, INC. AND A I M ADVISORS, INC., in the United States District
Court, Southern District of Texas, Houston Division (Civil Action No.
H-03-5744), filed on December 17, 2003. This claim alleges violations
of Section 36(b) of the Investment Company Act and common law breach of
fiduciary duty. The plaintiff in this case is seeking: damages;
injunctive relief; and costs and expenses, including counsel fees. In
March 2005, the parties entered a Stipulation whereby, among other
things, the plaintiff agreed to dismiss without prejudice all claims
against all of the individual defendants and his claims based on state
law causes of action. This effectively limits this case to alleged
violations of Section 36(b) against ADI.
HERMAN C. RAGAN, DERIVATIVELY, AND ON BEHALF OF HIMSELF AND ALL OTHERS
SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., AND A I M
DISTRIBUTORS, INC., in the United States District Court for the
Southern District of Georgia, Dublin Division (Civil Action No.
CV304-031), filed on May 6, 2004. This claim alleges violations of:
Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 thereunder; Sections 17(a) (2) and 17(a) (3) of
the Securities Act of 1933; and Section 36(b) of the Investment Company
Act. This claim also alleges controlling person
P-13
liability, within the meaning of Section 20 of the Exchange Act against
ADI. The plaintiff in this case is seeking: damages and costs and
expenses, including counsel fees.
P-14
APPENDIX P-5
PENDING LITIGATION ALLEGING IMPROPER MUTUAL FUND SALES PRACTICES
AND DIRECTED-BROKERAGE ARRANGEMENTS
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
AIM Management, IFG, AIM, AIS and/or certain of the trustees of the AIM Funds
and allege that the defendants improperly used the assets of the AIM Funds to
pay brokers to aggressively push the AIM Funds over other mutual funds and that
the defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits either have been served or have had
service of process waived as of September 20, 2005.
By order of the United States District Court for the Southern District
of Texas, Houston Division, the claims made in the Beasley, Kehlbeck Trust, Fry,
Apu and Bendix lawsuits discussed below were consolidated into the Boyce lawsuit
discussed below and these other lawsuits were administratively closed. On June
7, 2005, plaintiffs filed their Consolidated Amended Complaint in which they
make substantially identical allegations to those of the individual underlying
lawsuits. However, the City of Chicago Deferred Compensation Plan has been
joined as an additional plaintiff in the Consolidated Amended Complaint.
Plaintiffs added defendants, including current and former directors/trustees of
the AIM Funds formerly advised by IFG.
JOY D. BEASLEY AND SHEILA MCDAID, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS
GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT
H. GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT,
ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING,
PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S.
SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND,
AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED
FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT
FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC
TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND
FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN
SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL
FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH
FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM
LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE
FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM
MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II
FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL
ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM
SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE
INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR
FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
P-15
INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United States
District Court for the District of Colorado (Civil Action No.
04-B-0958), filed on May 10, 2004. The plaintiffs voluntarily dismissed
this case in Colorado and re-filed it on July 2, 2004 in the United
States District Court for the Southern District of Texas, Houston
Division (Civil Action H-04-2589). This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act of 1940
(the "Investment Company Act") and violations of Sections 206 and 215
of the Investment Advisers Act of 1940 (the "Advisers Act"). The claim
also alleges common law breach of fiduciary duty. The plaintiffs in
this case are seeking: compensatory and punitive damages; rescission of
certain Funds' advisory agreements and distribution plans and recovery
of all fees paid; an accounting of all fund-related fees, commissions
and soft dollar payments; restitution of all unlawfully or
discriminatorily obtained fees and charges; and attorneys' and experts'
fees.
RICHARD TIM BOYCE V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP,
INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H.
GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT
R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR,
AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM
ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND,
AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND,
AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL
COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH
FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH
CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM
HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND,
AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM
MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND
FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM
OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND,
AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY
FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO
DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND,
INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX
FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND,
INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS,
in the United States District Court for the District of Colorado (Civil
Action No. 04-N-0989), filed on May 13, 2004. The plaintiff voluntarily
dismissed this case in Colorado and re-filed it on July 1, 2004 in the
United States District Court for the Southern District of Texas,
Houston Division (Civil Action H-04-2587). This claim alleges
violations of Sections 34(b), 36(b) and 48(a) of the Investment Company
Act and violations of Sections 206 and 215 of the Advisers Act. The
claim also alleges common law breach of fiduciary duty. The plaintiff
in this case is seeking: compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and
recovery of all fees paid; an accounting of all fund-
P-16
related fees, commissions and soft dollar payments; restitution of all
unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
KEHLBECK TRUST DTD 1-25-93, BILLY B. KEHLBECK AND DONNA J. KEHLBECK,
TTEES V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM
INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK
H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN,
EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR,
AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM
ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND,
AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND,
AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL
COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH
FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH
CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM
HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM
LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND,
AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM
MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND
FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM
OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND,
AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY
FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM
TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND,
AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO
DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND,
INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX
FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND,
INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS,
in the United States District Court for the Southern District of Texas,
Houston Division (Civil Action No. H-04-2802), filed on July 9, 2004.
This claim alleges violations of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary
duty. The plaintiff in this case is seeking: compensatory and punitive
damages; rescission of certain Funds' advisory agreements and
distribution plans and recovery of all fees paid; an accounting of all
fund-related fees, commissions and soft dollar payments; restitution of
all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
JANICE R. FRY, BOB J. FRY, JAMES P. HAYES, VIRGINIA L. MAGBUAL, HENRY
W. MEYER AND GEORGE ROBERT PERRY V. AIM MANAGEMENT GROUP INC., INVESCO
FUNDS GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC.,
ROBERT H. GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L.
CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL
FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND
LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE
GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC
BALANCED FUND, AIM BASIC VALUE
P-17
FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER
FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM
DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING
GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND,
AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL
EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM
GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP VALUE FUND, AIM
HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND,
AIM INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM
LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY
FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM
MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND,
AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER
EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT
TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
NOMINAL DEFENDANTS, in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action No.
H-04-2832), filed on July 12, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case
is seeking: compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily
obtained fees and charges; and attorneys' and experts' fees.
ROBERT P. APU, SUZANNE K. APU, MARINA BERTI, KHANH DINH, FRANK
KENDRICK, EDWARD A. KREZEL, DAN B. LESIUK, JOHN B. PERKINS, MILDRED E.
RUEHLMAN, LOUIS E. SPERRY, J. DORIS WILLSON AND ROBERT W. WOOD V. AIM
MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT
SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H.
WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN,
EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR,
AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM
ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND,
AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND,
AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL
COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH
FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH
CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP
VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM
INCOME FUND, AIM
P-18
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND,
AIM INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM
LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY
FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM
MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND,
AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER
EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT
TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
NOMINAL DEFENDANTS, in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action No.
H-04-2884), filed on July 15, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case
is seeking: compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily
obtained fees and charges; and attorneys' and experts' fees.
HARVEY R. BENDIX, CVETAN GEORGIEV, DAVID M. LUCOFF, MICHAEL E.
PARMELEE, TRUSTEE OF THE HERMAN S. AND ESPERANZA A.. DRAYER RESIDUAL
TRUST U/A 1/22/83 AND STANLEY S. STEPHENSON, TRUSTEE OF THE STANLEY J.
STEPHENSON TRUST V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP,
INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H.
GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT
R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR,
AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM
ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND,
AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND,
AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS
FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM
EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL
COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH
FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH
CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP
VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM
INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL
EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM LARGE CAP
BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM
LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID
CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND,
AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES
III FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT
EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM
SMALL CAP GROWTH FUND, AIM TAX-FREE
P-19
INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR
FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE
EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO
FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO
HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO
LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND,
INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND,
NOMINAL DEFENDANTS, in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action No.
H-04-3030), filed on July 27, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and
violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case
is seeking: compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily
obtained fees and charges; and attorneys' and experts' fees.
P-20
APPENDIX P-6
PENDING LITIGATION ALLEGING FAILURE TO ENSURE PARTICIPATION IN
CLASS ACTION SETTLEMENTS
The following civil lawsuit, purporting to be a class action lawsuit,
has been filed against AIM, IINA, AIM Capital and the trustees of the AIM Funds
alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit was dismissed by the Court
on August 12, 2005.
AVO HOGAN AND JULIAN W. MEADOWS, ON BEHALF OF THEMSELVES AND ALL OTHERS
SIMILARLY SITUATED, V. BOB R. BAKER, FRANK S. BAYLEY, JAMES T. BUNCH, BRUCE L.
CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL
FRISCHLING, ROBERT H. GRAHAM, GERALD J. LEWIS, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, LOUIS S. SKLAR, LARRY SOLL, PH.D, MARK H. WILLIAMSON,
AIM INVESTMENTS, LTD., AIM ADVISORS, INC., AIM CAPITAL MANAGEMENT, INC., INVESCO
INSTITUTIONAL (N.A.), INC. AND JOHN DOES NO. 1 THROUGH 100, in the United States
District Court, Northern District of Texas (Civil Action No. 3:05-CV-73-P),
filed on January 11, 2005. This claim alleges violations of Sections 36(a),
36(b) and 47(b) of the Investment Company Act. The claim also alleges common law
breach of fiduciary duty and negligence. The plaintiffs in this case are
seeking: compensatory and punitive damages; forfeiture of all commissions and
fees paid by the class of plaintiffs; and costs and counsel fees.
P-21
FINANCIAL STATEMENTS
Pursuant to Rule 3-03(d) of Regulation S-X, unaudited financials for
the period ended April 30, 2005, for Registrant's portfolios have been included
in addition to the portfolios' audited financials for the period ended October
31, 2004. Such financials reflect all adjustments which are of a normal
recurring nature and which are in the opinion of management, necessary to a fair
statement of the results for the periods presented.
FS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Aggressive Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Aggressive Growth Fund (a portfolio of AIM Equity Funds), including the schedule
of investments, as of October 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Aggressive Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS-95.48%
ADVERTISING-1.94%
Lamar Advertising Co.-Class A(a)(b) 350,000 $ 14,497,000
- ---------------------------------------------------------------------------
Omnicom Group Inc. 300,000 23,670,000
===========================================================================
38,167,000
===========================================================================
AIRLINES-0.80%
Southwest Airlines Co. 1,000,000 15,770,000
===========================================================================
APPAREL RETAIL-3.93%
Aeropostale, Inc.(a)(c) 475,000 14,986,250
- ---------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 500,000 11,230,000
- ---------------------------------------------------------------------------
Foot Locker, Inc. 500,000 12,200,000
- ---------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a)(b) 490,800 15,254,064
- ---------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a)(c) 1,000,000 23,440,000
===========================================================================
77,110,314
===========================================================================
APPLICATION SOFTWARE-4.15%
Amdocs Ltd. (United Kingdom)(a) 625,000 15,718,750
- ---------------------------------------------------------------------------
Citrix Systems, Inc.(a)(b) 750,000 18,097,500
- ---------------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 450,000 17,779,500
- ---------------------------------------------------------------------------
Mercury Interactive Corp.(a) 425,000 18,457,750
- ---------------------------------------------------------------------------
Synopsys, Inc.(a) 700,000 11,368,000
===========================================================================
81,421,500
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-5.61%
Affiliated Managers Group, Inc.(a)(b) 300,000 16,752,000
- ---------------------------------------------------------------------------
Investors Financial Services Corp.(b) 1,100,000 42,339,000
- ---------------------------------------------------------------------------
Legg Mason, Inc.(b) 450,000 28,669,500
- ---------------------------------------------------------------------------
T. Rowe Price Group Inc. 400,000 22,308,000
===========================================================================
110,068,500
===========================================================================
BIOTECHNOLOGY-2.79%
Amylin Pharmaceuticals, Inc.(a)(b) 675,000 14,377,500
- ---------------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 235,000 9,973,400
- ---------------------------------------------------------------------------
Invitrogen Corp.(a) 300,000 17,370,000
- ---------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a)(b) 200,000 12,996,000
===========================================================================
54,716,900
===========================================================================
BROADCASTING & CABLE TV-2.09%
Radio One, Inc.-Class D(a) 1,000,000 14,690,000
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(a)(b) 850,000 26,316,000
===========================================================================
41,006,000
===========================================================================
BUILDING PRODUCTS-1.26%
American Standard Cos. Inc.(a) 678,000 24,794,460
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-6.52%
ADTRAN, Inc. 239,400 $ 5,171,040
- ---------------------------------------------------------------------------
Andrew Corp.(a) 925,000 12,931,500
- ---------------------------------------------------------------------------
Avaya Inc.(a)(b) 1,250,000 18,000,000
- ---------------------------------------------------------------------------
Avocent Corp.(a) 350,000 12,460,000
- ---------------------------------------------------------------------------
Comverse Technology, Inc.(a)(b) 1,500,000 30,960,000
- ---------------------------------------------------------------------------
Plantronics, Inc. 528,600 22,994,100
- ---------------------------------------------------------------------------
Polycom, Inc.(a) 500,000 10,325,000
- ---------------------------------------------------------------------------
Tekelec(a) 682,500 15,233,400
===========================================================================
128,075,040
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.98%
Best Buy Co., Inc. 325,000 19,246,500
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
Joy Global Inc. 375,000 12,671,250
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-7.24%
Alliance Data Systems Corp.(a)(b) 1,000,000 42,280,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a) 1,000,000 35,540,000
- ---------------------------------------------------------------------------
Paychex, Inc.(b) 750,000 24,595,500
- ---------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 1,500,000 39,735,000
===========================================================================
142,150,500
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.81%
Cintas Corp.(b) 750,000 32,355,000
- ---------------------------------------------------------------------------
Corporate Executive Board Co. (The)(c) 200,000 12,730,000
- ---------------------------------------------------------------------------
CoStar Group Inc.(a) 250,000 10,092,500
===========================================================================
55,177,500
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.47%
Cooper Industries, Ltd.-Class A (Bermuda) 225,000 14,377,500
- ---------------------------------------------------------------------------
EnerSys(a) 1,100,000 14,520,000
===========================================================================
28,897,500
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.99%
Agilent Technologies, Inc.(a)(b) 750,000 18,795,000
- ---------------------------------------------------------------------------
Littelfuse, Inc.(a) 250,000 8,155,000
- ---------------------------------------------------------------------------
Tektronix, Inc. 400,000 12,132,000
===========================================================================
39,082,000
===========================================================================
EMPLOYMENT SERVICES-2.23%
Robert Half International Inc. 1,650,000 43,774,500
===========================================================================
</Table>
FS-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.94%
Family Dollar Stores, Inc.(b) 625,000 $ 18,468,750
===========================================================================
HEALTH CARE EQUIPMENT-3.05%
Cytyc Corp.(a) 385,000 10,044,650
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 600,000 34,416,000
- ---------------------------------------------------------------------------
PerkinElmer, Inc. 750,000 15,405,000
===========================================================================
59,865,650
===========================================================================
HEALTH CARE FACILITIES-1.95%
Health Management Associates, Inc.-Class A(b) 500,000 10,330,000
- ---------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 350,000 11,347,000
- ---------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 500,000 16,515,000
===========================================================================
38,192,000
===========================================================================
HEALTH CARE SERVICES-4.90%
Caremark Rx, Inc.(a) 1,250,000 37,462,500
- ---------------------------------------------------------------------------
DaVita, Inc.(a) 600,000 17,772,000
- ---------------------------------------------------------------------------
Express Scripts, Inc.(a)(b) 400,000 25,600,000
- ---------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 450,000 15,259,500
===========================================================================
96,094,000
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.83%
Royal Caribbean Cruises Ltd. (Liberia)(b) 350,000 16,310,000
===========================================================================
INDUSTRIAL CONGLOMERATES-2.17%
Textron Inc.(c) 625,000 42,593,750
===========================================================================
INDUSTRIAL MACHINERY-1.28%
Danaher Corp.(b) 200,000 11,026,000
- ---------------------------------------------------------------------------
Eaton Corp. 221,000 14,132,950
===========================================================================
25,158,950
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.86%
Ameritrade Holding Corp.(a) 1,000,000 13,020,000
- ---------------------------------------------------------------------------
Edwards (A.G.), Inc.(b) 250,000 9,065,000
- ---------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 175,000 14,376,250
===========================================================================
36,461,250
===========================================================================
IT CONSULTING & OTHER SERVICES-1.35%
Acxiom Corp. 600,000 15,000,000
- ---------------------------------------------------------------------------
CACI International Inc.-Class A(a) 188,800 11,511,136
===========================================================================
26,511,136
===========================================================================
LEISURE PRODUCTS-0.72%
Brunswick Corp. 300,000 14,076,000
===========================================================================
MOVIES & ENTERTAINMENT-0.92%
Regal Entertainment Group-Class A(b) 912,200 18,161,902
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OIL & GAS DRILLING-0.59%
Patterson-UTI Energy, Inc.(c) 600,000 $ 11,538,000
===========================================================================
PAPER PRODUCTS-0.47%
Bowater Inc. 250,000 9,210,000
===========================================================================
PHARMACEUTICALS-4.21%
Allergan, Inc. 34,100 2,440,196
- ---------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 550,000 20,707,500
- ---------------------------------------------------------------------------
Eon Labs, Inc.(a) 354,939 8,735,049
- ---------------------------------------------------------------------------
Impax Laboratories, Inc.(a)(b) 922,200 13,611,672
- ---------------------------------------------------------------------------
IVAX Corp.(a)(b) 937,500 16,968,750
- ---------------------------------------------------------------------------
MGI Pharma, Inc.(a) 400,000 10,668,000
- ---------------------------------------------------------------------------
Valeant Pharmaceuticals International 400,000 9,600,000
===========================================================================
82,731,167
===========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.99%
CB Richard Ellis Group, Inc.-Class A(a) 750,000 19,425,000
===========================================================================
RESTAURANTS-3.69%
Brinker International, Inc.(a)(b) 750,000 24,225,000
- ---------------------------------------------------------------------------
CBRL Group, Inc. 500,000 18,130,000
- ---------------------------------------------------------------------------
Ruby Tuesday, Inc. 675,000 16,672,500
- ---------------------------------------------------------------------------
Wendy's International, Inc. 400,000 13,348,000
===========================================================================
72,375,500
===========================================================================
SEMICONDUCTOR EQUIPMENT-3.10%
KLA-Tencor Corp.(a)(b) 500,000 22,765,000
- ---------------------------------------------------------------------------
Novellus Systems, Inc.(a)(b) 1,000,000 25,910,000
- ---------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 350,000 12,113,500
===========================================================================
60,788,500
===========================================================================
SEMICONDUCTORS-6.63%
Marvell Technology Group Ltd. (Bermuda)(a)(c) 375,000 10,713,750
- ---------------------------------------------------------------------------
AMIS Holdings, Inc.(a) 1,100,000 16,720,000
- ---------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 625,000 16,906,250
- ---------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 1,500,000 17,730,000
- ---------------------------------------------------------------------------
Microchip Technology Inc.(b) 1,000,000 30,250,000
- ---------------------------------------------------------------------------
Micron Technology, Inc.(a)(b) 1,000,000 12,180,000
- ---------------------------------------------------------------------------
RF Micro Devices, Inc.(a)(b) 1,525,000 9,927,750
- ---------------------------------------------------------------------------
Semtech Corp.(a)(b) 750,000 15,660,000
===========================================================================
130,087,750
===========================================================================
SPECIALTY CHEMICALS-0.48%
Valspar Corp. (The) 200,000 9,332,000
===========================================================================
SPECIALTY STORES-4.23%
Advance Auto Parts, Inc.(a) 61,000 2,386,320
- ---------------------------------------------------------------------------
Linens 'n Things, Inc.(a) 750,000 18,060,000
- ---------------------------------------------------------------------------
</Table>
FS-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Staples, Inc.(b) 1,000,000 $ 29,740,000
- ---------------------------------------------------------------------------
Tiffany & Co. 500,000 14,665,000
- ---------------------------------------------------------------------------
Tractor Supply Co.(a) 500,000 18,140,000
===========================================================================
82,991,320
===========================================================================
TECHNOLOGY DISTRIBUTORS-1.26%
CDW Corp. 400,000 24,812,000
===========================================================================
THRIFTS & MORTGAGE FINANCE-0.70%
New York Community Bancorp, Inc.(b) 750,000 13,770,000
===========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.87%
MSC Industrial Direct Co., Inc.-Class A 500,000 17,070,000
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
TRUCKING-1.83%
Sirva Inc.(a) 1,500,000 $ 36,000,000
===========================================================================
Total Common Stocks (Cost $1,607,325,016) 1,874,154,089
===========================================================================
MONEY MARKET FUNDS-4.94%
Liquid Assets Portfolio-Institutional
Class(d) 48,442,076 48,442,076
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 48,442,076 48,442,076
===========================================================================
Total Money Market Funds (Cost
$96,884,152) 96,884,152
===========================================================================
TOTAL INVESTMENTS-100.42%
(excluding investments purchased with cash
collateral from securities loaned) (Cost
$1,704,209,168) 1,971,038,241
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-13.03%
Liquid Assets Portfolio-Institutional
Class(d)(e) 127,900,554 127,900,554
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 127,900,554 127,900,554
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $255,801,108) 255,801,108
===========================================================================
TOTAL INVESTMENTS-113.45% (Cost
$1,960,010,276) 2,226,839,349
===========================================================================
OTHER ASSETS LESS LIABILITIES-(13.45%) (263,934,602)
===========================================================================
NET ASSETS-100.00% $1,962,904,747
___________________________________________________________________________
===========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) A portion of this security is subject to call options written. See Note 1F
and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,607,325,016)* $1,874,154,089
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $352,685,260) 352,685,260
============================================================
Total investments (cost $1,960,010,276) 2,226,839,349
____________________________________________________________
============================================================
Cash 990,624
- ------------------------------------------------------------
Receivables for:
Investments sold 45,624,834
- ------------------------------------------------------------
Fund shares sold 1,096,985
- ------------------------------------------------------------
Dividends 545,715
- ------------------------------------------------------------
Premium options written 402,609
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 152,955
- ------------------------------------------------------------
Other assets 31,627
============================================================
Total assets 2,275,684,698
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 50,838,522
- ------------------------------------------------------------
Fund shares reacquired 3,237,399
- ------------------------------------------------------------
Options written, at market value (premiums
received $830,758) 1,000,960
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 289,833
- ------------------------------------------------------------
Collateral upon return of securities
loaned 255,801,108
- ------------------------------------------------------------
Accrued distribution fees 586,155
- ------------------------------------------------------------
Accrued trustees' fees 2,700
- ------------------------------------------------------------
Accrued transfer agent fees 820,724
- ------------------------------------------------------------
Accrued operating expenses 202,550
============================================================
Total liabilities 312,779,951
============================================================
Net assets applicable to shares outstanding $1,962,904,747
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,288,155,491
- ------------------------------------------------------------
Undistributed net investment income (loss) (256,874)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (591,652,741)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 266,658,871
============================================================
$1,962,904,747
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,640,288,448
____________________________________________________________
============================================================
Class B $ 248,424,615
____________________________________________________________
============================================================
Class C $ 71,229,207
____________________________________________________________
============================================================
Class R $ 2,834,226
____________________________________________________________
============================================================
Institutional Class $ 128,251
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 170,545,391
____________________________________________________________
============================================================
Class B 27,157,561
____________________________________________________________
============================================================
Class C 7,787,511
____________________________________________________________
============================================================
Class R 296,658
____________________________________________________________
============================================================
Institutional Class 13,141
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.62
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.62 divided by
94.50%) $ 10.18
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.15
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.15
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.55
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.76
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $250,914,612
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,050) $ 8,323,244
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $631,176)* 1,249,812
===========================================================================
Total investment income 9,573,056
===========================================================================
EXPENSES:
Advisory fees 14,026,309
- ---------------------------------------------------------------------------
Administrative services fees 476,287
- ---------------------------------------------------------------------------
Custodian fees 216,364
- ---------------------------------------------------------------------------
Distribution fees:
Class A 4,656,901
- ---------------------------------------------------------------------------
Class B 2,595,972
- ---------------------------------------------------------------------------
Class C 763,418
- ---------------------------------------------------------------------------
Class R 11,194
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 7,320,608
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 106
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 53,801
- ---------------------------------------------------------------------------
Other 1,046,299
===========================================================================
Total expenses 31,167,259
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements 238,837
===========================================================================
Net expenses 30,928,422
===========================================================================
Net investment income (loss) (21,355,366)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 455,938,443
- ---------------------------------------------------------------------------
Option contracts written 261,654
===========================================================================
456,200,097
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (287,875,082)
- ---------------------------------------------------------------------------
Option contracts written (170,202)
===========================================================================
(288,045,284)
===========================================================================
Net gain from investment securities and option contracts 168,154,813
===========================================================================
Net increase in net assets resulting from operations $ 146,799,447
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (21,355,366) $ (22,556,283)
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 456,200,097 61,969,001
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (288,045,284) 408,592,565
================================================================================================
Net increase in net assets resulting from operations 146,799,447 448,005,283
================================================================================================
Share transactions-net:
Class A (469,733,957) (198,927,862)
- ------------------------------------------------------------------------------------------------
Class B (28,990,427) (13,011,938)
- ------------------------------------------------------------------------------------------------
Class C (14,524,768) (6,417,966)
- ------------------------------------------------------------------------------------------------
Class R 1,554,735 879,113
- ------------------------------------------------------------------------------------------------
Institutional Class (2,730,852) 1,928,983
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (514,425,269) (215,549,670)
================================================================================================
Net increase (decrease) in net assets (367,625,822) 232,455,613
================================================================================================
NET ASSETS:
Beginning of year 2,330,530,569 2,098,074,956
================================================================================================
End of year (including undistributed net investment income
(loss) of $(256,874) and $(235,341) for 2004 and 2003,
respectively) $1,962,904,747 $2,330,530,569
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive 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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-8
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $12,113.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $187,437 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $476,287 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $7,320,608 for Class A, Class B, Class C and Class R shares
and $106 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
FS-9
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $4,656,901, $2,595,972, $763,418 and $11,194,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$227,703 in front-end sales commissions from the sale of Class A shares and
$24,499, $28,619, $9,130 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $37,783,111 $ 543,189,076 $ (532,530,111) $ -- $48,442,076 $ 311,874 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 37,783,111 543,189,076 (532,530,111) -- 48,442,076 306,762 --
=================================================================================================================================
Subtotal $75,566,222 $1,086,378,152 $(1,065,060,222) $ -- $96,884,152 $ 618,636 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $261,330,936 $ 376,727,435 $ (510,157,817) $ -- $127,900,554 $ 318,715 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 261,330,936 376,727,435 (510,157,817) -- 127,900,554 312,461 --
=================================================================================================================================
Subtotal $522,661,872 $ 753,454,870 $(1,020,315,634) $ -- $255,801,108 $ 631,176 $ --
=================================================================================================================================
Total $598,228,094 $1,839,833,022 $(2,085,375,856) $ -- $352,685,260 $1,249,812 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $36,617,685 and $34,757,881,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$33,422 and credits in custodian fees of $5,865 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$39,287.
FS-10
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $12,315
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $250,914,612 were
on loan to brokers. The loans were secured by cash collateral of $255,801,108
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $631,176 for
securities lending transactions.
FS-11
NOTE 9--OPTIONS WRITTEN
<Table>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 20,359 1,201,222
- -------------------------------------------------------------------------------------
Closed (2,250) (204,468)
- -------------------------------------------------------------------------------------
Expired (2,000) (165,996)
=====================================================================================
End of year 16,109 $ 830,758
_____________________________________________________________________________________
=====================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
Aeropostale, Inc. Dec-04 $35 863 $63,170 $ 69,040 $ (5,870)
- ------------------------------------------------------------------------------------------------------------------------------
Corporate Executive Board Co. (The) Dec-04 $65 476 79,490 80,920 (1,430)
- ------------------------------------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. Nov-04 $30 3,750 254,994 365,625 (110,631)
- ------------------------------------------------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. Dec-04 $25 4,250 177,560 233,750 (56,190)
- ------------------------------------------------------------------------------------------------------------------------------
Patterson-UTI Energy, Inc. Nov-04 $20 6,000 173,156 165,000 8,156
- ------------------------------------------------------------------------------------------------------------------------------
Textron Inc. Dec-04 $70 770 82,388 86,625 (4,237)
==============================================================================================================================
16,109 $830,758 $1,000,960 $(170,202)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 263,785,561
- ----------------------------------------------------------------------------
Temporary book/tax differences (256,874)
- ----------------------------------------------------------------------------
Capital loss carryforward (588,779,431)
- ----------------------------------------------------------------------------
Shares of beneficial interest 2,288,155,491
============================================================================
Total net assets $1,962,904,747
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on option contracts written of $(170,202).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
FS-12
The Fund utilized $451,377,424 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------------
October 31, 2009 $125,040,407
- ---------------------------------------------------------------------------------
October 31, 2010 463,739,024
=================================================================================
Total capital loss carryforward $588,779,431
_________________________________________________________________________________
=================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $2,480,691,107 and $3,053,547,607, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $301,188,049
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (37,232,286)
==============================================================================
Net unrealized appreciation of investment securities $263,955,763
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,962,883,586.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$21,333,833 and shares of beneficial interest decreased by $21,333,833. This
reclassification had no effect on the net assets of the Fund.
FS-13
NOTE 13 -- SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 19,503,343 $ 183,246,538 35,791,336 $ 277,895,468
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,785,031 24,931,760 4,508,173 33,128,293
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,454,243 13,022,624 2,072,120 15,430,661
- --------------------------------------------------------------------------------------------------------------------------
Class R 233,461 2,175,865 162,296 1,283,289
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 275,456 2,002,058
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 366,882 3,476,875 337,998 2,617,107
- --------------------------------------------------------------------------------------------------------------------------
Class B (384,365) (3,476,875) (351,540) (2,617,107)
==========================================================================================================================
Reacquired:
Class A (69,860,562) (656,457,370) (62,095,032) (479,440,437)
- --------------------------------------------------------------------------------------------------------------------------
Class B (5,651,768) (50,445,312) (5,947,043) (43,523,124)
- --------------------------------------------------------------------------------------------------------------------------
Class C (3,075,625) (27,547,392) (2,982,429) (21,848,627)
- --------------------------------------------------------------------------------------------------------------------------
Class R (66,756) (621,130) (51,154) (404,176)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (272,069) (2,730,852) (9,111) (73,075)
==========================================================================================================================
(54,968,185) $(514,425,269) (28,288,930) $(215,549,670)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are record owners of more than 5% of the
outstanding shares of the Fund and in aggregate they own 16% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
FS-14
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.99 $ 7.30 $ 8.68 $ 18.41 $ 13.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.07)(a) (0.09)(a) (0.09)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.71 1.76 (1.29) (6.34) 11.08
=================================================================================================================================
Total from investment operations 0.63 1.69 (1.38) (6.43) 10.95
=================================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.62 $ 8.99 $ 7.30 $ 8.68 $ 18.41
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.01% 23.15% (15.90)% (40.51)% 47.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,640,288 $1,983,600 $1,798,318 $2,516,407 $4,444,515
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.29%(c)(d) 1.30% 1.32% 1.17% 1.04%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.86)%(c) (0.96)% (1.00)% (0.79)% (0.77)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,862,760,352.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.30%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.04 $ 8.45 $ 18.12 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.67 1.71 (1.26) (6.20) 11.04
===========================================================================================================================
Total from investment operations 0.53 1.58 (1.41) (6.37) 10.75
===========================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
===========================================================================================================================
Net asset value, end of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.12
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 6.15% 22.44% (16.69)% (40.90)% 46.29%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $248,425 $262,098 $226,806 $294,303 $374,010
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.05% 2.07% 1.94% 1.86%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.61)%(c) (1.71)% (1.75)% (1.55)% (1.59)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $259,597,199.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
FS-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.04 $ 8.45 $ 18.11 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.67 1.71 (1.26) (6.19) 11.03
=================================================================================================================================
Total from investment operations 0.53 1.58 (1.41) (6.36) 10.74
=================================================================================================================================
Less distributions from net realized gains -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.15% 22.44% (16.69)% (40.86)% 46.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $71,229 $81,079 $72,676 $96,640 $120,591
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.04%(c)(d) 2.05% 2.07% 1.94% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.61)%(c) (1.71)% (1.75)% (1.55)% (1.59)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $76,341,843.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
<Table>
<Caption>
CLASS R
-----------------------------------------------
YEAR ENDED JUNE 3, 2002
OCTOBER 31, (DATE SALES
----------------------- COMMENCED) TO
2004 2003 OCTOBER 31, 2002
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.96 $ 7.29 $ 8.89
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)(a) (0.04)(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.69 1.77 (1.56)
=============================================================================================================
Total from investment operations 0.59 1.67 (1.60)
=============================================================================================================
Net asset value, end of period $ 9.55 $ 8.96 $ 7.29
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 6.58% 22.91% (18.00)%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,834 $1,164 $ 137
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.55% 1.62%(e)
=============================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (1.30)%(e)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(f) 115% 78% 68%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,238,723.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-16
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------
YEAR ENDED MARCH 15, 2002
OCTOBER 31, (DATE SALES
--------------------- COMMENCED) TO
2004 2003 OCTOBER 31, 2002
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.08 $7.32 $ 9.53
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.03)(a) (0.02)(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 1.79 (2.19)
============================================================================================================
Total from investment operations 0.68 1.76 (2.21)
============================================================================================================
Net asset value, end of period $9.76 $9.08 $ 7.32
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 7.49% 24.04% (23.19)%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 128 $2,589 $ 138
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets 0.72%(c)(d) 0.71% 0.81%(e)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.29)%(c) (0.37)% (0.49)%(e)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(f) 115% 78% 68%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,271,385.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.73%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
FS-17
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
FS-18
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
FS-19
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Blue Chip Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Blue
Chip Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Blue Chip Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-21
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.17%
AEROSPACE & DEFENSE-2.17%
Honeywell International Inc. 700,000 $ 23,576,000
- --------------------------------------------------------------------------
United Technologies Corp. 350,000 32,487,000
==========================================================================
56,063,000
==========================================================================
AIR FREIGHT & LOGISTICS-1.01%
United Parcel Service, Inc.-Class B 330,000 26,129,400
==========================================================================
ALUMINUM-0.71%
Alcoa Inc. 567,200 18,434,000
==========================================================================
APPAREL RETAIL-0.70%
Gap, Inc. (The) 900,000 17,982,000
==========================================================================
BIOTECHNOLOGY-2.09%
Amgen Inc.(a) 570,000 32,376,000
- --------------------------------------------------------------------------
Genentech, Inc.(a)(b) 475,000 21,626,750
==========================================================================
54,002,750
==========================================================================
BUILDING PRODUCTS-0.90%
Masco Corp. 675,000 23,125,500
==========================================================================
COMMUNICATIONS EQUIPMENT-2.91%
Cisco Systems, Inc.(a) 3,100,000 59,551,000
- --------------------------------------------------------------------------
Motorola, Inc. 900,000 15,534,000
==========================================================================
75,085,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.88%
Best Buy Co., Inc.(b) 385,000 22,799,700
==========================================================================
COMPUTER HARDWARE-3.26%
Dell Inc.(a) 1,375,000 48,207,500
- --------------------------------------------------------------------------
International Business Machines Corp. 400,000 35,900,000
==========================================================================
84,107,500
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.87%
EMC Corp.(a) 1,750,000 22,522,500
==========================================================================
CONSUMER FINANCE-2.54%
American Express Co. 635,000 33,699,450
- --------------------------------------------------------------------------
MBNA Corp. 550,000 14,096,500
- --------------------------------------------------------------------------
SLM Corp. 390,000 17,651,400
==========================================================================
65,447,350
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.65%
Automatic Data Processing, Inc. 527,300 22,879,547
- --------------------------------------------------------------------------
First Data Corp. 475,000 19,608,000
==========================================================================
42,487,547
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DEPARTMENT STORES-0.64%
J.C. Penney Co., Inc. 475,000 $ 16,430,250
==========================================================================
DIVERSIFIED BANKS-2.52%
Bank of America Corp. 850,000 38,071,500
- --------------------------------------------------------------------------
Wells Fargo & Co. 450,000 26,874,000
==========================================================================
64,945,500
==========================================================================
DIVERSIFIED CHEMICALS-0.96%
Dow Chemical Co. (The) 550,000 24,717,000
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.65%
Apollo Group, Inc.-Class A(a) 300,000 19,800,000
- --------------------------------------------------------------------------
Cendant Corp. 1,100,000 22,649,000
==========================================================================
42,449,000
==========================================================================
ELECTRIC UTILITIES-1.01%
FPL Group, Inc. 275,000 18,947,500
- --------------------------------------------------------------------------
Southern Co. (The) 225,000 7,107,750
==========================================================================
26,055,250
==========================================================================
ENVIRONMENTAL SERVICES-0.80%
Waste Management, Inc. 725,000 20,648,000
==========================================================================
FOOD DISTRIBUTORS-0.69%
Sysco Corp. 550,000 17,748,500
==========================================================================
FOOTWEAR-1.02%
NIKE, Inc.-Class B 325,000 26,425,750
==========================================================================
GENERAL MERCHANDISE STORES-0.85%
Target Corp. 440,000 22,008,800
==========================================================================
HEALTH CARE EQUIPMENT-2.81%
Medtronic, Inc. 650,000 33,221,500
- --------------------------------------------------------------------------
Waters Corp.(a) 375,000 15,483,750
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 305,000 23,664,950
==========================================================================
72,370,200
==========================================================================
HOME IMPROVEMENT RETAIL-1.91%
Home Depot, Inc. (The) 1,200,000 49,296,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.51%
Carnival Corp. (Panama)(b) 425,000 21,488,000
- --------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 365,000 17,421,450
==========================================================================
38,909,450
==========================================================================
HOUSEHOLD PRODUCTS-2.77%
Colgate-Palmolive Co. 450,000 20,079,000
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 1,005,000 51,435,900
==========================================================================
71,514,900
==========================================================================
</Table>
FS-22
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.56%
Fortune Brands, Inc. 200,000 $ 14,564,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-3.54%
Costco Wholesale Corp.(b) 525,000 25,168,500
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1,225,000 66,052,000
==========================================================================
91,220,500
==========================================================================
INDUSTRIAL CONGLOMERATES-6.01%
3M Co. 250,000 19,392,500
- --------------------------------------------------------------------------
General Electric Co. 2,405,000 82,058,600
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 1,720,000 53,578,000
==========================================================================
155,029,100
==========================================================================
INDUSTRIAL GASES-0.65%
Air Products & Chemicals, Inc. 315,000 16,751,700
==========================================================================
INDUSTRIAL MACHINERY-2.05%
Danaher Corp.(b) 580,000 31,975,400
- --------------------------------------------------------------------------
Eaton Corp. 325,000 20,783,750
==========================================================================
52,759,150
==========================================================================
INTEGRATED OIL & GAS-3.47%
Exxon Mobil Corp. 1,820,000 89,580,400
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.98%
SBC Communications Inc. 1,005,000 25,386,300
==========================================================================
INTERNET RETAIL-0.76%
eBay Inc.(a) 200,000 19,522,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.34%
Goldman Sachs Group, Inc. (The) 315,000 30,989,700
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 550,000 29,667,000
- --------------------------------------------------------------------------
Morgan Stanley 500,000 25,545,000
==========================================================================
86,201,700
==========================================================================
IT CONSULTING & OTHER SERVICES-0.52%
Accenture Ltd.-Class A (Bermuda)(a) 550,000 13,315,500
==========================================================================
MANAGED HEALTH CARE-1.47%
UnitedHealth Group Inc. 525,000 38,010,000
==========================================================================
MOVIES & ENTERTAINMENT-0.92%
Viacom Inc.-Class B 650,000 23,718,500
==========================================================================
MULTI-LINE INSURANCE-1.77%
American International Group, Inc. 750,000 45,532,500
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.61%
Dominion Resources, Inc. 245,000 15,758,400
==========================================================================
OIL & GAS DRILLING-0.41%
ENSCO International Inc. 350,000 10,692,500
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.00%
Schlumberger Ltd. (Netherlands) 410,000 $ 25,805,400
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-5.28%
Citigroup Inc. 1,875,000 83,193,750
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 1,370,000 52,882,000
==========================================================================
136,075,750
==========================================================================
PERSONAL PRODUCTS-2.07%
Avon Products, Inc. 625,000 24,718,750
- --------------------------------------------------------------------------
Gillette Co. (The) 690,000 28,621,200
==========================================================================
53,339,950
==========================================================================
PHARMACEUTICALS-7.28%
Allergan, Inc.(b) 230,000 16,458,800
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 250,000 11,150,000
- --------------------------------------------------------------------------
Johnson & Johnson 1,000,000 58,380,000
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 290,000 15,923,900
- --------------------------------------------------------------------------
Pfizer Inc. 2,450,000 70,927,500
- --------------------------------------------------------------------------
Wyeth 375,000 14,868,750
==========================================================================
187,708,950
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.03%
Allstate Corp. (The) 550,000 26,449,500
==========================================================================
RAILROADS-0.77%
Canadian National Railway Co. (Canada) 370,000 19,998,500
==========================================================================
RESTAURANTS-1.36%
McDonald's Corp. 1,200,000 34,980,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-1.01%
Applied Materials, Inc.(a) 800,000 12,880,000
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a)(b) 290,000 13,203,700
==========================================================================
26,083,700
==========================================================================
SEMICONDUCTORS-3.92%
Analog Devices, Inc. 420,000 16,909,200
- --------------------------------------------------------------------------
Intel Corp. 1,600,000 35,616,000
- --------------------------------------------------------------------------
Linear Technology Corp. 355,000 13,447,400
- --------------------------------------------------------------------------
Microchip Technology Inc. 500,000 15,125,000
- --------------------------------------------------------------------------
Xilinx, Inc. 650,000 19,890,000
==========================================================================
100,987,600
==========================================================================
SOFT DRINKS-0.84%
PepsiCo, Inc. 435,000 21,567,300
==========================================================================
SPECIALTY STORES-0.59%
Bed Bath & Beyond Inc.(a) 375,000 15,296,250
==========================================================================
SYSTEMS SOFTWARE-6.08%
Microsoft Corp. 3,100,000 86,769,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 2,125,000 26,902,500
- --------------------------------------------------------------------------
</Table>
FS-23
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
Symantec Corp.(a) 375,000 $ 21,352,500
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,000,000 21,880,000
==========================================================================
156,904,000
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.18%
Fannie Mae 435,000 30,515,250
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.87%
Vodafone Group PLC-ADR (United Kingdom) 870,000 22,437,300
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,015,015,477) 2,557,896,547
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.06%
1.61%, 12/16/04 (Cost $1,496,976)(c) $1,500,000 1,496,976
==========================================================================
MONEY MARKET FUNDS-0.56%
Liquid Assets Portfolio-Institutional
Class(d) 7,279,701 $ 7,279,701
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 7,279,701 7,279,701
==========================================================================
Total Money Market Funds (Cost
$14,559,402) 14,559,402
==========================================================================
TOTAL INVESTMENTS-99.79% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,031,071,855) 2,573,952,925
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.36%
STIC Prime Portfolio-Institutional
Class(d)(e) 34,975,975 $ 34,975,975
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $34,975,975) 34,975,975
==========================================================================
TOTAL INVESTMENTS-101.15% (Cost
$2,066,047,830) 2,608,928,900
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.15%) (29,754,052)
==========================================================================
NET ASSETS-100.00% $2,579,174,848
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-24
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$2,016,512,453)* $ 2,559,393,523
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $49,535,377) 49,535,377
============================================================
Total investments (cost $2,066,047,830) 2,608,928,900
============================================================
Receivables for:
Investments sold 17,741,398
- ------------------------------------------------------------
Fund shares sold 1,201,975
- ------------------------------------------------------------
Dividends 2,809,147
- ------------------------------------------------------------
Investment for trustee deferred compensation and retirement
plans 154,126
- ------------------------------------------------------------
Other assets 49,427
============================================================
Total assets 2,630,884,973
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 6,373,237
- ------------------------------------------------------------
Fund shares reacquired 6,807,910
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 275,117
- ------------------------------------------------------------
Collateral upon return of securities
loaned 34,975,975
- ------------------------------------------------------------
Accrued distribution fees 1,444,569
- ------------------------------------------------------------
Accrued trustees' fees 4,120
- ------------------------------------------------------------
Accrued transfer agent fees 1,351,948
- ------------------------------------------------------------
Accrued operating expenses 477,249
============================================================
Total liabilities 51,710,125
============================================================
Net assets applicable to shares outstanding $ 2,579,174,848
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,728,825,373
- ------------------------------------------------------------
Undistributed net investment income (loss) (228,692)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures
contracts (1,692,302,903)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 542,881,070
============================================================
$ 2,579,174,848
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,236,433,569
____________________________________________________________
============================================================
Class B $ 1,032,773,714
____________________________________________________________
============================================================
Class C $ 222,839,537
____________________________________________________________
============================================================
Class R $ 6,000,455
____________________________________________________________
============================================================
Investor Class $ 32,083,995
____________________________________________________________
============================================================
Institutional Class $ 49,043,578
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 113,014,179
____________________________________________________________
============================================================
Class B 99,354,990
____________________________________________________________
============================================================
Class C 21,438,780
____________________________________________________________
============================================================
Class R 550,240
____________________________________________________________
============================================================
Investor Class 2,927,332
____________________________________________________________
============================================================
Institutional Class 4,403,381
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.94
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.94 divided by
94.50%) $ 11.58
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.39
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.39
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.91
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 10.96
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.14
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $34,048,041
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-25
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $61,297) $ 35,608,376
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $18,674)* 479,651
- --------------------------------------------------------------------------
Interest 3,768
==========================================================================
Total investment income 36,091,795
==========================================================================
EXPENSES:
Advisory fees 18,508,235
- --------------------------------------------------------------------------
Administrative services fees 575,871
- --------------------------------------------------------------------------
Custodian fees 287,107
- --------------------------------------------------------------------------
Distribution fees:
Class A 4,938,054
- --------------------------------------------------------------------------
Class B 11,670,174
- --------------------------------------------------------------------------
Class C 2,664,429
- --------------------------------------------------------------------------
Class R 27,995
- --------------------------------------------------------------------------
Investor Class 88,542
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 10,479,508
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 690
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 67,595
- --------------------------------------------------------------------------
Other 1,761,913
==========================================================================
Total expenses 51,070,113
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (300,558)
==========================================================================
Net expenses 50,769,555
==========================================================================
Net investment income (loss) (14,677,760)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 141,430,751
- --------------------------------------------------------------------------
Futures contracts 121,194
==========================================================================
141,551,945
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (63,358,526)
==========================================================================
Net gain from investment securities and futures contracts 78,193,419
==========================================================================
Net increase in net assets resulting from operations $ 63,515,659
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-26
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (14,677,760) $ (14,101,484)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts 141,551,945 (105,157,212)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (63,358,526) 519,286,935
==============================================================================================
Net increase in net assets resulting from operations 63,515,659 400,028,239
==============================================================================================
Share transactions-net:
Class A (236,834,043) (162,460,380)
- ----------------------------------------------------------------------------------------------
Class B (213,672,955) (136,334,779)
- ----------------------------------------------------------------------------------------------
Class C (73,035,331) (51,018,964)
- ----------------------------------------------------------------------------------------------
Class R 4,401,189 1,425,250
- ----------------------------------------------------------------------------------------------
Investor Class 30,994,771 99,068
- ----------------------------------------------------------------------------------------------
Institutional Class 48,256,952 (43,881)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (439,889,417) (348,333,686)
==============================================================================================
Net increase (decrease) in net assets (376,373,758) 51,694,553
==============================================================================================
NET ASSETS:
Beginning of year 2,955,548,606 2,903,854,053
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(228,692) and $(193,930), respectively) $2,579,174,848 $2,955,548,606
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-27
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip 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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-28
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may
FS-29
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended October 31,
2004, AIM waived fees of $11,809.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $242,427 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $575,871 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $10,479,508 for Class A, Class B, Class C, Class R and
Investor Class shares and $690 for Institutional Class shares. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the
1940 Act with respect to the Fund's Class A, Class B, Class C, Class R and
Investor Class shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% 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 the Investor
Class shares. Of these amounts, up to 0.25% of the average daily net assets of
the Class A, Class B, Class C, Class R or Investor Class shares may be paid to
furnish continuing personal shareholder services to customers who purchase and
own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B, Class C, Class R and Investor Class
shares paid $4,938,054, $11,670,174, $2,664,429, $27,995 and $88,542,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$330,881 in front-end sales commissions from the sale of Class A shares and
$9,771, $99,868, $15,188 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
FS-30
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $32,255,406 $208,774,062 $(233,749,767) $ -- $ 7,279,701 $232,259 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 32,255,406 208,774,062 (233,749,767) -- 7,279,701 228,718 --
===========================================================================================================================
Subtotal $64,510,812 $417,548,124 $(467,499,534) $ -- $14,559,402 $460,977 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 447,700 $401,247,004 $(401,694,704) $ -- $ -- $14,488 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 84,068,150 (49,092,175) -- 34,975,975 4,186 --
===========================================================================================================================
Subtotal $ 447,700 $485,315,154 $(450,786,879) $ -- $34,975,975 $18,674 $ --
===========================================================================================================================
Total $64,958,512 $902,863,278 $(918,286,413) $ -- $49,535,377 $479,651 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $12,437,600 and $3,790,920,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$46,302 and credits in custodian fees of $20 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $46,322.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $14,743
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.
FS-31
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $34,048,041 were
on loan to brokers. The loans were secured by cash collateral of $34,975,975
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $18,674 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 502,259,018
- -----------------------------------------------------------------------------
Temporary book/tax differences (228,692)
- -----------------------------------------------------------------------------
Capital loss carryforward (1,651,680,851)
- -----------------------------------------------------------------------------
Shares of beneficial interest 3,728,825,373
=============================================================================
Total net assets $ 2,579,174,848
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,642,177,803 of capital loss carryforward in the fiscal
year ended October 31, 2005.
FS-32
The Fund utilized $138,205,191 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------
October 31, 2008 $ 85,920,513
- ----------------------------------------------------------------------------
October 31, 2009 845,288,837
- ----------------------------------------------------------------------------
October 31, 2010 617,527,392
- ----------------------------------------------------------------------------
October 31, 2011 102,944,109
============================================================================
Total capital loss carryforward $1,651,680,851
____________________________________________________________________________
============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth & Income Fund into the Fund, are realized on
securities held in each fund on such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $827,221,607 and $1,262,244,981, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $545,012,455
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (42,753,437)
==============================================================================
Net unrealized appreciation of investment securities $502,259,018
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,106,669,882.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$14,647,924 and shares of beneficial interest decreased by $14,647,924. Further,
as a result of tax deferrals acquired in the reorganization of INVESCO Growth &
Income Fund into the Fund, undistributed income was decreased by $4,926,
undistributed net realized gain was decreased by $13,855,504 and shares of
beneficial interest increased by $13,860,430. These reclassifications had no
effect on the net assets of the Fund.
FS-33
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 21,493,299 $ 237,822,246 30,092,109 $ 289,868,346
- --------------------------------------------------------------------------------------------------------------------------
Class B 7,106,647 75,074,355 12,053,281 111,049,162
- --------------------------------------------------------------------------------------------------------------------------
Class C 2,785,689 29,371,888 4,161,204 38,212,257
- --------------------------------------------------------------------------------------------------------------------------
Class R 672,346 7,394,140 164,023 1,619,420
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 513,156 5,688,744 12,285 130,138
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 4,421,094 48,593,658 -- --
==========================================================================================================================
Issued in connection with acquisitions:(c)
Class A 63,333 676,707 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B 14,065 143,763 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 98,131 1,002,254 -- --
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 3,554,717 38,013,823 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,357,674 26,110,071 1,670,042 16,099,491
- --------------------------------------------------------------------------------------------------------------------------
Class B (2,474,910) (26,110,071) (1,741,215) (16,099,491)
==========================================================================================================================
Reacquired:
Class A (45,616,888) (501,443,066) (49,132,867) (468,428,217)
- --------------------------------------------------------------------------------------------------------------------------
Class B (25,052,874) (262,781,002) (25,556,829) (231,284,450)
- --------------------------------------------------------------------------------------------------------------------------
Class C (9,864,695) (103,409,473) (9,824,798) (89,231,221)
- --------------------------------------------------------------------------------------------------------------------------
Class R (270,057) (2,992,951) (20,044) (194,170)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (1,149,919) (12,707,797) (2,907) (31,070)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (30,273) (336,706) (4,720) (43,881)
==========================================================================================================================
(41,379,465) $(439,889,417) (38,130,436) $(348,333,686)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of the
Fund. AIM Distributors has an agreement with the entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity, which
is considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, distributions, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion of
the shares owned of record by these shareholders are also owned
beneficially.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Growth & Income Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Growth & Income Fund shareholders on October 21, 2003. The
acquisition was accomplished by a tax-free exchange of 3,730,246 shares of
the Fund for 5,685,449 shares of INVESCO Growth & Income Fund outstanding as
of the close business on October 31, 2003. INVESCO Growth & Income Fund's
net assets at that date of $39,836,547 including $4,907,031 of unrealized
appreciation were combined with those of the Fund. The aggregate net assets
of the Fund immediately before the acquisition were $2,958,513,063.
FS-34
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.69 $ 9.22 $ 11.22 $ 17.29 $ 15.49
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.02) (0.04)(a) (0.04) (0.05)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 1.49 (1.96) (6.03) 1.85
====================================================================================================================
Total from investment operations 0.25 1.47 (2.00) (6.07) 1.80
====================================================================================================================
Net asset value, end of period $ 10.94 $ 10.69 $ 9.22 $ 11.22 $ 17.29
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 2.34% 15.94% (17.82)% (35.11)% 11.60%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,236,434 $1,439,518 $1,402,589 $2,067,602 $3,163,453
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 1.44%(c)(d) 1.47% 1.40% 1.28% 1.19%
====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.19)%(c) (0.17)% (0.33)% (0.29)% (0.31)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,410,872,545.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.45%.
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.22 $ 8.88 $ 10.87 $ 16.87 $ 15.22
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.08) (0.10)(a) (0.13) (0.17)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 1.42 (1.89) (5.87) 1.82
====================================================================================================================
Total from investment operations 0.17 1.34 (1.99) (6.00) 1.65
====================================================================================================================
Net asset value, end of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.87
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 1.66% 15.09% (18.31)% (35.57)% 10.87%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,032,774 $1,223,821 $1,198,513 $1,806,464 $2,746,149
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets 2.09%(c)(d) 2.12% 2.05% 1.94% 1.88%
====================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.84)%(c) (0.82)% (0.98)% (0.94)% (1.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $1,167,017,423.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.10%.
FS-35
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.22 $ 8.88 $ 10.87 $ 16.86 $ 15.21
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.08) (0.10)(a) (0.13) (0.17)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 1.42 (1.89) (5.86) 1.82
===============================================================================================================================
Total from investment operations 0.17 1.34 (1.99) (5.99) 1.65
===============================================================================================================================
Net asset value, end of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.86
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 1.66% 15.09% (18.31)% (35.53)% 10.82%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $222,840 $290,396 $302,555 $487,838 $720,186
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 2.09%(c)(d) 2.12% 2.05% 1.94% 1.88%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.84)%(c) (0.82)% (0.98)% (0.94)% (1.00)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 29% 28% 28% 31% 22%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $266,442,859.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.10%.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.66 $ 9.22 $ 10.53
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.00) (0.02)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 1.44 (1.29)
====================================================================================================
Total from investment operations 0.25 1.44 (1.31)
====================================================================================================
Net asset value, end of period $10.91 $10.66 $ 9.22
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 2.35% 15.62% (12.44)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,000 $1,578 $ 37
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.59%(c)(d) 1.62% 1.55%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (0.34)%(c) (0.32)% (0.49)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 29% 28% 28%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $5,598,909.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.60%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-36
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
------------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.69 $10.16
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.24 (0.00)
==================================================================================================
Net gains on securities (both realized and unrealized) 0.03 0.53
==================================================================================================
Total from investment operations 0.27 0.53
==================================================================================================
Net asset value, end of period $ 10.96 $10.69
__________________________________________________________________________________________________
==================================================================================================
Total return(a) 2.53% 5.22%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $32,084 $ 100
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets 1.34%(b)(c) 1.29%(d)
==================================================================================================
Ratio of net investment income (loss) to average net assets (0.09)%(b) (0.01)%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(e) 29% 28%
__________________________________________________________________________________________________
==================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(b) Ratios are based on average daily net assets of $35,416,969.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.35%.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
---------------------- OCTOBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.81 $ 9.26 $ 12.13
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.06 0.02(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.29 1.49 (2.89)
======================================================================================================
Total from investment operations 0.33 1.55 (2.87)
======================================================================================================
Net asset value, end of period $ 11.14 $10.81 $ 9.26
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 3.05% 16.74% (23.66)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $49,044 $ 136 $ 160
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 0.74%(c)(d) 0.77% 0.77%(e)
======================================================================================================
Ratio of net investment income to average net assets 0.51%(c) 0.53% 0.30%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 29% 28% 28%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $5,968,822.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.75%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-37
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
FS-38
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
FS-39
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Capital Development Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Capital Development Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Capital Development Fund as of October 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-41
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.73%
ADVERTISING-1.59%
Lamar Advertising Co.-Class A(a)(b) 136,000 $ 5,633,120
- --------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 210,700 11,430,475
==========================================================================
17,063,595
==========================================================================
AIR FREIGHT & LOGISTICS-1.38%
Robinson (C.H.) Worldwide, Inc. 274,900 14,828,106
==========================================================================
APPAREL RETAIL-2.22%
Limited Brands 487,700 12,085,206
- --------------------------------------------------------------------------
Ross Stores, Inc. 446,900 11,740,063
==========================================================================
23,825,269
==========================================================================
APPLICATION SOFTWARE-4.27%
Amdocs Ltd. (United Kingdom)(a) 473,400 11,906,010
- --------------------------------------------------------------------------
Autodesk, Inc. 273,600 14,432,400
- --------------------------------------------------------------------------
Intuit Inc.(a)(b) 274,300 12,442,248
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a) 161,000 6,992,230
==========================================================================
45,772,888
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.72%
Calamos Asset Management, Inc.-Class A(a) 338,600 6,602,700
- --------------------------------------------------------------------------
Franklin Resources, Inc. 194,900 11,814,838
==========================================================================
18,417,538
==========================================================================
BROADCASTING & CABLE TV-0.44%
Cox Radio, Inc.-Class A(a) 300,000 4,770,000
==========================================================================
BUILDING PRODUCTS-1.05%
American Standard Cos. Inc.(a) 306,900 11,223,333
==========================================================================
CASINOS & GAMING-2.44%
Harrah's Entertainment, Inc.(b) 234,400 13,717,088
- --------------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 590,600 12,508,908
==========================================================================
26,225,996
==========================================================================
COMMERCIAL PRINTING-1.11%
Donnelley (R.R.) & Sons Co. 379,764 11,943,578
==========================================================================
COMMUNICATIONS EQUIPMENT-1.77%
Harris Corp. 224,400 13,807,332
- --------------------------------------------------------------------------
Scientific-Atlanta, Inc. 189,300 5,184,927
==========================================================================
18,992,259
==========================================================================
COMPUTER HARDWARE-0.89%
PalmOne, Inc.(a)(b) 331,200 9,594,864
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.50%
Emulex Corp.(a) 510,000 5,360,100
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.77%
Cummins Inc. 117,100 $ 8,206,368
==========================================================================
CONSUMER ELECTRONICS-1.19%
Garmin Ltd. (Cayman Islands)(b) 255,500 12,775,000
==========================================================================
CONSUMER FINANCE-0.91%
AmeriCredit Corp.(a)(b) 503,600 9,769,840
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.53%
Alliance Data Systems Corp.(a) 268,600 11,356,408
- --------------------------------------------------------------------------
Certegy Inc. 164,550 5,816,842
- --------------------------------------------------------------------------
CSG Systems International, Inc.(a) 516,000 8,673,960
- --------------------------------------------------------------------------
DST Systems, Inc.(a)(b) 278,000 12,468,300
- --------------------------------------------------------------------------
Iron Mountain Inc.(a)(b) 311,850 10,306,642
==========================================================================
48,622,152
==========================================================================
DEPARTMENT STORES-1.02%
Kohl's Corp.(a)(b) 216,200 10,974,312
==========================================================================
DISTILLERS & VINTNERS-0.89%
Constellation Brands, Inc.-Class A(a) 244,000 9,572,120
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.89%
Corrections Corp. of America(a) 284,500 9,886,375
- --------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 595,500 12,505,500
- --------------------------------------------------------------------------
United Rentals, Inc.(a) 560,300 8,656,635
==========================================================================
31,048,510
==========================================================================
DRUG RETAIL-0.60%
Shoppers Drug Mart Corp. (Canada)(a) 212,100 6,452,340
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.27%
Cooper Industries, Ltd.-Class A (Bermuda) 214,000 13,674,600
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.66%
Aeroflex Inc.(a) 580,000 6,438,000
- --------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 332,400 11,411,292
==========================================================================
17,849,292
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.54%
Benchmark Electronics, Inc.(a) 170,000 5,774,900
==========================================================================
</Table>
FS-42
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
EMPLOYMENT SERVICES-0.50%
Manpower Inc. 118,200 $ 5,348,550
==========================================================================
ENVIRONMENTAL SERVICES-1.74%
Republic Services, Inc. 435,000 13,398,000
- --------------------------------------------------------------------------
Stericycle, Inc.(a) 115,900 5,253,747
==========================================================================
18,651,747
==========================================================================
GENERAL MERCHANDISE STORES-1.40%
Dollar General Corp. 498,400 9,594,200
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a)(b) 188,800 5,456,320
==========================================================================
15,050,520
==========================================================================
HEALTH CARE DISTRIBUTORS-0.79%
Henry Schein, Inc.(a) 133,900 8,466,497
==========================================================================
HEALTH CARE EQUIPMENT-3.99%
Bio-Rad Laboratories, Inc.-Class A(a) 131,400 6,835,428
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 240,100 13,772,136
- --------------------------------------------------------------------------
Varian Inc.(a) 278,300 10,152,384
- --------------------------------------------------------------------------
Waters Corp.(a) 292,400 12,073,196
==========================================================================
42,833,144
==========================================================================
HEALTH CARE FACILITIES-1.47%
Community Health Systems Inc.(a) 435,000 11,666,700
- --------------------------------------------------------------------------
Select Medical Corp. 241,400 4,149,666
==========================================================================
15,816,366
==========================================================================
HEALTH CARE SERVICES-3.79%
Caremark Rx, Inc.(a) 410,277 12,296,002
- --------------------------------------------------------------------------
Covance Inc.(a)(b) 198,900 7,900,308
- --------------------------------------------------------------------------
DaVita, Inc.(a) 338,550 10,027,851
- --------------------------------------------------------------------------
Express Scripts, Inc.(a) 162,800 10,419,200
==========================================================================
40,643,361
==========================================================================
HOME FURNISHINGS-1.35%
Tempur-Pedic International Inc.(a) 891,300 14,474,712
==========================================================================
HOMEBUILDING-1.05%
Ryland Group, Inc. (The) 118,200 11,275,098
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.51%
Starwood Hotels & Resorts Worldwide, Inc.(b) 113,800 5,431,674
==========================================================================
HOUSEWARES & SPECIALTIES-2.00%
Jarden Corp.(a) 287,700 10,104,024
- --------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 408,400 11,312,680
==========================================================================
21,416,704
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.05%
BJ's Wholesale Club, Inc.(a)(b) 389,800 11,315,894
==========================================================================
INDUSTRIAL GASES-1.04%
Airgas, Inc. 455,000 11,193,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INDUSTRIAL MACHINERY-1.72%
Eaton Corp. 84,000 $ 5,371,800
- --------------------------------------------------------------------------
Parker Hannifin Corp. 185,600 13,108,928
==========================================================================
18,480,728
==========================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 320,900 11,536,355
==========================================================================
INTEGRATED OIL & GAS-0.97%
Murphy Oil Corp. 129,500 10,362,590
==========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.41%
iShares Nasdaq Biotechnology Index Fund(a)(b) 222,500 15,161,150
==========================================================================
LEISURE PRODUCTS-1.99%
Brunswick Corp. 262,700 12,325,884
- --------------------------------------------------------------------------
Polaris Industries Inc.(b) 152,700 9,062,745
==========================================================================
21,388,629
==========================================================================
METAL & GLASS CONTAINERS-0.98%
Pactiv Corp.(a) 444,200 10,523,098
==========================================================================
MULTI-LINE INSURANCE-0.95%
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/2003: Cost
$10,000,000)(a)(c)(e) 1,000,000 9,000,000
- --------------------------------------------------------------------------
Quanta Capital Holdings Ltd. (Bermuda)(a)(b) 138,100 1,242,900
==========================================================================
10,242,900
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.13%
Questar Corp. 251,900 12,091,200
==========================================================================
OFFICE ELECTRONICS-0.60%
Zebra Technologies Corp.-Class A(a) 121,725 6,450,208
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.59%
BJ Services Co.(b) 213,200 10,873,200
- --------------------------------------------------------------------------
Key Energy Services, Inc.(a) 539,500 6,204,250
==========================================================================
17,077,450
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.37%
XTO Energy Inc. 439,125 14,657,992
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-3.16%
Ashland Inc. 226,300 13,039,406
- --------------------------------------------------------------------------
Kinder Morgan, Inc. 105,800 6,810,346
- --------------------------------------------------------------------------
Williams Cos., Inc. (The) 1,120,100 14,012,451
==========================================================================
33,862,203
==========================================================================
PACKAGED FOODS & MEATS-0.54%
Flowers Foods, Inc. 228,400 5,792,224
==========================================================================
PAPER PACKAGING-1.41%
Sealed Air Corp.(a)(b) 107,000 5,300,780
- --------------------------------------------------------------------------
</Table>
FS-43
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PAPER PACKAGING-(CONTINUED)
Smurfit-Stone Container Corp.(a) 563,800 $ 9,787,568
==========================================================================
15,088,348
==========================================================================
PERSONAL PRODUCTS-1.02%
NBTY, Inc.(a) 398,800 10,982,952
==========================================================================
PHARMACEUTICALS-1.12%
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 423,647 12,031,575
==========================================================================
REAL ESTATE-4.01%
Fieldstone Investment Corp. (Acquired
11/10/2003-11/11/2003; Cost
$9,984,140)(d)(e) 661,900 11,417,775
- --------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 574,555 9,847,873
- --------------------------------------------------------------------------
KKR Financial Corp. (Acquired 08/05/2004;
Cost $10,250,000)(a)(d)(e) 1,025,000 10,506,250
- --------------------------------------------------------------------------
New Century Financial Corp. 100,000 5,515,000
- --------------------------------------------------------------------------
Saxon Capital, Inc.(a) 296,600 5,694,720
==========================================================================
42,981,618
==========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.30%
CB Richard Ellis Group, Inc.-Class A(a) 540,400 13,996,360
==========================================================================
REGIONAL BANKS-1.08%
Zions Bancorp 175,200 11,592,984
==========================================================================
RESTAURANTS-0.86%
Ruby Tuesday, Inc.(b) 372,400 9,198,280
==========================================================================
SEMICONDUCTOR EQUIPMENT-2.73%
Cabot Microelectronics Corp.(a)(b) 212,200 7,645,566
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 247,700 11,277,781
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 402,000 10,415,820
==========================================================================
29,339,167
==========================================================================
SEMICONDUCTORS-2.07%
ATI Technologies Inc. (Canada)(a) 322,100 5,813,905
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 185,100 5,006,955
- --------------------------------------------------------------------------
Microchip Technology Inc.(b) 374,762 11,336,551
==========================================================================
22,157,411
==========================================================================
SPECIALTY CHEMICALS-0.95%
Great Lakes Chemical Corp. 397,300 10,178,826
==========================================================================
SPECIALTY STORES-1.03%
Advance Auto Parts, Inc.(a) 281,200 11,000,544
==========================================================================
SYSTEMS SOFTWARE-1.24%
McAfee Inc.(a) 550,000 13,310,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.90%
CDW Corp. 156,100 $ 9,682,883
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.08%
Radian Group Inc.(b) 242,800 11,637,404
==========================================================================
TRUCKING-1.07%
Sirva Inc.(a) 477,300 11,455,200
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.04%
NII Holdings Inc.(a)(b) 246,600 10,916,982
- --------------------------------------------------------------------------
SpectraSite, Inc.(a) 213,100 10,932,030
==========================================================================
21,849,012
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $800,639,901) 1,048,763,518
==========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS
PURCHASED-0.04%
PUTS-0.04%
Murphy Oil Corp.
(Integrated Oil &
Gas) 1,295 $80 Nov-04 301,087
- -------------------------------------------------------------------------
XTO Energy Inc. (Oil
& Gas Exploration &
Production) 4,391 30 Nov-04 76,843
=========================================================================
Total Options Purchased (Cost $884,638) 377,930
=========================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.91%
Liquid Assets Portfolio-Institutional
Class(f) 10,261,930 10,261,930
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 10,261,930 10,261,930
==========================================================================
Total Money Market Funds (Cost $20,523,860) 20,523,860
==========================================================================
TOTAL INVESTMENTS-99.68% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $822,048,399) 1,069,665,308
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.89%
Liquid Assets Portfolio-Institutional
Class(f)(g) 69,189,281 69,189,281
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 69,189,281 69,189,281
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $138,378,562) 138,378,562
==========================================================================
TOTAL INVESTMENTS-112.57% (Cost $960,426,961) 1,208,043,870
==========================================================================
OTHER ASSETS LESS LIABILITIES-(12.57%) (134,877,684)
==========================================================================
NET ASSETS-100.00% $1,073,166,186
__________________________________________________________________________
==========================================================================
</Table>
FS-44
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
October 31, 2004 represented 0.75% of the Fund's Total Investments. See Note
1A.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at October 31, 2004 was $21,924,025, which
represented 2.04% of the Fund's net assets.
(e) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at October 31, 2004 was
$30,924,025, which represented 2.88% of the Fund's net assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-45
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$801,524,539)* $1,049,141,448
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $158,902,422) 158,902,422
============================================================
Total investments (cost $960,426,961) 1,208,043,870
============================================================
Receivables for:
Investments sold 23,158,959
- ------------------------------------------------------------
Fund shares sold 1,040,163
- ------------------------------------------------------------
Dividends 140,573
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 72,551
- ------------------------------------------------------------
Other assets 46,726
============================================================
Total assets 1,232,502,842
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 18,056,931
- ------------------------------------------------------------
Fund shares reacquired 1,569,825
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 117,451
- ------------------------------------------------------------
Collateral upon return of securities
loaned 138,378,562
- ------------------------------------------------------------
Accrued distribution fees 630,739
- ------------------------------------------------------------
Accrued trustees' fees 2,277
- ------------------------------------------------------------
Accrued transfer agent fees 387,654
- ------------------------------------------------------------
Accrued operating expenses 193,217
============================================================
Total liabilities 159,336,656
============================================================
Net assets applicable to shares outstanding $1,073,166,186
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 738,072,716
- ------------------------------------------------------------
Undistributed net investment income (loss) (98,307)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities 87,611,149
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 247,580,628
============================================================
$1,073,166,186
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 617,193,910
____________________________________________________________
============================================================
Class B $ 376,354,647
____________________________________________________________
============================================================
Class C $ 73,929,300
____________________________________________________________
============================================================
Class R $ 5,621,711
____________________________________________________________
============================================================
Institutional Class $ 66,618
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 34,565,765
____________________________________________________________
============================================================
Class B 22,421,759
____________________________________________________________
============================================================
Class C 4,407,579
____________________________________________________________
============================================================
Class R 316,184
____________________________________________________________
============================================================
Institutional Class 3,674
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 17.86
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.86 divided by
94.50%) $ 18.90
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 16.79
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 16.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 17.78
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 18.13
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $135,274,803
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-46
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,998) $ 9,123,366
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $316,380)* 782,270
==========================================================================
Total investment income 9,905,636
==========================================================================
EXPENSES:
Advisory fees 7,018,923
- --------------------------------------------------------------------------
Administrative services fees 282,196
- --------------------------------------------------------------------------
Custodian fees 120,476
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,031,361
- --------------------------------------------------------------------------
Class B 3,967,972
- --------------------------------------------------------------------------
Class C 729,633
- --------------------------------------------------------------------------
Class R 14,320
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 3,027,243
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 54
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 32,363
- --------------------------------------------------------------------------
Other 650,014
==========================================================================
Total expenses 17,874,555
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (125,412)
==========================================================================
Net expenses 17,749,143
==========================================================================
Net investment income (loss) (7,843,507)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 92,544,722
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 9,292,934
- --------------------------------------------------------------------------
Foreign currencies (36,281)
==========================================================================
9,256,653
==========================================================================
Net gain from investment securities and foreign currencies 101,801,375
==========================================================================
Net increase in net assets resulting from operations $ 93,957,868
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-47
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,843,507) $ (7,651,741)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 92,544,722 64,445,148
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investments
securities and foreign currencies 9,256,653 180,427,376
==============================================================================================
Net increase in net assets resulting from operations 93,957,868 237,220,783
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (13,528,020) --
- ----------------------------------------------------------------------------------------------
Class B (10,257,718) --
- ----------------------------------------------------------------------------------------------
Class C (1,789,455) --
- ----------------------------------------------------------------------------------------------
Class R (30,198) --
- ----------------------------------------------------------------------------------------------
Institutional Class (242) --
==============================================================================================
Decrease in net assets resulting from distributions (25,605,633) --
==============================================================================================
Share transactions-net:
Class A 31,588,830 (40,295,276)
- ----------------------------------------------------------------------------------------------
Class B (40,086,908) (45,852,897)
- ----------------------------------------------------------------------------------------------
Class C 1,351,823 (3,420,452)
- ----------------------------------------------------------------------------------------------
Class R 4,312,014 902,244
- ----------------------------------------------------------------------------------------------
Institutional Class 55,370 --
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,778,871) (88,666,381)
==============================================================================================
Net increase in net assets 65,573,364 148,554,402
==============================================================================================
NET ASSETS:
Beginning of year 1,007,592,822 859,038,420
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(98,307) and $(85,597), respectively) $1,073,166,186 $1,007,592,822
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-48
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-49
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
FS-50
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $8,699.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $96,092 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $282,196 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $3,027,243 for Class A, Class B, Class C and Class R shares
and $14 for Institutional Class shares after AISI reimbursed fees for the
Institutional Class shares of $40. AISI may make payments to intermediaries that
provide omnibus account services, sub-accounting services and/or networking
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $2,031,361, $3,967,972, $729,633 and $14,320,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2004, AIM Distributors advised the Fund that it retained $171,202 in
front-end sales commissions from the sale of Class A shares and $519, $25,762,
$5,602 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
FS-51
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $16,395,571 $221,684,483 $(227,818,124) $ -- $10,261,930 $235,656 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 16,395,571 221,684,483 (227,818,124) -- 10,261,930 230,234 --
===========================================================================================================================
Subtotal $32,791,142 $443,368,966 $(455,636,248) $ -- $20,523,860 $465,890 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $77,943,886 $210,017,597 $(218,772,202) $ -- $69,189,281 $158,802 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 77,943,886 210,017,597 (218,772,202) -- 69,189,281 157,578 --
===========================================================================================================================
Subtotal $155,887,772 $420,035,194 $(437,544,404) $ -- $138,378,562 $316,380 $ --
===========================================================================================================================
Total $188,678,914 $863,404,160 $(893,180,652) $ -- $158,902,422 $782,270 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $27,195,023 and $10,946,219,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$16,199 and credits in custodian fees of $4,382 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$20,581.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $7,855
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.
FS-52
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $135,274,803 were
on loan to brokers. The loans were secured by cash collateral of $138,378,562
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $316,380 for
securities lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------
Distributions paid from long-term capital gain $25,605,633 $ --
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed long-term gain $ 88,000,687
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 247,191,090
- ----------------------------------------------------------------------------
Temporary book/tax differences (98,307)
- ----------------------------------------------------------------------------
Shares of beneficial interest 738,072,716
============================================================================
Total net assets $1,073,166,186
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales and the deferral of losses on certain
straddles. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(36,281).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
FS-53
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $748,265,373 and $776,755,843, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $260,704,530
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,477,159)
==============================================================================
Net unrealized appreciation of investment securities $247,227,371
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $960,816,499.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$7,830,797, undistributed net realized gain (loss) was decreased by $2,894,200
and shares of beneficial interest decreased by $4,936,597. This reclassification
had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,956,116 $ 121,226,684 7,864,878 $ 109,808,336
- -------------------------------------------------------------------------------------------------------------------------
Class B 2,589,525 42,660,392 2,057,426 27,535,873
- -------------------------------------------------------------------------------------------------------------------------
Class C 1,128,395 18,630,607 834,828 11,240,012
- -------------------------------------------------------------------------------------------------------------------------
Class R 275,328 4,806,109 74,458 986,707
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,080 55,129 -- --
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 727,483 12,170,787 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class B 564,080 8,923,747 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class C 96,104 1,519,408 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class R 1,810 30,198 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 14 241 -- --
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 834,769 14,693,499 340,670 4,868,315
- -------------------------------------------------------------------------------------------------------------------------
Class B (886,014) (14,693,499) (358,616) (4,868,315)
=========================================================================================================================
Reacquired:
Class A (6,701,600) (116,502,140) (11,106,766) (154,971,927)
- -------------------------------------------------------------------------------------------------------------------------
Class B (4,698,851) (76,977,548) (5,230,794) (68,520,455)
- -------------------------------------------------------------------------------------------------------------------------
Class C (1,149,534) (18,798,192) (1,117,790) (14,660,464)
- -------------------------------------------------------------------------------------------------------------------------
Class R (30,395) (524,293) (5,766) (84,463)
=========================================================================================================================
(289,690) $ (2,778,871) (6,647,472) $ (88,666,381)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There is one entity that is record owner of more than 5% of the
outstanding shares of the Fund and owns 7% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by this shareholder are also owned beneficially.
FS-54
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.66 $ 12.80 $ 14.69 $ 21.79 $ 15.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08)(a) (0.04)(a) (0.04) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.70 3.94 (1.85) (4.27) 6.68
=================================================================================================================================
Total from investment operations 1.62 3.86 (1.89) (4.31) 6.55
=================================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 17.86 $ 16.66 $ 12.80 $ 14.69 $ 21.79
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.87% 30.16% (12.87)% (21.76)% 42.98%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,194 $545,691 $456,268 $576,660 $759,838
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.40%(c)(d) 1.53% 1.38% 1.33% 1.28%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.46)%(c) (0.56)% (0.29)% (0.21)% (0.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $580,388,749.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.41%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.79 $ 12.21 $ 14.10 $ 21.16 $ 14.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.16)(a) (0.14)(a) (0.15) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.60 3.74 (1.75) (4.12) 6.52
=================================================================================================================================
Total from investment operations 1.42 3.58 (1.89) (4.27) 6.26
=================================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 16.79 $ 15.79 $ 12.21 $ 14.10 $ 21.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.13% 29.32% (13.40)% (22.29)% 42.01%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,355 $392,382 $346,456 $454,018 $617,576
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.05%(c)(d) 2.18% 2.03% 1.99% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (0.94)% (0.87)% (1.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $396,797,209.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%
FS-55
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.78 $ 12.20 $ 14.10 $ 21.15 $ 14.89
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.16)(a) (0.14)(a) (0.14) (0.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.59 3.74 (1.76) (4.12) 6.51
============================================================================================================================
Total from investment operations 1.41 3.58 (1.90) (4.26) 6.26
============================================================================================================================
Less distributions from net realized gains (0.42) -- -- (2.79) --
============================================================================================================================
Net asset value, end of period $ 16.77 $ 15.78 $ 12.20 $ 14.10 $ 21.15
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 9.07% 29.34% (13.48)% (22.24)% 42.04%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $73,929 $68,356 $56,298 $66,127 $82,982
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.05%(c)(d) 2.18% 2.03% 1.99% 1.99%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.21)% (0.94)% (0.87)% (1.30)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 74% 101% 120% 130% 101%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $72,963,303.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%.
<Table>
<Caption>
CLASS R
-----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.62 $12.79 $ 16.62
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)(a) (0.03)(a)
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.68 3.93 (3.80)
=======================================================================================================
Total from investment operations 1.58 3.83 (3.83)
=======================================================================================================
Less distributions from net realized gains (0.42) -- --
=======================================================================================================
Net asset value, end of period $17.78 $16.62 $ 12.79
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 9.65% 29.95% (23.05)%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,622 $1,154 $ 10
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 1.55%(c)(d) 1.68% 1.54%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets (0.61)%(c) (0.71)% (0.44)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 74% 101% 120%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,864,084.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.56%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-56
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
------------------- OCTOBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.83 $12.84 $ 17.25
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01(a) 0.01(a) 0.02(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.71 3.98 (4.43)
======================================================================================================
Total from investment operations 1.72 3.99 (4.41)
======================================================================================================
Less distributions from net realized gains (0.42) -- --
======================================================================================================
Net asset value, end of period $18.13 $16.83 $ 12.84
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 10.38% 31.08% (25.57)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 67 $ 10 $ 7
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets
With fee waivers and/or expense reimbursements 0.86%(c) 0.87% 0.84%(d)
- ------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.15%(c) 1.25% 0.99%(d)
======================================================================================================
Ratio of net investment income to average net assets 0.08%(c) 0.10% 0.25%(d)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(e) 74% 101% 120%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $14,384.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered
FS-57
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or
FS-58
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of
FS-59
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits
have been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Charter Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Charter Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Charter Fund as of October 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-61
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-94.34%
AEROSPACE & DEFENSE-1.26%
Northrop Grumman Corp. 700,000 $ 36,225,000
==========================================================================
BREWERS-1.48%
Heineken N.V. (Netherlands)(a)(b) 1,347,106 42,595,608
==========================================================================
BUILDING PRODUCTS-1.40%
Masco Corp. 1,174,500 40,238,370
==========================================================================
COMMUNICATIONS EQUIPMENT-1.03%
Nokia Oyj-ADR (Finland) 1,924,100 29,669,622
==========================================================================
COMPUTER HARDWARE-1.59%
International Business Machines Corp. 510,000 45,772,500
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.36%
First Data Corp. 945,000 39,009,600
==========================================================================
DEPARTMENT STORES-1.91%
Kohl's Corp.(c) 1,081,700 54,907,092
==========================================================================
DIVERSIFIED BANKS-2.53%
Bank of America Corp. 1,011,000 45,282,690
- --------------------------------------------------------------------------
Wachovia Corp. 554,850 27,304,168
==========================================================================
72,586,858
==========================================================================
DIVERSIFIED CHEMICALS-1.19%
Dow Chemical Co. (The) 758,000 34,064,520
==========================================================================
ELECTRIC UTILITIES-1.23%
FPL Group, Inc. 511,200 35,221,680
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.17%
Emerson Electric Co. 525,000 33,626,250
==========================================================================
ENVIRONMENTAL SERVICES-1.99%
Waste Management, Inc. 2,006,500 57,145,120
==========================================================================
FOOD RETAIL-2.91%
Kroger Co. (The)(c) 3,460,000 52,280,600
- --------------------------------------------------------------------------
Safeway Inc.(c) 1,720,000 31,372,800
==========================================================================
83,653,400
==========================================================================
HOUSEHOLD PRODUCTS-1.07%
Kimberly-Clark Corp. 513,000 30,610,710
==========================================================================
HOUSEWARES & SPECIALTIES-1.05%
Newell Rubbermaid Inc. 1,400,000 30,184,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.94%
Wal-Mart Stores, Inc. 500,000 26,960,000
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-4.26%
General Electric Co. 1,434,500 $ 48,945,140
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 2,360,000 73,514,000
==========================================================================
122,459,140
==========================================================================
INDUSTRIAL MACHINERY-2.48%
Dover Corp. 1,040,800 40,872,216
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 329,500 30,406,260
==========================================================================
71,278,476
==========================================================================
INTEGRATED OIL & GAS-7.03%
Amerada Hess Corp. 290,500 23,446,255
- --------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 1,015,000 59,123,750
- --------------------------------------------------------------------------
ChevronTexaco Corp. 467,000 24,779,020
- --------------------------------------------------------------------------
ConocoPhillips 305,300 25,739,843
- --------------------------------------------------------------------------
Exxon Mobil Corp. 892,700 43,938,694
- --------------------------------------------------------------------------
Murphy Oil Corp. 310,900 24,878,218
==========================================================================
201,905,780
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.34%
ALLTEL Corp. 700,000 38,451,000
==========================================================================
INTERNET RETAIL-0.80%
IAC/InterActiveCorp.(a)(c) 1,070,000 23,133,400
==========================================================================
INVESTMENT BANKING & BROKERAGE-1.04%
Morgan Stanley 582,250 29,747,152
==========================================================================
IT CONSULTING & OTHER SERVICES-1.01%
Accenture Ltd.-Class A (Bermuda)(c) 1,200,000 29,052,000
==========================================================================
LIFE & HEALTH INSURANCE-1.16%
Prudential Financial, Inc. 716,200 33,281,814
==========================================================================
OFFICE ELECTRONICS-1.62%
Xerox Corp.(c) 3,156,300 46,618,551
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.14%
Baker Hughes Inc. 763,000 32,679,290
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.29%
Citigroup Inc. 670,000 29,727,900
- --------------------------------------------------------------------------
Principal Financial Group, Inc. 955,000 36,060,800
==========================================================================
65,788,700
==========================================================================
PACKAGED FOODS & MEATS-8.23%
Campbell Soup Co. 2,107,000 56,551,880
- --------------------------------------------------------------------------
General Mills, Inc. 1,880,000 83,190,000
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 1,600,000 53,296,000
- --------------------------------------------------------------------------
</Table>
FS-62
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
Sara Lee Corp. 1,865,000 $ 43,417,200
==========================================================================
236,455,080
==========================================================================
PAPER PRODUCTS-1.44%
Georgia-Pacific Corp. 1,200,000 41,508,000
==========================================================================
PHARMACEUTICALS-12.68%
Bristol-Myers Squibb Co. 1,635,000 38,308,050
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,430,000 60,632,000
- --------------------------------------------------------------------------
Johnson & Johnson 495,000 28,898,100
- --------------------------------------------------------------------------
Merck & Co. Inc. 2,420,000 75,770,200
- --------------------------------------------------------------------------
Pfizer Inc. 2,395,000 69,335,250
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,168,000 30,368,000
- --------------------------------------------------------------------------
Wyeth 1,540,000 61,061,000
==========================================================================
364,372,600
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.97%
ACE Ltd. (Cayman Islands) 750,000 28,545,000
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 828,122 28,123,023
==========================================================================
56,668,023
==========================================================================
PUBLISHING-3.71%
Gannett Co., Inc. 450,000 37,327,500
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A(a) 952,900 38,163,645
- --------------------------------------------------------------------------
Tribune Co. 720,000 31,104,000
==========================================================================
106,595,145
==========================================================================
RAILROADS-2.76%
Norfolk Southern Corp. 1,334,000 45,289,300
- --------------------------------------------------------------------------
Union Pacific Corp. 538,000 33,877,860
==========================================================================
79,167,160
==========================================================================
REGIONAL BANKS-1.87%
BB&T Corp. 709,300 29,159,323
- --------------------------------------------------------------------------
SunTrust Banks, Inc. 351,150 24,713,937
==========================================================================
53,873,260
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-5.07%
Analog Devices, Inc. 855,000 $ 34,422,300
- --------------------------------------------------------------------------
Intel Corp. 1,889,500 42,060,270
- --------------------------------------------------------------------------
National Semiconductor Corp.(c) 2,139,000 35,721,300
- --------------------------------------------------------------------------
Xilinx, Inc. 1,097,000 33,568,200
==========================================================================
145,772,070
==========================================================================
SOFT DRINKS-0.99%
Coca-Cola Co. (The) 700,000 28,462,000
==========================================================================
SYSTEMS SOFTWARE-5.23%
Computer Associates International, Inc. 2,099,000 58,163,290
- --------------------------------------------------------------------------
Microsoft Corp. 3,287,000 92,003,130
==========================================================================
150,166,420
==========================================================================
THRIFTS & MORTGAGE FINANCE-2.11%
Washington Mutual, Inc. 1,564,560 60,564,118
==========================================================================
Total Common Stocks & Other Equity
Interests
(Cost $2,396,059,963) 2,710,469,509
==========================================================================
MONEY MARKET FUNDS-5.78%
Liquid Assets Portfolio-Institutional
Class(d) 83,058,993 83,058,993
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 83,058,993 83,058,993
==========================================================================
Total Money Market Funds (Cost
$166,117,986) 166,117,986
==========================================================================
TOTAL INVESTMENTS-100.12% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,562,177,949) 2,876,587,495
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.95%
STIC Prime Portfolio-Institutional
Class(d)(e) 27,336,279 27,336,279
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,336,279) 27,336,279
==========================================================================
TOTAL INVESTMENTS-101.07% (Cost $2,589,514,228) 2,903,923,774
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.07%) (30,677,348)
==========================================================================
NET ASSETS-100.00% $2,873,246,426
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security has been pledged as collateral for
security lending transactions as of October 31, 2004.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 1.47% of the
Fund's Total Investments. See Note 1A.
(c) Non-income producing security.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-63
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$2,396,059,963)* $2,710,469,509
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $193,454,265) 193,454,265
============================================================
Total investments (cost $2,589,514,228) 2,903,923,774
- ------------------------------------------------------------
Receivables for:
Investments sold 91,749
- ------------------------------------------------------------
Fund shares sold 677,874
- ------------------------------------------------------------
Dividends 3,441,529
- ------------------------------------------------------------
Investments matured (Note 10) 2,616,170
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 225,690
- ------------------------------------------------------------
Other assets 61,803
============================================================
Total assets 2,911,038,589
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 7,281,636
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 444,079
- ------------------------------------------------------------
Collateral upon return of securities
loaned 27,336,279
- ------------------------------------------------------------
Accrued distribution fees 1,338,545
- ------------------------------------------------------------
Accrued trustees' fees 4,421
- ------------------------------------------------------------
Accrued transfer agent fees 1,070,958
- ------------------------------------------------------------
Accrued operating expenses 316,245
============================================================
Total liabilities 37,792,163
============================================================
Net assets applicable to shares outstanding $2,873,246,426
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,220,676,279
- ------------------------------------------------------------
Undistributed net investment income 5,696,221
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (667,535,620)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 314,409,546
============================================================
$2,873,246,426
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,843,623,034
____________________________________________________________
============================================================
Class B $ 885,499,723
____________________________________________________________
============================================================
Class C $ 138,305,296
____________________________________________________________
============================================================
Class R $ 2,533,768
____________________________________________________________
============================================================
Institutional Class $ 3,284,605
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 151,588,810
____________________________________________________________
============================================================
Class B 76,298,853
____________________________________________________________
============================================================
Class C 11,883,687
____________________________________________________________
============================================================
Class R 209,486
____________________________________________________________
============================================================
Institutional Class 262,233
____________________________________________________________
============================================================
Class A :
Net asset value per share $ 12.16
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.16 divided by
94.50%) $ 12.87
____________________________________________________________
============================================================
Class B :
Net asset value and offering price per
share $ 11.61
____________________________________________________________
============================================================
Class C :
Net asset value and offering price per
share $ 11.64
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.10
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.53
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $26,097,344
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-64
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $182,690) $ 55,078,131
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $25,015)* 2,075,348
- --------------------------------------------------------------------------
Interest 956
==========================================================================
Total investment income 57,154,435
==========================================================================
EXPENSES:
Advisory fees 20,136,790
- --------------------------------------------------------------------------
Administrative services fees 585,397
- --------------------------------------------------------------------------
Custodian fees 243,906
- --------------------------------------------------------------------------
Distribution fees:
Class A 5,883,153
- --------------------------------------------------------------------------
Class B 10,549,491
- --------------------------------------------------------------------------
Class C 1,572,686
- --------------------------------------------------------------------------
Class R 11,195
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 8,357,015
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,847
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 73,380
- --------------------------------------------------------------------------
Other 1,564,364
==========================================================================
Total expenses 48,979,224
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (360,129)
==========================================================================
Net expenses 48,619,095
==========================================================================
Net investment income 8,535,340
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 284,896,878
- --------------------------------------------------------------------------
Foreign currencies 47,518
==========================================================================
284,944,396
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (662,843)
==========================================================================
Net gain from investment securities and foreign currencies 284,281,553
==========================================================================
Net increase in net assets resulting from operations $292,816,893
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-65
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,535,340 $ 3,496,816
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 284,944,396 (177,091,373)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (662,843) 649,909,999
==============================================================================================
Net increase in net assets resulting from operations 292,816,893 476,315,442
==============================================================================================
Distributions to shareholders from net investment income:
Class A (4,234,798) --
- ----------------------------------------------------------------------------------------------
Class R (2,682) --
- ----------------------------------------------------------------------------------------------
Institutional Class (14,410) --
==============================================================================================
Decrease in net assets resulting from distributions (4,251,890) --
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Class A (343,025,821) (380,938,708)
- ----------------------------------------------------------------------------------------------
Class B (360,933,716) (215,082,650)
- ----------------------------------------------------------------------------------------------
Class C (39,355,393) (29,277,194)
- ----------------------------------------------------------------------------------------------
Class R 642,358 1,521,693
- ----------------------------------------------------------------------------------------------
Institutional Class 1,074,851 339,875
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (741,597,721) (623,436,984)
==============================================================================================
Net increase (decrease) in net assets (453,032,718) (147,121,542)
==============================================================================================
NET ASSETS:
Beginning of year 3,326,279,144 3,473,400,686
==============================================================================================
End of year (including undistributed net investment income
of $5,696,221 and $1,365,253, respectively) $2,873,246,426 $3,326,279,144
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-66
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-67
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $44,820. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $267,010 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
FS-68
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $585,397 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $8,357,015 for Class A, Class B, Class C and Class R shares
and $1,847 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to customers
who purchase and own shares of such classes. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $5,883,153, $10,549,491, $1,572,686 and $11,195,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$234,197 in front-end sales commissions from the sale of Class A shares and
$3,448, $59,959, $6,679 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 98,974,452 $487,207,080 $ (503,122,539) $ -- $ 83,058,993 $1,032,599 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 98,974,452 487,207,080 (503,122,539) -- 83,058,993 1,017,734 --
===================================================================================================================================
Subtotal $197,948,904 $974,414,160 $(1,006,245,078) $ -- $166,117,986 $2,050,333 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 22,552,000 $ 341,863,851 $ (364,415,851) $ -- $ -- $ 21,732 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 46,453,174 (19,116,895) -- 27,336,279 3,283 --
===================================================================================================================================
Subtotal $ 22,552,000 $ 388,317,025 $ (383,532,746) $ -- $ 27,336,279 $ 25,015 $ --
===================================================================================================================================
Total $220,500,904 $1,362,731,185 $(1,389,777,824) $ -- $193,454,265 $2,075,348 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
FS-69
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $43,476,128 and $115,762,500,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $48,299, which resulted in a
reduction of the Fund's total expenses of $48,299.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $15,947
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $26,097,344 were
on loan to brokers. The loans were secured by cash collateral of $27,336,279
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $25,015 for securities
lending transactions.
FS-70
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------
Distributions paid from ordinary income $4,251,890 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 8,592,013
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 264,884,884
- ----------------------------------------------------------------------------
Temporary book/tax difference (394,478)
- ----------------------------------------------------------------------------
Capital loss carryforward (620,512,272)
- ----------------------------------------------------------------------------
Shares of beneficial interest 3,220,676,279
============================================================================
Total net assets $2,873,246,426
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the treatment of defaulted bonds.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $282,887,750 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $488,443,372
- -----------------------------------------------------------------------------
October 31, 2011 132,068,900
=============================================================================
Total capital loss carryforward $620,512,272
_____________________________________________________________________________
=============================================================================
* Capital loss carryforward as of the date listed above is
reduced for limitations, if any, to the extent required by
the Internal Revenue Code.
</Table>
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $1,066,339,251 and $1,695,085,970, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp. which is in default with respect to the
principal payments on $60,700,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00% which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 376,858,000
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (111,973,116)
===============================================================================
Net unrealized appreciation of investment securities $ 264,884,884
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $2,639,038,890.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on October 31, 2004, undistributed net investment income was
increased by $47,518 and undistributed net realized gain (loss) was decreased by
$47,518. This reclassification had no effect on the net assets of the Fund.
FS-71
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,951,437 $ 94,832,462 16,680,459 $ 167,057,570
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,877,677 44,222,154 8,128,480 78,572,729
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,217,568 13,934,813 2,035,003 19,657,080
- --------------------------------------------------------------------------------------------------------------------------
Class R 95,004 1,120,376 182,932 1,841,485
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 515,765 6,344,104 53,551 570,090
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 345,517 3,966,625 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class R 234 2,681 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 714 8,400 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 12,968,092 155,893,419 3,640,846 37,843,518
- --------------------------------------------------------------------------------------------------------------------------
Class B (13,548,346) (155,893,419) (3,789,510) (37,843,518)
==========================================================================================================================
Reacquired:
Class A (50,261,476) (597,718,327) (58,788,618) (585,839,796)
- --------------------------------------------------------------------------------------------------------------------------
Class B (21,841,949) (249,262,451) (26,845,101) (255,811,861)
- --------------------------------------------------------------------------------------------------------------------------
Class C (4,652,957) (53,290,206) (5,102,475) (48,934,274)
- --------------------------------------------------------------------------------------------------------------------------
Class R (40,399) (480,699) (29,999) (319,792)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (434,182) (5,277,653) (22,226) (230,215)
==========================================================================================================================
(63,807,301) $(741,597,721) (63,856,658) $(623,436,984)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 13.20% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell the Fund Shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to the
Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The Trust
has no knowledge as to whether all or any portion of the shares owned of
record by these shareholders are also owned beneficially.
FS-72
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.12 $ 9.57 $ 10.46 $ 18.07 $ 17.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.04(a) 0.01(b) (0.03) (0.04)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.51 (0.90) (6.70) 2.30
=================================================================================================================================
Total from investment operations 1.06 1.55 (0.89) (6.73) 2.26
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.02) -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 9.58% 16.20% (8.51)% (38.75)% 13.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,843,623 $2,008,702 $2,096,866 $3,159,304 $5,801,869
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(d) 1.30% 1.22% 1.16% 1.06%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(d) 1.30% 1.22% 1.17% 1.08%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.54%(d) 0.39% 0.09%(b) (0.24)% (0.20)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,961,051,091.
FS-73
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.67 $ 9.24 $ 10.18 $ 17.72 $ 16.97
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.53) 2.27
=================================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.66) 2.10
=================================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 8.81% 15.48% (9.23)% (39.14)% 12.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $885,500 $1,149,943 $1,204,617 $1,719,470 $3,088,611
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.16%)(d) (0.31)% (0.61%)(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,054,949,073.
FS-74
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.70 $ 9.27 $ 10.21 $ 17.77 $ 17.01
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.03)(a) (0.08)(b) (0.13) (0.17)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 1.46 (0.86) (6.55) 2.28
=========================================================================================================================
Total from investment operations 0.94 1.43 (0.94) (6.68) 2.11
=========================================================================================================================
Less distributions from net realized gains -- -- -- (0.88) (1.35)
=========================================================================================================================
Net asset value, end of period $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 8.79% 15.43% (9.21)% (39.14)% 12.78%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $138,305 $163,859 $170,444 $248,533 $412,872
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.00% 1.92% 1.86% 1.80%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(d) 2.00% 1.92% 1.87% 1.82%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.16)%(d) (0.31)% (0.61)%(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $157,268,602.
FS-75
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.08 $ 9.56 $ 10.94
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.02(a) 0.00
====================================================================================================
Net gains (losses) on securities (both realized and
unrealized) 1.00 1.50 (1.38)
====================================================================================================
Total from investment operations 1.04 1.52 (1.38)
====================================================================================================
Less dividends from net investment income (0.02) -- --
====================================================================================================
Net asset value, end of period $12.10 $11.08 $ 9.56
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 9.35% 15.90% (12.61)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,534 $1,714 $ 16
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.46%(c)(d) 1.50% 1.42%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets 0.34%(c) 0.19% (0.11)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 36% 28% 103%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,239,072.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements ratio of expenses to average net assets
was 1.47%
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-76
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.45 $ 9.80 $10.67 $ 18.33 $17.33
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13(a) 0.09(a) 0.06(b) 0.04 0.52
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.03 1.56 (0.93) (6.82) 1.83
================================================================================================================
Total from investment operations 1.16 1.65 (0.87) (6.78) 2.35
================================================================================================================
Less distributions:
Dividends from net investment income (0.08) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.88) (1.35)
================================================================================================================
Total distributions (0.08) -- -- (0.88) (1.35)
================================================================================================================
Net asset value, end of period $12.53 $11.45 $ 9.80 $ 10.67 $18.33
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) 10.21% 16.84% (8.15)% (38.46)% 14.02%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,285 $2,061 $1,457 $ 1,648 $3,234
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.74%(d) 0.79% 0.79% 0.68% 0.66%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.75%(d) 0.79% 0.83% 0.69% 0.68%
================================================================================================================
Ratio of net investment income to average net assets 1.06%(d) 0.90% 0.52%(b) 0.25% 0.20%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 36% 28% 103% 78% 80%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions.
(d) Ratios are based on average daily net assets of $4,378,524.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and
FS-77
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
related issues in the AIM Funds, including those formerly advised by IFG. A
final settlement also has been reached with the Colorado Division of Securities
("CODS") with respect to this matter. In their enforcement actions and
investigations, these regulators alleged, in substance, that IFG and AIM failed
to disclose in the prospectuses for the AIM Funds that they advised and to the
independent directors/trustees of such Funds that IFG and AIM had entered into
certain arrangements permitting market timing of such Funds, thereby breaching
their fiduciary duties to such Funds. As a result of the foregoing, the
regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
FS-78
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
FS-79
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-80
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Constellation Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Constellation Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Constellation Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-81
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.49%
ADVERTISING-1.02%
Lamar Advertising Co.-Class A(a)(b) 1,609,800 $ 66,677,916
===========================================================================
AEROSPACE & DEFENSE-0.64%
Honeywell International Inc. 1,250,000 42,100,000
===========================================================================
AIR FREIGHT & LOGISTICS-1.13%
Expeditors International of Washington,
Inc.(b) 500,000 28,550,000
- ---------------------------------------------------------------------------
FedEx Corp.(b) 500,000 45,560,000
===========================================================================
74,110,000
===========================================================================
AIRLINES-0.53%
Southwest Airlines Co.(b) 2,193,800 34,596,226
===========================================================================
APPAREL RETAIL-0.37%
TJX Cos., Inc. (The) 1,000,000 23,980,000
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.71%
Coach, Inc.(a) 1,000,000 46,630,000
===========================================================================
APPLICATION SOFTWARE-1.08%
Autodesk, Inc.(b) 1,350,000 71,212,500
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.22%
Investors Financial Services Corp.(b) 380,000 14,626,200
===========================================================================
BIOTECHNOLOGY-1.98%
Amgen Inc.(a) 744,700 42,298,960
- ---------------------------------------------------------------------------
Biogen Idec Inc.(a)(b) 600,000 34,896,000
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a)(b) 1,527,600 52,900,788
===========================================================================
130,095,748
===========================================================================
BROADCASTING & CABLE TV-1.99%
Clear Channel Communications, Inc.(b) 2,112,800 70,567,520
- ---------------------------------------------------------------------------
Univision Communications Inc.-Class A(a)(b) 1,944,400 60,198,624
===========================================================================
130,766,144
===========================================================================
COMMUNICATIONS EQUIPMENT-6.27%
Avaya Inc.(a)(b) 1,500,000 21,600,000
- ---------------------------------------------------------------------------
Cisco Systems, Inc.(a) 7,500,000 144,075,000
- ---------------------------------------------------------------------------
Comverse Technology, Inc.(a)(b) 2,500,000 51,600,000
- ---------------------------------------------------------------------------
Corning Inc.(a)(b) 2,200,000 25,190,000
- ---------------------------------------------------------------------------
Juniper Networks, Inc.(a)(b) 2,000,000 53,220,000
- ---------------------------------------------------------------------------
Motorola, Inc.(b) 1,473,900 25,439,514
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nokia Oyi-ADR (Finland)(b) 2,500,000 $ 38,550,000
- ---------------------------------------------------------------------------
QUALCOMM Inc. 1,250,000 52,262,500
===========================================================================
411,937,014
===========================================================================
COMPUTER & ELECTRONICS RETAIL-0.68%
Best Buy Co., Inc.(b) 750,000 44,415,000
===========================================================================
COMPUTER HARDWARE-2.80%
Apple Computer, Inc.(a)(b) 1,000,000 52,530,000
- ---------------------------------------------------------------------------
Dell Inc.(a)(b) 3,750,000 131,475,000
===========================================================================
184,005,000
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.19%
Caterpillar Inc.(b) 750,000 60,405,000
- ---------------------------------------------------------------------------
Deere & Co. 1,400,000 83,692,000
===========================================================================
144,097,000
===========================================================================
CONSUMER FINANCE-3.63%
American Express Co.(b) 1,250,000 66,337,500
- ---------------------------------------------------------------------------
Capital One Financial Corp.(b) 500,000 36,880,000
- ---------------------------------------------------------------------------
MBNA Corp.(b) 3,500,000 89,705,000
- ---------------------------------------------------------------------------
SLM Corp.(b) 1,000,000 45,260,000
===========================================================================
238,182,500
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.84%
Affiliated Computer Services, Inc.-Class
A(a)(b) 500,000 27,275,000
- ---------------------------------------------------------------------------
Automatic Data Processing, Inc. 1,000,000 43,390,000
- ---------------------------------------------------------------------------
Fiserv, Inc.(a)(b) 2,250,000 79,965,000
- ---------------------------------------------------------------------------
Paychex, Inc.(b) 1,100,000 36,073,400
===========================================================================
186,703,400
===========================================================================
DEPARTMENT STORES-0.26%
J.C. Penney Co., Inc.(b) 500,000 17,295,000
===========================================================================
DIVERSIFIED BANKS-0.68%
Bank of America Corp.(b) 1,000,000 44,790,000
===========================================================================
DIVERSIFIED CHEMICALS-1.37%
Dow Chemical Co. (The)(b) 650,000 29,211,000
- ---------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 750,000 32,152,500
- ---------------------------------------------------------------------------
Eastman Chemical Co.(b) 600,000 28,482,000
===========================================================================
89,845,500
===========================================================================
</Table>
FS-82
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.00%
Apollo Group, Inc.-Class A(a)(b) 500,000 $ 33,000,000
- ---------------------------------------------------------------------------
Cintas Corp. 750,000 32,355,000
===========================================================================
65,355,000
===========================================================================
DIVERSIFIED METALS & MINING-0.53%
Phelps Dodge Corp.(b) 400,000 35,016,000
===========================================================================
DRUG RETAIL-0.55%
Walgreen Co.(b) 1,000,000 35,890,000
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.63%
Rockwell Automation, Inc.(b) 1,000,000 41,690,000
===========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.59%
Agilent Technologies, Inc.(a)(b) 1,550,000 38,843,000
===========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.36%
Molex Inc. 802,400 23,726,968
===========================================================================
EMPLOYMENT SERVICES-1.62%
Robert Half International Inc. 4,000,000 106,120,000
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.46%
Monsanto Co. 700,000 29,925,000
===========================================================================
FOOD RETAIL-0.43%
Whole Foods Market, Inc.(b) 350,000 28,500,500
===========================================================================
FOOTWEAR-0.43%
NIKE, Inc.-Class B 350,000 28,458,500
===========================================================================
GOLD-0.67%
Newmont Mining Corp. 471,600 22,410,432
- ---------------------------------------------------------------------------
Placer Dome Inc. (Canada) 1,003,900 21,332,875
===========================================================================
43,743,307
===========================================================================
HEALTH CARE EQUIPMENT-6.78%
Bard (C.R.), Inc. 652,100 37,039,280
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 1,034,200 54,295,500
- ---------------------------------------------------------------------------
Biomet, Inc.(b) 3,535,175 165,021,969
- ---------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(b) 566,500 32,494,440
- ---------------------------------------------------------------------------
Medtronic, Inc.(b) 815,700 41,690,427
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a)(b) 352,700 27,006,239
- ---------------------------------------------------------------------------
Varian Medical Systems, Inc.(a)(b) 834,400 33,501,160
- ---------------------------------------------------------------------------
Waters Corp.(a)(b) 410,200 16,937,158
- ---------------------------------------------------------------------------
Zimmer Holdings, Inc.(a)(b) 475,600 36,901,804
===========================================================================
444,887,977
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
HEALTH CARE SERVICES-1.11%
Caremark Rx, Inc.(a)(b) 2,427,881 $ 72,763,594
===========================================================================
HEALTH CARE SUPPLIES-0.73%
Alcon, Inc. (Switzerland)(b) 677,400 48,230,880
===========================================================================
HOTELS, RESORTS & CRUISE LINES-1.48%
Carnival Corp. (Panama)(b) 750,000 37,920,000
- ---------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia)(b) 500,000 23,300,000
- ---------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(b) 750,000 35,797,500
===========================================================================
97,017,500
===========================================================================
HOUSEHOLD PRODUCTS-0.72%
Procter & Gamble Co. (The)(b) 918,800 47,024,184
===========================================================================
HYPERMARKETS & SUPER CENTERS-1.03%
Wal-Mart Stores, Inc.(b) 1,250,000 67,400,000
===========================================================================
INDUSTRIAL CONGLOMERATES-1.72%
3M Co.(b) 290,000 22,495,300
- ---------------------------------------------------------------------------
General Electric Co. 1,500,000 51,180,000
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda)(b) 1,250,000 38,937,500
===========================================================================
112,612,800
===========================================================================
INDUSTRIAL GASES-0.87%
Air Products & Chemicals, Inc. 600,000 31,908,000
- ---------------------------------------------------------------------------
Praxair, Inc. 600,000 25,320,000
===========================================================================
57,228,000
===========================================================================
INDUSTRIAL MACHINERY-3.63%
Danaher Corp.(b) 1,000,000 55,130,000
- ---------------------------------------------------------------------------
Eaton Corp.(b) 500,000 31,975,000
- ---------------------------------------------------------------------------
Illinois Tool Works Inc.(b) 363,300 33,525,324
- ---------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 1,100,000 75,284,000
- ---------------------------------------------------------------------------
Parker Hannifin Corp.(b) 600,000 42,378,000
===========================================================================
238,292,324
===========================================================================
INTEGRATED OIL & GAS-1.37%
ChevronTexaco Corp. 307,000 16,289,420
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 1,500,000 73,830,000
===========================================================================
90,119,420
===========================================================================
INTERNET RETAIL-1.19%
eBay Inc.(a)(b) 800,000 78,088,000
===========================================================================
INTERNET SOFTWARE & SERVICES-2.52%
Google Inc.-Class A(a)(b) 250,413 47,755,011
- ---------------------------------------------------------------------------
Yahoo! Inc.(a)(b) 3,250,000 117,617,500
===========================================================================
165,372,511
===========================================================================
</Table>
FS-83
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-0.37%
Goldman Sachs Group, Inc. (The)(b) 250,000 $ 24,595,000
===========================================================================
IT CONSULTING & OTHER SERVICES-0.37%
Accenture Ltd.-Class A (Bermuda)(a)(b) 1,000,000 24,210,000
===========================================================================
LIFE & HEALTH INSURANCE-0.40%
AFLAC Inc.(b) 725,450 26,029,146
===========================================================================
MANAGED HEALTH CARE-1.34%
Aetna Inc.(b) 346,500 32,917,500
- ---------------------------------------------------------------------------
UnitedHealth Group Inc.(b) 463,100 33,528,440
- ---------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 222,300 21,709,818
===========================================================================
88,155,758
===========================================================================
MOTORCYCLE MANUFACTURERS-0.31%
Harley-Davidson, Inc.(b) 350,000 20,149,500
===========================================================================
MOVIES & ENTERTAINMENT-1.08%
DreamWorks Animation SKG, Inc.-Class A(a) 117,200 4,576,660
- ---------------------------------------------------------------------------
Viacom Inc.-Class B(b) 1,811,464 66,100,321
===========================================================================
70,676,981
===========================================================================
MULTI-LINE INSURANCE-0.89%
American International Group, Inc.(b) 500,000 30,355,000
- ---------------------------------------------------------------------------
Genworth Financial Inc.-Class A(b) 1,180,000 28,154,800
===========================================================================
58,509,800
===========================================================================
OIL & GAS DRILLING-0.57%
ENSCO International Inc.(b) 1,219,000 37,240,450
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.45%
BJ Services Co.(b) 869,600 44,349,600
- ---------------------------------------------------------------------------
Halliburton Co.(b) 500,000 18,520,000
- ---------------------------------------------------------------------------
Weatherford International Ltd.
(Bermuda)(a)(b) 625,000 32,662,500
===========================================================================
95,532,100
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.58%
Apache Corp.(b) 500,000 25,350,000
- ---------------------------------------------------------------------------
Devon Energy Corp. 700,000 51,779,000
- ---------------------------------------------------------------------------
XTO Energy, Inc.(b) 800,000 26,704,000
===========================================================================
103,833,000
===========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.44%
Valero Energy Corp.(b) 670,000 28,789,900
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.17%
Citigroup Inc.(b) 1,906,900 84,609,153
- ---------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
JPMorgan Chase & Co.(b) 1,500,000 $ 57,900,000
===========================================================================
142,509,153
===========================================================================
PACKAGED FOODS & MEATS-0.89%
Hershey Foods Corp.(b) 500,000 25,345,000
- ---------------------------------------------------------------------------
Kellogg Co. 765,900 32,933,700
===========================================================================
58,278,700
===========================================================================
PERSONAL PRODUCTS-1.02%
Avon Products, Inc. 600,000 23,730,000
- ---------------------------------------------------------------------------
Gillette Co. (The)(b) 1,042,000 43,222,160
===========================================================================
66,952,160
===========================================================================
PHARMACEUTICALS-5.68%
Johnson & Johnson 1,696,100 99,018,318
- ---------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 1,333,500 54,233,445
- ---------------------------------------------------------------------------
Pfizer Inc. 4,250,000 123,037,500
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel)(b) 3,709,700 96,452,200
===========================================================================
372,741,463
===========================================================================
PUBLISHING-0.50%
Gannett Co., Inc.(b) 398,400 33,047,280
===========================================================================
REGIONAL BANKS-0.45%
Commerce Bancorp, Inc.(b) 500,000 29,620,000
===========================================================================
RESTAURANTS-0.44%
McDonald's Corp.(b) 1,000,000 29,150,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.74%
Applied Materials, Inc.(a)(b) 1,583,600 25,495,960
- ---------------------------------------------------------------------------
KLA-Tencor Corp.(a)(b) 500,000 22,765,000
===========================================================================
48,260,960
===========================================================================
SEMICONDUCTORS-6.21%
Analog Devices, Inc.(b) 2,250,000 90,585,000
- ---------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a)(b) 3,000,000 46,620,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 1,600,000 60,608,000
- ---------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a)(b) 750,000 21,427,500
- ---------------------------------------------------------------------------
Maxim Integrated Products, Inc.(b) 806,985 35,499,270
- ---------------------------------------------------------------------------
Microchip Technology Inc. 5,068,952 153,335,798
===========================================================================
408,075,568
===========================================================================
SPECIALTY CHEMICALS-0.80%
Ecolab Inc.(b) 800,000 27,080,000
- ---------------------------------------------------------------------------
Rohm & Haas Co.(b) 600,000 25,434,000
===========================================================================
52,514,000
===========================================================================
SPECIALTY STORES-3.36%
Bed Bath & Beyond Inc.(a)(b) 2,000,000 81,580,000
- ---------------------------------------------------------------------------
Staples, Inc.(b) 3,500,000 104,090,000
- ---------------------------------------------------------------------------
</Table>
FS-84
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Williams-Sonoma, Inc.(a)(b) 917,800 $ 35,032,426
===========================================================================
220,702,426
===========================================================================
STEEL-0.75%
Nucor Corp.(b) 600,000 25,338,000
- ---------------------------------------------------------------------------
United States Steel Corp.(b) 651,000 23,904,720
===========================================================================
49,242,720
===========================================================================
SYSTEMS SOFTWARE-5.04%
Adobe Systems Inc.(b) 600,000 33,618,000
- ---------------------------------------------------------------------------
Microsoft Corp. 6,000,000 167,940,000
- ---------------------------------------------------------------------------
Oracle Corp.(a) 4,438,800 56,195,208
- ---------------------------------------------------------------------------
Symantec Corp.(a)(b) 800,000 45,552,000
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a)(b) 1,263,800 27,651,944
===========================================================================
330,957,152
===========================================================================
TECHNOLOGY DISTRIBUTORS-1.31%
CDW Corp.(b) 1,391,300 86,302,339
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.52%
Nextel Communications, Inc.-Class A(a)(b) 1,297,900 34,381,371
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $5,083,616,766) 6,532,827,540
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-0.64%
Liquid Assets Portfolio-Institutional
Class(c) 21,040,807 $ 21,040,807
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 21,040,807 21,040,807
===========================================================================
Total Money Market Funds (Cost
$42,081,614) 42,081,614
===========================================================================
TOTAL INVESTMENTS-100.13% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,125,698,380) 6,574,909,154
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-14.83%
Liquid Assets Portfolio-Institutional
Class(c)(d) 969,136,004 969,136,004
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(c)(d) 4,938,485 4,938,485
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $974,074,489) 974,074,489
===========================================================================
TOTAL INVESTMENTS-114.96% (Cost
$6,099,772,869) 7,548,983,643
===========================================================================
OTHER ASSETS LESS LIABILITIES-(14.96%) (982,334,057)
===========================================================================
NET ASSETS-100.00% $6,566,649,586
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-85
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$5,083,616,766)* $ 6,532,827,540
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $1,016,156,103) 1,016,156,103
============================================================
Total investments (cost $6,099,772,869) 7,548,983,643
============================================================
Foreign currencies, at value (cost $1,505) 1,543
- ------------------------------------------------------------
Receivables for:
Investments sold 36,103,535
- ------------------------------------------------------------
Fund shares sold 5,247,741
- ------------------------------------------------------------
Dividends 3,608,701
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 478,198
- ------------------------------------------------------------
Other assets 73,560
============================================================
Total assets 7,594,496,921
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 24,512,996
- ------------------------------------------------------------
Fund shares reacquired 22,456,741
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,036,780
- ------------------------------------------------------------
Collateral upon return of securities
loaned 974,074,489
- ------------------------------------------------------------
Accrued distribution fees 1,956,560
- ------------------------------------------------------------
Accrued trustees' fees 6,750
- ------------------------------------------------------------
Accrued transfer agent fees 2,947,479
- ------------------------------------------------------------
Accrued operating expenses 855,540
============================================================
Total liabilities 1,027,847,335
============================================================
Net assets applicable to shares outstanding $ 6,566,649,586
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 7,288,266,146
- ------------------------------------------------------------
Undistributed net investment income (loss) (907,378)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (2,169,919,994)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,449,210,812
============================================================
$ 6,566,649,586
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 5,616,072,058
____________________________________________________________
============================================================
Class B $ 617,004,804
____________________________________________________________
============================================================
Class C $ 162,706,560
____________________________________________________________
============================================================
Class R $ 6,202,267
____________________________________________________________
============================================================
Institutional Class $ 164,663,897
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 264,001,060
____________________________________________________________
============================================================
Class B 30,930,529
____________________________________________________________
============================================================
Class C 8,158,834
____________________________________________________________
============================================================
Class R 291,974
____________________________________________________________
============================================================
Institutional Class 7,157,074
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 21.27
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $21.27 divided by
94.50%) $ 22.51
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 19.95
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 19.94
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 21.24
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 23.01
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $954,954,771
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-86
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $414,846) $ 48,034,675
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $138,487)* 1,652,388
===========================================================================
Total investment income 49,687,063
===========================================================================
EXPENSES:
Advisory fees 46,243,987
- ---------------------------------------------------------------------------
Administrative services fees 710,711
- ---------------------------------------------------------------------------
Custodian fees 525,253
- ---------------------------------------------------------------------------
Distribution fees:
Class A 19,016,041
- ---------------------------------------------------------------------------
Class B 6,702,181
- ---------------------------------------------------------------------------
Class C 1,845,072
- ---------------------------------------------------------------------------
Class R 24,911
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 21,734,849
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 81,066
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 151,416
- ---------------------------------------------------------------------------
Other 2,985,841
===========================================================================
Total expenses 100,021,328
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,322,281)
===========================================================================
Net expenses 98,699,047
===========================================================================
Net investment income (loss) (49,011,984)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 750,565,101
- ---------------------------------------------------------------------------
Foreign currencies (1,170,065)
- ---------------------------------------------------------------------------
Option contracts written 804,191
===========================================================================
750,199,227
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (467,700,274)
- ---------------------------------------------------------------------------
Foreign currencies 38
===========================================================================
(467,700,236)
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 282,498,991
===========================================================================
Net increase in net assets resulting from operations $ 233,487,007
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-87
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (49,011,984) $ (54,584,186)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 750,199,227 (454,745,158)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and foreign currencies and option
contracts (467,700,236) 1,834,190,965
================================================================================================
Net increase in net assets resulting from operations 233,487,007 1,324,861,621
================================================================================================
Share transactions-net:
Class A (1,414,942,300) (1,112,282,235)
- ------------------------------------------------------------------------------------------------
Class B (88,166,720) (46,666,906)
- ------------------------------------------------------------------------------------------------
Class C (35,344,446) (22,091,083)
- ------------------------------------------------------------------------------------------------
Class R 3,284,897 2,235,274
- ------------------------------------------------------------------------------------------------
Institutional Class 4,128,631 5,433,008
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,531,039,938) (1,173,371,942)
================================================================================================
Net increase (decrease) in net assets (1,297,552,931) 151,489,679
================================================================================================
NET ASSETS:
Beginning of year 7,864,202,517 7,712,712,838
================================================================================================
End of year (including undistributed net investment income
(loss) of $(907,378) and $(844,799), respectively) $ 6,566,649,586 $ 7,864,202,517
________________________________________________________________________________________________
================================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
FS-88
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
FS-89
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. AIM has voluntarily agreed to waive advisory fees payable by the Fund
to AIM at the annual rate of 0.025% for each $5 billion increment in net assets
over $5 billion, up to a maximum waiver of 0.175% on net assets in excess of $35
billion. Further, AIM has voluntarily agreed to waive advisory fees of the Fund
in the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $623,391. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $587,335 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $710,711 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $21,734,849 for Class A, Class B, Class C and Class R shares
and $81,066 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to
FS-90
customers who purchase and own shares of such classes. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $19,016,041, $6,702,181, $1,845,072 and $24,911,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2004, AIM Distributors advised the Fund that it retained $743,284 in
front-end sales commissions from the sale of Class A shares and $19,335,
$84,327, $11,693 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 95,933,174 $1,169,096,235 $(1,243,988,602) $ -- $21,040,807 $ 766,132 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 95,933,174 1,169,096,235 (1,243,988,602) -- 21,040,807 747,769 --
===================================================================================================================================
Subtotal $191,866,348 $2,338,192,470 $(2,487,977,204) $ -- $42,081,614 $1,513,901 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $155,180,095 $3,731,967,251 $(2,918,011,342) $ -- $ 969,136,004 $ 132,031 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 24,938,485 -- (20,000,000) -- 4,938,485 6,456 --
====================================================================================================================================
Subtotal $180,118,580 $3,731,967,251 $(2,938,011,342) $ -- $ 974,074,489 $ 138,487 $ --
====================================================================================================================================
Total $371,984,928 $6,070,159,721 $(5,425,988,546) $ -- $1,016,156,103 $1,652,388 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $114,504,134 and $56,171,339,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$109,966 and credits in custodian fees of $1,589 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$111,555.
FS-91
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $31,034
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $954,954,771 were
on loan to brokers. The loans were secured by cash collateral of $974,074,489
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $138,487 for
securities lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 7,250 867,152
- ------------------------------------------------------------------------------------
Closed (3,925) (613,840)
- ------------------------------------------------------------------------------------
Expired (3,325) (253,312)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
FS-92
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 1,443,574,764
- -----------------------------------------------------------------------------
Temporary book/tax differences (907,378)
- -----------------------------------------------------------------------------
Capital loss carryforward (2,164,283,946)
- -----------------------------------------------------------------------------
Shares of beneficial interest 7,288,266,146
=============================================================================
Total net assets $ 6,566,649,586
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation on foreign currencies of $38.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $745,543,129 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------
October 31, 2009 $ 478,530,901
- ----------------------------------------------------------------------------
October 31, 2010 1,223,985,487
- ----------------------------------------------------------------------------
October 31, 2011 461,767,558
============================================================================
Total capital loss carryforward $2,164,283,946
____________________________________________________________________________
============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $3,585,815,574 and $5,051,191,698, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,643,458,910
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (199,884,184)
==============================================================================
Net unrealized appreciation of investment securities $1,443,574,726
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $6,105,408,917.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2004, undistributed net
investment income was increased by $48,949,405, undistributed net realized gain
(loss) was increased by $1,170,065 and shares of beneficial interest decreased
by $50,119,470. This reclassification had no effect on the net assets of the
Fund.
FS-93
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2004 2003
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 21,730,966 $ 462,412,977 40,892,692 $ 728,901,495
- -------------------------------------------------------------------------------------------------------------------------------
Class B 2,742,938 54,987,929 4,399,643 74,587,779
- -------------------------------------------------------------------------------------------------------------------------------
Class C 1,295,928 26,018,679 1,764,643 29,858,199
- -------------------------------------------------------------------------------------------------------------------------------
Class R 215,406 4,599,852 163,302 2,916,332
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,641,747 36,786,966 1,117,656 21,391,286
===============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 403,007 8,647,784 325,830 5,894,532
- -------------------------------------------------------------------------------------------------------------------------------
Class B (428,243) (8,647,784) (344,006) (5,894,532)
===============================================================================================================================
Reacquired:
Class A (89,250,664) (1,886,003,061) (104,213,879) (1,847,078,262)
- -------------------------------------------------------------------------------------------------------------------------------
Class B (6,761,489) (134,506,865) (6,899,964) (115,360,153)
- -------------------------------------------------------------------------------------------------------------------------------
Class C (3,085,701) (61,363,125) (3,090,330) (51,949,282)
- -------------------------------------------------------------------------------------------------------------------------------
Class R (61,955) (1,314,955) (37,857) (681,058)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class (1,437,940) (32,658,335) (833,861) (15,958,278)
===============================================================================================================================
(72,996,000) $(1,531,039,938) (66,756,131) $(1,173,371,942)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 14% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
FS-94
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.61 $ 17.20 $ 19.72 $ 43.50 $ 34.65
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.12)(a) (0.15)(a) (0.12) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.79 3.53 (2.37) (16.24) 12.39
=================================================================================================================================
Total from investment operations 0.66 3.41 (2.52) (16.36) 12.13
=================================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 3.20% 19.83% (12.78)% (43.10)% 36.56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,616,072 $6,825,023 $6,780,055 $9,703,277 $19,268,977
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.27%(c) 1.29% 1.26% 1.14% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.29%(c) 1.30% 1.27% 1.17% 1.11%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.59)(c) (0.67)% (0.74)% (0.46)% (0.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $6,338,680,161.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.89 $ 42.28 $ 34.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.28) (0.58)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 3.33 (2.26) (15.69) 12.14
=============================================================================================================================
Total from investment operations 0.49 3.10 (2.53) (15.97) 11.56
=============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=============================================================================================================================
Net asset value, end of period $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 2.52% 18.95% (13.39)% (43.49)% 35.51%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,005 $688,587 $625,294 $818,343 $1,315,524
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
=============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $670,218,131.
FS-95
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.46 $ 16.36 $ 18.88 $ 42.27 $ 33.99
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.23)(a) (0.27)(a) (0.29) (0.59)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.74 3.33 (2.25) (15.68) 12.15
==============================================================================================================================
Total from investment operations 0.48 3.10 (2.52) (15.97) 11.56
==============================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
==============================================================================================================================
Net asset value, end of period $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 2.47% 18.95% (13.35)% (43.51)% 35.52%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $162,707 $193,585 $184,393 $258,786 $434,544
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 1.99% 1.96% 1.86% 1.85%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.99%(c) 2.00% 1.97% 1.89% 1.88%
==============================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.29)(c) (1.37)% (1.44)% (1.17)% (1.38)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from net asset value and returns for shareholder
transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $184,507,218.
<Table>
<Caption>
CLASS R
-------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.63 $17.26 $19.82
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.16)(a) (0.07)(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.78 3.53 (2.49)
=========================================================================================================
Total from investment operations 0.61 3.37 (2.56)
=========================================================================================================
Net asset value, end of period $21.24 $20.63 $17.26
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 2.96% 19.52% (12.92)%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,202 $2,857 $ 226
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(c) 1.49% 1.53%(d)
- ---------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%(c) 1.50% 1.54%(d)
=========================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)(c) (0.87)% (1.01)(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 50% 47% 57%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $4,982,137.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-96
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.17 $ 18.40 $ 21.00 $ 45.55 $ 36.01
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.03)(a) (0.06) 0.01 (0.09)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.85 3.80 (2.54) (17.14) 12.91
=========================================================================================================================
Total from investment operations 0.84 3.77 (2.60) (17.13) 12.82
=========================================================================================================================
Less Distributions from net realized gains -- -- -- (7.42) (3.28)
=========================================================================================================================
Net asset value, end of period $ 23.01 $ 22.17 $ 18.40 $ 21.00 $ 45.55
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 3.79% 20.49% (12.38)% (42.80)% 37.14%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $164,664 $154,150 $122,746 $150,609 $288,097
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.72%(c) 0.75% 0.80% 0.65% 0.65%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.74%(c) 0.76% 0.81% 0.68% 0.68%
=========================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.04)(c) (0.13)% (0.28)% 0.03% (0.18)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values and returns for shareholder transactions.
(c) Ratios are based on average daily net assets of $158,650,215.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
FS-97
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
FS-98
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
FS-99
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-100
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Diversified Dividend Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Diversified Dividend Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Diversified Dividend Fund as of October 31, 2004, the results of its operations
for the year then ended, the statements of changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-101
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-90.30%
ADVERTISING-0.97%
Omnicom Group Inc. 15,300 $ 1,207,170
=======================================================================
AEROSPACE & DEFENSE-2.06%
Raytheon Co. 50,800 1,853,184
- -----------------------------------------------------------------------
United Technologies Corp. 7,700 714,714
=======================================================================
2,567,898
=======================================================================
APPAREL RETAIL-1.90%
Limited Brands 39,600 981,288
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 57,800 1,386,044
=======================================================================
2,367,332
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.67%
V. F. Corp. 38,600 2,077,838
=======================================================================
APPLICATION SOFTWARE-0.53%
SAP A.G.-ADR (Germany) 15,500 661,075
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.19%
Federated Investors, Inc.-Class B 51,000 1,478,490
=======================================================================
AUTO PARTS & EQUIPMENT-0.35%
Johnson Controls, Inc. 7,600 435,860
=======================================================================
BREWERS-1.36%
Anheuser-Busch Cos., Inc. 33,900 1,693,305
=======================================================================
BUILDING PRODUCTS-2.34%
Masco Corp. 85,100 2,915,526
=======================================================================
COMPUTER HARDWARE-2.19%
Hewlett-Packard Co. 83,900 1,565,574
- -----------------------------------------------------------------------
International Business Machines Corp. 12,900 1,157,775
=======================================================================
2,723,349
=======================================================================
CONSTRUCTION & ENGINEERING-1.32%
Fluor Corp. 35,500 1,648,620
=======================================================================
CONSTRUCTION MATERIALS-0.48%
Lafarge North America Inc. 12,100 592,900
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.05%
Automatic Data Processing, Inc. 31,600 1,371,124
- -----------------------------------------------------------------------
First Data Corp. 28,500 1,176,480
=======================================================================
2,547,604
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
DISTRIBUTORS-0.86%
Genuine Parts Co. 26,900 $ 1,073,041
=======================================================================
DIVERSIFIED BANKS-3.11%
Bank of America Corp. 47,200 2,114,088
- -----------------------------------------------------------------------
U.S. Bancorp 28,900 826,829
- -----------------------------------------------------------------------
Wachovia Corp. 19,000 934,990
=======================================================================
3,875,907
=======================================================================
DIVERSIFIED CHEMICALS-2.48%
Dow Chemical Co. (The) 26,800 1,204,392
- -----------------------------------------------------------------------
PPG Industries, Inc. 29,500 1,880,625
=======================================================================
3,085,017
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.51%
H&R Block, Inc. 18,800 893,940
- -----------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 46,700 980,700
=======================================================================
1,874,640
=======================================================================
ELECTRIC UTILITIES-3.07%
Entergy Corp. 17,400 1,137,264
- -----------------------------------------------------------------------
Exelon Corp. 56,300 2,230,606
- -----------------------------------------------------------------------
Wisconsin Energy Corp. 14,000 456,960
=======================================================================
3,824,830
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.83%
Cooper Industries, Ltd.-Class A (Bermuda) 19,600 1,252,440
- -----------------------------------------------------------------------
Emerson Electric Co. 35,400 2,267,370
=======================================================================
3,519,810
=======================================================================
FOOTWEAR-0.72%
NIKE, Inc.-Class B 11,000 894,410
=======================================================================
HEALTH CARE EQUIPMENT-2.16%
Baxter International Inc. 62,600 1,925,576
- -----------------------------------------------------------------------
Becton, Dickinson & Co. 14,500 761,250
=======================================================================
2,686,826
=======================================================================
HOME IMPROVEMENT RETAIL-1.21%
Home Depot, Inc. (The) 36,800 1,511,744
=======================================================================
HOUSEHOLD APPLIANCES-0.94%
Snap-on Inc. 39,800 1,169,324
=======================================================================
HOUSEHOLD PRODUCTS-2.30%
Colgate-Palmolive Co. 50,900 2,271,158
- -----------------------------------------------------------------------
Kimberly-Clark Corp. 9,900 590,733
=======================================================================
2,861,891
=======================================================================
</Table>
FS-102
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INDUSTRIAL MACHINERY-3.46%
Illinois Tool Works Inc. 9,100 $ 839,748
- -----------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 28,800 1,971,072
- -----------------------------------------------------------------------
Pentair, Inc. 40,200 1,502,676
=======================================================================
4,313,496
=======================================================================
INSURANCE BROKERS-1.14%
Marsh & McLennan Cos., Inc. 51,200 1,416,192
=======================================================================
INTEGRATED OIL & GAS-4.43%
ChevronTexaco Corp. 11,200 594,272
- -----------------------------------------------------------------------
ConocoPhillips 11,700 986,427
- -----------------------------------------------------------------------
Eni S.p.A. (Italy)(a) 30,100 690,704
- -----------------------------------------------------------------------
Exxon Mobil Corp. 16,000 787,520
- -----------------------------------------------------------------------
Occidental Petroleum Corp. 26,100 1,457,163
- -----------------------------------------------------------------------
Total S.A. (France)(a) 4,800 1,004,810
=======================================================================
5,520,896
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.83%
SBC Communications Inc. 40,900 1,033,134
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.74%
Morgan Stanley 42,400 2,166,216
=======================================================================
LIFE & HEALTH INSURANCE-0.83%
Prudential Financial, Inc. 22,300 1,036,281
=======================================================================
MULTI-LINE INSURANCE-1.10%
Hartford Financial Services Group, Inc. (The) 23,500 1,374,280
=======================================================================
MULTI-UTILITIES & UNREGULATED POWER-2.93%
Dominion Resources, Inc. 28,700 1,845,984
- -----------------------------------------------------------------------
Public Service Enterprise Group Inc. 42,200 1,797,298
=======================================================================
3,643,282
=======================================================================
OFFICE SERVICES & SUPPLIES-0.81%
Pitney Bowes Inc. 23,000 1,006,250
=======================================================================
OIL & GAS DRILLING-1.04%
GlobalSantaFe Corp. (Cayman Islands) 44,000 1,298,000
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.64%
Citigroup Inc. 46,100 2,045,457
=======================================================================
PACKAGED FOODS & MEATS-3.94%
General Mills, Inc. 45,500 2,013,375
- -----------------------------------------------------------------------
Hershey Foods Corp. 14,400 729,936
- -----------------------------------------------------------------------
Kellogg Co. 20,000 860,000
- -----------------------------------------------------------------------
Sara Lee Corp. 55,900 1,301,352
=======================================================================
4,904,663
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PAPER PACKAGING-0.84%
Bemis Co., Inc. 15,200 $ 402,344
- -----------------------------------------------------------------------
Sonoco Products Co. 24,300 647,595
=======================================================================
1,049,939
=======================================================================
PERSONAL PRODUCTS-0.69%
Avon Products, Inc. 21,600 854,280
=======================================================================
PHARMACEUTICALS-10.24%
Abbott Laboratories 55,100 2,348,913
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 52,600 1,232,418
- -----------------------------------------------------------------------
Johnson & Johnson 41,400 2,416,932
- -----------------------------------------------------------------------
Lilly (Eli) & Co. 35,200 1,932,832
- -----------------------------------------------------------------------
Merck & Co. Inc. 13,800 432,078
- -----------------------------------------------------------------------
Pfizer Inc. 65,200 1,887,540
- -----------------------------------------------------------------------
Wyeth 63,200 2,505,880
=======================================================================
12,756,593
=======================================================================
PROPERTY & CASUALTY INSURANCE-3.43%
Chubb Corp. (The) 8,700 627,531
- -----------------------------------------------------------------------
MBIA Inc. 27,200 1,573,792
- -----------------------------------------------------------------------
SAFECO Corp. 9,300 430,032
- -----------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 48,400 1,643,664
=======================================================================
4,275,019
=======================================================================
PUBLISHING-0.99%
Gannett Co., Inc. 14,900 1,235,955
=======================================================================
REGIONAL BANKS-2.17%
Cullen/Frost Bankers, Inc. 10,800 529,200
- -----------------------------------------------------------------------
KeyCorp 17,000 571,030
- -----------------------------------------------------------------------
North Fork Bancorp., Inc. 36,400 1,605,240
=======================================================================
2,705,470
=======================================================================
RESTAURANTS-1.45%
Outback Steakhouse, Inc. 45,700 1,809,263
=======================================================================
SEMICONDUCTORS-1.49%
Linear Technology Corp. 25,000 947,000
- -----------------------------------------------------------------------
Texas Instruments Inc. 37,400 914,430
=======================================================================
1,861,430
=======================================================================
SOFT DRINKS-1.25%
PepsiCo, Inc. 31,300 1,551,854
=======================================================================
SYSTEMS SOFTWARE-1.71%
Microsoft Corp. 76,100 2,130,039
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.21%
Fannie Mae 13,600 954,040
- -----------------------------------------------------------------------
MGIC Investment Corp. 8,500 546,635
=======================================================================
1,500,675
=======================================================================
</Table>
FS-103
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
TOBACCO-1.34%
Altria Group, Inc. 34,400 $ 1,667,024
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $103,200,562) 112,450,095
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
NOTES-0.36%
AEROSPACE & DEFENSE-0.07%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(b) $ 75,000 82,638
=======================================================================
BROADCASTING & CABLE TV-0.08%
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05(b) 100,000 101,597
=======================================================================
ELECTRIC UTILITIES-0.13%
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05(b) 160,000 167,573
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OTHER DIVERSIFIED FINANCIAL SERVICES-0.08%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(b) $ 100,000 $ 100,407
=======================================================================
Total Notes (Cost $451,848) 452,215
=======================================================================
U.S. TREASURY BILLS-0.40%
1.62%, 12/16/04 (Cost $498,986)(c) 500,000(d) 498,986
=======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-13.44%
Liquid Assets Portfolio-Institutional
Class(e) 8,365,886 8,365,886
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 8,365,886 8,365,886
=======================================================================
Total Money Market Funds (Cost
$16,731,772) 16,731,772
=======================================================================
TOTAL INVESTMENTS-104.50% (Cost $120,883,168) 130,133,068
=======================================================================
OTHER ASSETS LESS LIABILITIES-(4.50%) (5,603,883)
=======================================================================
NET ASSETS-100.00% $124,529,185
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$1,695,514, which represented 1.30% of the Fund's Total Investments. See
Note 1A.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at October
31, 2004 was $452,215, which represented 0.35% of the Fund's Total
Investments. See Note 1A.
(c) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 9.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-104
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$104,151,396) $113,401,296
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $16,731,772) 16,731,772
===========================================================
Total investments (cost $120,883,168) 130,133,068
===========================================================
Receivables for:
Investments sold 303,590
- -----------------------------------------------------------
Variation margin 2,700
- -----------------------------------------------------------
Fund shares sold 1,185,428
- -----------------------------------------------------------
Dividends and interest 182,194
- -----------------------------------------------------------
Amount due from advisor 9,911
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,846
- -----------------------------------------------------------
Other assets 32,175
===========================================================
Total assets 131,857,912
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 7,008,815
- -----------------------------------------------------------
Fund shares reacquired 164,368
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 9,560
- -----------------------------------------------------------
Accrued distribution fees 64,638
- -----------------------------------------------------------
Accrued trustees' fees 864
- -----------------------------------------------------------
Accrued transfer agent fees 45,135
- -----------------------------------------------------------
Accrued operating expenses 35,347
===========================================================
Total liabilities 7,328,727
===========================================================
Net assets applicable to shares outstanding $124,529,185
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $112,989,604
- -----------------------------------------------------------
Undistributed net investment income (8,903)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
futures contracts and option contracts 2,289,194
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 9,259,290
===========================================================
$124,529,185
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 63,513,256
___________________________________________________________
===========================================================
Class B $ 45,699,620
___________________________________________________________
===========================================================
Class C $ 15,316,309
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 5,531,730
___________________________________________________________
===========================================================
Class B 4,014,872
___________________________________________________________
===========================================================
Class C 1,347,153
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.48
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.48 divided by
94.50%) $ 12.15
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.38
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.37
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-105
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,650) $1,718,885
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 78,001
- ------------------------------------------------------------------------
Interest 18,670
========================================================================
Total investment income 1,815,556
========================================================================
EXPENSES:
Advisory fees 600,345
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 22,370
- ------------------------------------------------------------------------
Distribution fees:
Class A 134,282
- ------------------------------------------------------------------------
Class B 318,360
- ------------------------------------------------------------------------
Class C 98,436
- ------------------------------------------------------------------------
Transfer agent fees 248,184
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 13,241
- ------------------------------------------------------------------------
Other 148,681
========================================================================
Total expenses 1,633,899
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (561,093)
========================================================================
Net expenses 1,072,806
========================================================================
Net investment income 742,750
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 3,140,049
- ------------------------------------------------------------------------
Foreign currencies 2,121
- ------------------------------------------------------------------------
Futures contracts 46,724
- ------------------------------------------------------------------------
Option contracts written 21,415
========================================================================
3,210,309
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 4,343,728
- ------------------------------------------------------------------------
Foreign currencies (14)
- ------------------------------------------------------------------------
Futures contracts 9,390
========================================================================
4,353,104
========================================================================
Net gain from investment securities, foreign currencies,
futures contracts and option contracts 7,563,413
========================================================================
Net increase in net assets resulting from operations $8,306,163
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-106
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 742,750 $ 85,307
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 3,210,309 (463,512)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 4,353,104 6,127,078
========================================================================================
Net increase in net assets resulting from operations 8,306,163 5,748,873
========================================================================================
Distributions to shareholders from net investment income:
Class A (500,393) (67,755)
- ----------------------------------------------------------------------------------------
Class B (204,810) (14,134)
- ----------------------------------------------------------------------------------------
Class C (63,792) (3,436)
========================================================================================
Decrease in net assets resulting from distributions (768,995) (85,325)
========================================================================================
Share transactions-net:
Class A 37,536,817 11,899,583
- ----------------------------------------------------------------------------------------
Class B 21,106,883 12,028,596
- ----------------------------------------------------------------------------------------
Class C 8,543,492 4,163,744
========================================================================================
Net increase in net assets resulting from share
transactions 67,187,192 28,091,923
========================================================================================
Net increase in net assets 74,724,360 33,755,471
========================================================================================
NET ASSETS:
Beginning of year 49,804,825 16,049,354
========================================================================================
End of year (including undistributed net investment
income of $(8,903) and $(3,386), respectively) $124,529,185 $49,804,825
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
FS-107
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
FS-108
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the next $1
billion of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $2 billion. AIM has voluntarily agreed to
waive advisory fees and/or reimburse expenses to the extent necessary to limit
Total Annual Operating Expenses (excluding certain items discussed below) of
Class A, Class B and Class C shares to 1.00%, 1.65% and 1.65% of average daily
net assets, respectively. AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit Total Annual
Operating Expenses (excluding certain items discussed below) of Class A, Class B
and Class C shares to 1.50%, 2.15% and 2.15% of average daily net assets,
respectively, through October 31, 2005. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the Total Annual Fund Operating Expenses to
exceed the caps stated above: (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (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, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $531,230.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $28,553 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $248,184. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $134,282,
$318,360 and $98,436, respectively.
FS-109
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$64,410 in front-end sales commissions from the sale of Class A shares and $300,
$8,410 and $1,776 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,615,482 $24,141,052 $(17,390,648) $ -- $ 8,365,886 $39,277 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,615,482 24,141,052 (17,390,648) -- 8,365,886 38,724 --
==================================================================================================================================
Total $3,230,964 $48,282,104 $(34,781,296) $ -- $16,731,772 $78,001 $ --
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
procedures, during the year ended October 31, 2004, the Fund engaged in
purchases and sales of securities of $102,143 and $94,900, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$1,198 and credits in custodian fees of $112 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $1,310.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $4,484
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are
FS-110
parties to the credit facility can borrow on a first come, first served basis.
Principal on each loan outstanding shall bear interest at the bid rate quoted by
SSB at the time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 688 51,842
- -------------------------------------------------------------------------------------
Closed (473) (40,673)
- -------------------------------------------------------------------------------------
Exercised (215) (11,169)
=====================================================================================
End of year -- $ --
_____________________________________________________________________________________
=====================================================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On October 31, 2004, $77,000 principal amount of U.S. Treasury obligations was
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------
S&P 500 Futures 20 Dec-04/Long $1,130,300 $9,390
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------
Distributions paid from ordinary income $768,995 $85,325
_________________________________________________________________________________
=================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,363,869
- ----------------------------------------------------------------------------
Undistributed long-term gain 1,100,008
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 9,084,607
- ----------------------------------------------------------------------------
Temporary book/tax differences (8,903)
- ----------------------------------------------------------------------------
Shares of beneficial interest 112,989,604
============================================================================
Total net assets $124,529,185
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the realization of gains on certain futures contracts.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
FS-111
The Fund utilized $411,417 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward as of October 31, 2004.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $80,661,385 and $22,212,633, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $11,614,974
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,530,367)
===============================================================================
Net unrealized appreciation of investment securities $ 9,084,607
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $121,048,461.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distributions and
foreign currencies transactions, on October 31, 2004, undistributed net
investment income was increased by $20,728, undistributed net realized gain was
decreased by $250,728 and shares of beneficial interest increased by $230,000.
This reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGE IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2004 2003
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,322,865 $ 48,449,001 2,036,155 $18,695,942
- --------------------------------------------------------------------------------------------------------------------
Class B 2,496,183 27,796,432 1,811,612 16,607,284
- --------------------------------------------------------------------------------------------------------------------
Class C 891,143 9,870,802 599,285 5,518,092
====================================================================================================================
Issued as reinvestment of dividends:
Class A 41,472 465,571 6,293 61,880
- --------------------------------------------------------------------------------------------------------------------
Class B 16,701 185,244 1,275 12,449
- --------------------------------------------------------------------------------------------------------------------
Class C 5,270 58,491 324 3,166
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 186,137 2,093,587 71,889 675,552
- --------------------------------------------------------------------------------------------------------------------
Class B (187,728) (2,093,587) (72,485) (675,552)
====================================================================================================================
Reacquired:
Class A (1,198,931) (13,471,342) (834,757) (7,533,791)
- --------------------------------------------------------------------------------------------------------------------
Class B (432,094) (4,781,206) (439,212) (3,915,585)
- --------------------------------------------------------------------------------------------------------------------
Class C (125,008) (1,385,801) (152,851) (1,357,514)
====================================================================================================================
6,016,010 $ 67,187,192 3,027,528 $28,091,923
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distributions, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are also
owned beneficially.
FS-112
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.26 $ 8.70 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.14 0.06(a) (0.03)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.23 1.54 (1.27)
========================================================================================================
Total from investment operations 1.37 1.60 (1.30)
========================================================================================================
Less dividends from net investment income (0.15) (0.04) --
========================================================================================================
Net asset value, end of period $ 11.48 $ 10.26 $ 8.70
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 13.36% 18.39% (13.00)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,513 $22,375 $ 7,834
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(c) 1.51% 1.75%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.70%(c) 2.12% 4.26%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets 1.27%(c) 0.65% (0.34)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $38,366,366.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-113
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.17 $ 8.65 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00(a) (0.08)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.53 (1.27)
========================================================================================================
Total from investment operations 1.28 1.53 (1.35)
========================================================================================================
Less dividends from net investment income (0.07) (0.01) --
========================================================================================================
Net asset value, end of period $ 11.38 $ 10.17 $ 8.65
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 12.63% 17.67% (13.50)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,700 $21,582 $ 7,100
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(c) 2.16% 2.40%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.77% 4.91%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(c) 0.00% (0.99)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $31,836,043.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-114
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------
DECEMBER 31, 2001
YEAR ENDED (DATE OPERATIONS
OCTOBER 31, COMMENCED) TO
-------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.16 $ 8.65 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.07 0.00(a) (0.08)(a)
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.21 1.52 (1.27)
==========================================================================================================
Total from investment operations 1.28 1.52 (1.35)
==========================================================================================================
Less dividends from net investment income (0.07) (0.01) --
==========================================================================================================
Net asset value, end of period $ 11.37 $10.16 $ 8.65
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 12.64% 17.55% (13.50)%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,316 $5,848 $ 1,116
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(c) 2.16% 2.40%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.35%(c) 2.77% 4.91%(d)
==========================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(c) 0.00% (0.99)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 30% 72% 42%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $9,843,547.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered
FS-115
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG, AIM and ADI breached various Federal and state
securities, business and consumer protection laws. Under the terms of the
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
FS-116
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
FS-117
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-118
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Large Cap Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Basic Value Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the four years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
period ended October 31, 2000 were audited by other auditors whose report dated
December 6, 2000, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Basic Value Fund as of October 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the four
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-119
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.23%
ADVERTISING-5.13%
Interpublic Group of Cos., Inc. (The)(a) 580,200 $ 7,113,252
- -----------------------------------------------------------------------
Omnicom Group Inc. 141,600 11,172,240
=======================================================================
18,285,492
=======================================================================
AEROSPACE & DEFENSE-1.80%
Honeywell International Inc. 190,300 6,409,304
=======================================================================
ALUMINUM-1.62%
Alcoa Inc. 177,500 5,768,750
=======================================================================
APPAREL RETAIL-1.71%
Gap, Inc. (The) 304,700 6,087,906
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.47%
Bank of New York Co., Inc. (The) 270,600 8,783,676
=======================================================================
BUILDING PRODUCTS-2.33%
Masco Corp. 242,200 8,297,772
=======================================================================
COMMUNICATIONS EQUIPMENT-1.06%
Motorola, Inc. 219,200 3,783,392
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.85%
Deere & Co. 50,800 3,036,824
=======================================================================
CONSUMER ELECTRONICS-3.19%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 197,970 4,715,645
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 190,700 6,645,895
=======================================================================
11,361,540
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.69%
Ceridian Corp.(a) 300,700 5,187,075
- -----------------------------------------------------------------------
First Data Corp. 278,700 11,504,736
=======================================================================
16,691,811
=======================================================================
DEPARTMENT STORES-1.25%
May Department Stores Co. (The) 170,800 4,451,048
=======================================================================
DIVERSIFIED CHEMICALS-0.71%
Dow Chemical Co. (The) 56,600 2,543,604
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.60%
Cendant Corp. 449,600 9,257,264
=======================================================================
ENVIRONMENTAL SERVICES-3.11%
Waste Management, Inc. 388,550 11,065,904
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
FOOD RETAIL-3.04%
Kroger Co. (The)(a) 416,600 $ 6,294,826
- -----------------------------------------------------------------------
Safeway Inc.(a) 248,800 4,538,112
=======================================================================
10,832,938
=======================================================================
GENERAL MERCHANDISE STORES-2.57%
Target Corp. 183,100 9,158,662
=======================================================================
HEALTH CARE DISTRIBUTORS-4.92%
Cardinal Health, Inc. 239,600 11,201,300
- -----------------------------------------------------------------------
McKesson Corp. 237,100 6,321,086
=======================================================================
17,522,386
=======================================================================
HEALTH CARE EQUIPMENT-1.47%
Baxter International Inc. 170,800 5,253,808
=======================================================================
HEALTH CARE FACILITIES-1.80%
HCA, Inc. 174,400 6,405,712
=======================================================================
INDUSTRIAL CONGLOMERATES-6.25%
General Electric Co. 232,500 7,932,900
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 459,800 14,322,770
=======================================================================
22,255,670
=======================================================================
INDUSTRIAL MACHINERY-2.47%
Illinois Tool Works Inc. 95,515 8,814,124
=======================================================================
INSURANCE BROKERS-1.18%
Aon Corp. 206,600 4,216,706
=======================================================================
INVESTMENT BANKING & BROKERAGE-4.26%
Merrill Lynch & Co., Inc. 127,800 6,893,532
- -----------------------------------------------------------------------
Morgan Stanley 162,000 8,276,580
=======================================================================
15,170,112
=======================================================================
MANAGED HEALTH CARE-2.21%
Anthem, Inc.(a)(b) 98,000 7,879,200
=======================================================================
MOVIES & ENTERTAINMENT-2.60%
Walt Disney Co. (The) 367,100 9,258,262
=======================================================================
MULTI-LINE INSURANCE-1.41%
Hartford Financial Services Group, Inc. (The) 85,600 5,005,888
=======================================================================
OIL & GAS DRILLING-2.09%
Transocean Inc. (Cayman Islands)(a) 211,377 7,451,039
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-4.74%
Halliburton Co. 265,100 9,819,304
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 112,100 7,055,574
=======================================================================
16,874,878
=======================================================================
</Table>
FS-120
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.51%
Citigroup Inc. 241,619 $ 10,720,635
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 323,356 12,481,542
=======================================================================
23,202,177
=======================================================================
PACKAGED FOODS & MEATS-1.65%
Kraft Foods Inc.-Class A 176,300 5,872,553
=======================================================================
PHARMACEUTICALS-7.62%
Pfizer Inc. 276,900 8,016,255
- -----------------------------------------------------------------------
Sanofi-Aventis S.A. (France)(b)(c) 164,452 12,065,161
- -----------------------------------------------------------------------
Wyeth 178,300 7,069,595
=======================================================================
27,151,011
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.22%
ACE Ltd. (Cayman Islands) 207,800 7,908,868
=======================================================================
SYSTEMS SOFTWARE-3.27%
Computer Associates International, Inc. 419,900 11,635,429
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.43%
Fannie Mae 174,300 12,227,145
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $308,322,173) 349,920,855
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-2.13%
Liquid Assets Portfolio-Institutional
Class(d) 3,790,466 $ 3,790,466
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 3,790,466 3,790,466
=======================================================================
Total Money Market Funds (Cost
$7,580,932) 7,580,932
=======================================================================
TOTAL INVESTMENTS-100.36% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $315,903,105) 357,501,787
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-2.02%
STIC Prime Portfolio-Institutional
Class(d)(e) 7,196,450 7,196,450
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,196,450) 7,196,450
=======================================================================
TOTAL INVESTMENTS-102.38% (Cost $323,099,555) 364,698,237
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.38%) (8,492,777)
=======================================================================
NET ASSETS-100.00% $356,205,460
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 3.31% of the
Fund's Total Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-121
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$308,322,173)* $349,920,855
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $14,777,382) 14,777,382
===========================================================
Total investments (cost $323,099,555) 364,698,237
___________________________________________________________
===========================================================
Receivables for:
Fund shares sold 581,284
- -----------------------------------------------------------
Dividends 503,581
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 55,403
- -----------------------------------------------------------
Other assets 58,511
===========================================================
Total assets 365,897,016
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,403,301
- -----------------------------------------------------------
Fund shares reacquired 758,866
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 68,796
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,196,450
- -----------------------------------------------------------
Accrued distribution fees 164,794
- -----------------------------------------------------------
Accrued trustees' fees 1,433
- -----------------------------------------------------------
Accrued transfer agent fees 58,660
- -----------------------------------------------------------
Accrued operating expenses 39,256
===========================================================
Total liabilities 9,691,556
===========================================================
Net assets applicable to shares outstanding $356,205,460
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $335,213,046
- -----------------------------------------------------------
Undistributed net investment income (loss) (57,053)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (20,549,215)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 41,598,682
===========================================================
$356,205,460
___________________________________________________________
===========================================================
NET ASSETS:
Class A $150,190,493
___________________________________________________________
===========================================================
Class B $ 84,895,719
___________________________________________________________
===========================================================
Class C $ 30,835,140
___________________________________________________________
===========================================================
Class R $ 990,992
___________________________________________________________
===========================================================
Investor Class $ 70,548,023
___________________________________________________________
===========================================================
Institutional Class $ 18,745,093
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 12,155,745
___________________________________________________________
===========================================================
Class B 7,064,497
___________________________________________________________
===========================================================
Class C 2,566,055
___________________________________________________________
===========================================================
Class R 80,535
___________________________________________________________
===========================================================
Investor Class 5,704,142
___________________________________________________________
===========================================================
Institutional Class 1,513,815
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.36
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.36 divided by
94.50%) $ 13.08
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.02
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.02
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.31
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 12.37
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 12.38
___________________________________________________________
===========================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $6,877,673
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-122
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $71,703) $ 4,901,739
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $17,393)* 154,542
=========================================================================
Total investment income 5,056,281
=========================================================================
EXPENSES:
Advisory fees 2,109,274
- -------------------------------------------------------------------------
Administrative services fees 125,883
- -------------------------------------------------------------------------
Custodian fees 43,391
- -------------------------------------------------------------------------
Distribution fees:
Class A 525,588
- -------------------------------------------------------------------------
Class B 893,755
- -------------------------------------------------------------------------
Class C 314,386
- -------------------------------------------------------------------------
Class R 3,976
- -------------------------------------------------------------------------
Investor Class 188,897
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R and Investor 868,093
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 3,536
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 18,698
- -------------------------------------------------------------------------
Other 327,822
=========================================================================
Total expenses 5,423,299
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (48,743)
=========================================================================
Net expenses 5,374,556
=========================================================================
Net investment income (loss) (318,275)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 12,491,108
- -------------------------------------------------------------------------
Foreign currencies 9,419
=========================================================================
12,500,527
=========================================================================
Change in net unrealized appreciation of investment
securities 13,417,119
=========================================================================
Net gain from investment securities and foreign currencies 25,917,646
=========================================================================
Net increase in net assets resulting from operations $25,599,371
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-123
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (318,275) $ (639,955)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 12,500,527 (9,793,824)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 13,417,119 51,420,584
==========================================================================================
Net increase in net assets resulting from operations 25,599,371 40,986,805
==========================================================================================
Share transactions-net:
Class A 18,535,871 5,382,960
- ------------------------------------------------------------------------------------------
Class B (1,304,921) 2,113,303
- ------------------------------------------------------------------------------------------
Class C 2,160,392 (14,173)
- ------------------------------------------------------------------------------------------
Class R 365,393 537,385
- ------------------------------------------------------------------------------------------
Investor Class 62,887,146 177,572
- ------------------------------------------------------------------------------------------
Institutional Class 18,632,135 --
==========================================================================================
Net increase in net assets resulting from share
transactions 101,276,016 8,197,047
==========================================================================================
Net increase in net assets 126,875,387 49,183,852
==========================================================================================
NET ASSETS:
Beginning of year 229,330,073 180,146,221
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(57,053) and $(25,218), respectively) $356,205,460 $229,330,073
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-124
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is long-term growth of capital with
a secondary objective of current income. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-125
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.60% of the first $1
billion of the Fund's average daily net assets, plus 0.575% over $1 billion up
to and including $2 billion of the Fund's average daily net assets and 0.55% of
the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
fund). Voluntary fee waivers or reimbursements may be modified or discontinued
at any time upon consultation with the Board of Trustees without further notice
to investors. For the year ended October 31, 2004, AIM waived fees of $2,312.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $41,164 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $125,883 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the
FS-126
Institutional Class, the transfer agent has contractually agreed to reimburse
class specific transfer agent fees and expenses to the extent necessary to limit
transfer agent fees to 0.10% of the average net assets. For the year ended
October 31, 2004, the Fund paid AISI $868,093 for Class A, Class B, Class C,
Class R and Investor Class shares and $3,536 for Institutional Class. AISI may
make payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. Institutional Class shares commenced sales on April 30,
2004. 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 AIM
Distributors compensation at the annual rate of 0.35% 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 the Investor Class shares.
Of these amounts, up to 0.25% of the average daily net assets of the Class A,
Class B, Class C or Class R shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended October 31, 2004,
the Class A, Class B, Class C, Class R and Investor Class shares paid $525,588,
$893,755, $314,386, $3,976, $188,897, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$78,339 in front-end sales commissions from the sale of Class A shares and
$1,584, $11,543, $4,072 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,921,637 $ 39,445,160 $ (37,576,331) $ -- $ 3,790,466 $ 69,486 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,921,637 39,445,160 (37,576,331) -- 3,790,466 67,663 --
==============================================================================================================================
Subtotal $3,843,274 $ 78,890,320 $ (75,152,662) $ -- $ 7,580,932 $137,149 $ --
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,248,000 $ 74,751,501 $ (77,999,501) $ -- $ -- $ 13,457 $ --
- ------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 26,802,341 (19,605,891) -- 7,196,450 3,936 --
==============================================================================================================================
Subtotal $3,248,000 $101,553,842 $ (97,605,392) $ -- $ 7,196,450 $ 17,393 $ --
==============================================================================================================================
Total $7,091,274 $180,444,162 $(172,758,054) $ -- $14,777,382 $154,542 $ --
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
FS-127
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,159,448 and $4,625,830,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$5,264 and credits in custodian fees of $3 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $5,267.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,344
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
FS-128
At October 31, 2004, securities with an aggregate value of $6,877,673 were
on loan to brokers. The loans were secured by cash collateral of $7,196,450,
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $17,393 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and October 31, 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 39,701,181
- --------------------------------------------------------------------------
Temporary book/tax differences (57,053)
- --------------------------------------------------------------------------
Capital loss carryforward (18,651,714)
- --------------------------------------------------------------------------
Shares of beneficial interest 335,213,046
==========================================================================
Total net assets $356,205,460
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $18,651,714 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund utilized $12,094,867 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2010 $ 9,120,472
- -----------------------------------------------------------------------------
October 31, 2011 9,531,242
=============================================================================
Total capital loss carryforward $18,651,714
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Value Equity Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $108,851,727 and $96,576,124, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 55,037,043
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (15,335,862)
==============================================================================
Net unrealized appreciation of investment securities $ 39,701,181
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $324,997,056.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on October 31, 2004, undistributed net
investment income (loss) was increased by $318,190, undistributed net realized
gain (loss) was decreased by $9,419 and shares of beneficial interest decreased
by $308,771. Further, as a result of tax deferrals acquired in the
reorganization of INVESCO Value Equity Fund into the Fund, undistributed net
FS-129
investment income (loss) was decreased by $31,750, undistributed net realized
gain (loss) was decreased by $6,270,695, and shares of beneficial interest
increased by $6,302,445. This reclassification had no effect on the net assets
of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,797,896 $ 59,721,792 5,695,229 $ 56,588,456
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,918,978 23,316,127 2,611,379 25,467,901
- ----------------------------------------------------------------------------------------------------------------------
Class C 753,705 9,128,932 936,198 9,069,047
- ----------------------------------------------------------------------------------------------------------------------
Class R 54,757 677,970 59,714 632,113
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 1,838,069 22,849,380 30,507 346,714
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) 1,526,455 18,788,116 -- --
======================================================================================================================
Issued in connection with acquisitions:(d)
Class A 23,582 268,604 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B 31,404 350,200 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 100,704 1,122,781 -- --
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 7,662,600 87,273,020 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 467,293 5,834,860 315,247 3,158,288
- ----------------------------------------------------------------------------------------------------------------------
Class B (478,951) (5,834,860) (321,047) (3,158,288)
======================================================================================================================
Reacquired:
Class A (3,841,386) (47,289,385) (5,558,986) (54,363,784)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,581,802) (19,136,388) (2,170,734) (20,196,310)
- ----------------------------------------------------------------------------------------------------------------------
Class C (671,051) (8,091,321) (955,066) (9,083,220)
- ----------------------------------------------------------------------------------------------------------------------
Class R (25,935) (312,577) (8,863) (94,728)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class(b) (3,812,184) (47,235,254) (14,850) (169,142)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) (12,640) (155,981) -- --
======================================================================================================================
8,751,494 $101,276,016 618,728 $ 8,197,047
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 13% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder are also
owned beneficially. 5% of the outstanding shares of the Fund are owned by
affiliated mutual funds. Affiliated mutual funds are mutual funds that are
advised by AIM.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) Institutional Class shares commenced sales on April 30, 2004.
(d) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Value Equity Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Value Equity Fund shareholders on October 21, 2003. The acquisition
was accomplished by a tax-free exchange of 7,818,290 shares of the Fund for
4,958,149 shares of INVESCO Value Equity Fund outstanding as of the close of
business on October 31, 2003. INVESCO Value Equity Fund's net assets at that
date of $89,014,605 including $14,973,392 of unrealized appreciation, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately before the acquisition were $229,149,218.
FS-130
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.39 $ 9.20 $ 10.94 $ 12.05 $ 9.40
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.00)(a) 0.01(a) 0.02(a) 0.07(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 2.19 (1.75) (1.07) 2.88
============================================================================================================================
Total from investment operations 0.97 2.19 (1.74) (1.05) 2.95
============================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.04) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) (0.12)
============================================================================================================================
Total distributions -- -- -- (0.06) (0.30)
============================================================================================================================
Net asset value, end of period $ 12.36 $ 11.39 $ 9.20 $ 10.94 $12.05
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 8.52% 23.80% (15.90)% (8.74)% 32.21%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $150,190 $121,980 $94,387 $68,676 $5,888
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.33%(c) 1.42% 1.38% 1.27% 1.25%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.35%(c) 1.42% 1.38% 1.36% 8.21%
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.11%(c) (0.01)% 0.11% 0.17% 0.62%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 32% 41% 37% 18% 57%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $150,168,025.
FS-131
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 9.07 $ 10.86 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 2.15 (1.73) (1.05) 1.17
=================================================================================================================================
Total from investment operations 0.87 2.08 (1.79) (1.11) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 12.02 $ 11.15 $ 9.07 $ 10.86 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.80% 22.93% (16.48)% (9.25)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $84,896 $80,018 $63,977 $58,681 $2,815
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.98%(c) 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.00%(c) 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.54)%(c) (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $89,375,514.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-132
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------
AUGUST 1, 2000
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 9.07 $ 10.85 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.94 2.15 (1.72) (1.06) 1.17
=================================================================================================================================
Total from investment operations 0.87 2.08 (1.78) (1.12) 1.17
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of period $ 12.02 $ 11.15 $ 9.07 $ 10.85 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.80% 22.93% (16.41)% (9.33)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,835 $26,566 $21,775 $20,680 $1,248
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.98%(c) 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.00%(c) 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.54)%(c) (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $31,438,601.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-133
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.36 $9.20 $ 11.60
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02)(a) (0.00)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.96 2.18 (2.40)
==============================================================================================================
Total from investment operations 0.95 2.16 (2.40)
==============================================================================================================
Net asset value, end of period $12.31 $11.36 $ 9.20
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 8.36% 23.48% (20.69)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 991 $ 588 $ 8
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets: 1.48%(c)(d) 1.57% 1.54%(e)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.04)%(c) (0.16)% (0.05)%(e)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(f) 32% 41% 37%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $795,090.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.50% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INVESTOR CLASS
-----------------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.39 $10.98
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.00)(a)
- -------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.95 0.41
=======================================================================================================
Total from investment operations 0.98 0.41
=======================================================================================================
Net asset value, end of period $ 12.37 $11.39
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 8.60% 3.73%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,548 $ 178
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets: 1.24%(c)(d) 1.25%(e)
=======================================================================================================
Ratio of net investment income to average net assets 0.20%(c) 0.16%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 32% 41%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $75,558,943.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.25% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-134
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.62
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a)
- -----------------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.28)
===================================================================================
Total from investment operations (0.24)
===================================================================================
Net asset value, end of period $ 12.38
___________________________________________________________________________________
===================================================================================
Total return(b) (1.90)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,745
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets: 0.80%(c)(d)
===================================================================================
Ratio of net investment income to average net assets 0.64%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 32%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$8,327,922.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.81% for the year ended October 31, 2004.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
FS-135
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
FS-136
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
FS-137
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-138
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Large Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Large Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule
of investments, as of October 31, 2004, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Large Cap Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-139
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.91%
AEROSPACE & DEFENSE-3.89%
Boeing Co. (The) 127,000 $ 6,337,300
- ------------------------------------------------------------------------
General Dynamics Corp. 75,000 7,659,000
- ------------------------------------------------------------------------
Northrop Grumman Corp. 90,000 4,657,500
- ------------------------------------------------------------------------
Rockwell Collins, Inc. 140,000 4,965,800
- ------------------------------------------------------------------------
United Technologies Corp. 56,200 5,216,484
========================================================================
28,836,084
========================================================================
AIR FREIGHT & LOGISTICS-0.68%
FedEx Corp. 55,000 5,011,600
========================================================================
APPAREL RETAIL-1.13%
Limited Brands 337,000 8,350,860
========================================================================
APPLICATION SOFTWARE-0.94%
Autodesk, Inc. 132,000 6,963,000
========================================================================
BIOTECHNOLOGY-0.61%
Genentech, Inc.(a) 99,000 4,507,470
========================================================================
BUILDING PRODUCTS-2.14%
American Standard Cos. Inc.(a) 175,000 6,399,750
- ------------------------------------------------------------------------
Masco Corp. 275,000 9,421,500
========================================================================
15,821,250
========================================================================
COMMUNICATIONS EQUIPMENT-4.98%
Cisco Systems, Inc.(a) 696,440 13,378,612
- ------------------------------------------------------------------------
Motorola, Inc. 417,000 7,197,420
- ------------------------------------------------------------------------
QUALCOMM Inc. 390,000 16,305,900
========================================================================
36,881,932
========================================================================
COMPUTER HARDWARE-2.26%
Dell Inc.(a) 476,600 16,709,596
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.61%
Lexmark International, Inc.-Class A(a) 54,000 4,487,940
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
PACCAR Inc. 70,000 4,851,700
========================================================================
CONSUMER ELECTRONICS-2.29%
Harman International Industries, Inc. 141,000 16,945,380
========================================================================
CONSUMER FINANCE-2.21%
American Express Co. 89,300 4,739,151
- ------------------------------------------------------------------------
MBNA Corp. 190,000 4,869,700
- ------------------------------------------------------------------------
SLM Corp. 150,000 6,789,000
========================================================================
16,397,851
========================================================================
DEPARTMENT STORES-1.82%
J.C. Penney Co., Inc. 158,000 5,465,220
- ------------------------------------------------------------------------
Nordstrom, Inc. 186,000 8,031,480
========================================================================
13,496,700
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
DIVERSIFIED COMMERCIAL SERVICES-0.60%
Cendant Corp. 217,000 $ 4,468,030
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.07%
Rockwell Automation, Inc. 191,000 7,962,790
========================================================================
FOOTWEAR-1.99%
NIKE, Inc.-Class B 181,000 14,717,110
========================================================================
HEALTH CARE EQUIPMENT-3.93%
Bard (C.R.), Inc. 100,000 5,680,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 259,000 13,597,500
- ------------------------------------------------------------------------
Medtronic, Inc. 95,000 4,855,450
- ------------------------------------------------------------------------
Waters Corp.(a) 120,000 4,954,800
========================================================================
29,087,750
========================================================================
HEALTH CARE SERVICES-1.71%
IMS Health Inc. 206,600 4,375,788
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 95,000 8,316,300
========================================================================
12,692,088
========================================================================
HEALTH CARE SUPPLIES-1.88%
Alcon, Inc. (Switzerland) 195,700 13,933,840
========================================================================
HOME IMPROVEMENT RETAIL-1.25%
Home Depot, Inc. (The) 225,000 9,243,000
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.60%
Marriott International, Inc.-Class A 81,000 4,413,690
========================================================================
HOUSEHOLD APPLIANCES-0.91%
Black & Decker Corp. (The) 84,000 6,743,520
========================================================================
HOUSEHOLD PRODUCTS-2.60%
Procter & Gamble Co. (The) 377,000 19,294,860
========================================================================
HOUSEWARES & SPECIALTIES-1.01%
Fortune Brands, Inc. 103,000 7,500,460
========================================================================
HYPERMARKETS & SUPER CENTERS-2.34%
Costco Wholesale Corp. 361,000 17,306,340
========================================================================
INDUSTRIAL CONGLOMERATES-3.43%
3M Co. 202,000 15,669,140
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 313,000 9,749,950
========================================================================
25,419,090
========================================================================
INDUSTRIAL MACHINERY-2.81%
Danaher Corp.(b) 104,000 5,733,520
- ------------------------------------------------------------------------
Eaton Corp. 116,000 7,418,200
- ------------------------------------------------------------------------
Illinois Tool Works Inc. 83,000 7,659,240
========================================================================
20,810,960
========================================================================
</Table>
FS-140
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTEGRATED OIL & GAS-3.34%
BP PLC-ADR (United Kingdom) 143,000 $ 8,329,750
- ------------------------------------------------------------------------
ChevronTexaco Corp. 155,000 8,224,300
- ------------------------------------------------------------------------
ConocoPhillips 97,000 8,178,070
========================================================================
24,732,120
========================================================================
INTERNET RETAIL-1.57%
eBay Inc.(a) 119,000 11,615,590
========================================================================
INTERNET SOFTWARE & SERVICES-2.19%
Yahoo! Inc.(a) 448,200 16,220,358
========================================================================
IT CONSULTING & OTHER SERVICES-1.77%
Accenture Ltd.-Class A (Bermuda)(a) 541,000 13,097,610
========================================================================
MANAGED HEALTH CARE-2.18%
UnitedHealth Group Inc. 223,000 16,145,200
========================================================================
MOTORCYCLE MANUFACTURERS-1.97%
Harley-Davidson, Inc. 254,000 14,622,780
========================================================================
OFFICE ELECTRONICS-0.91%
Xerox Corp.(a)(b) 455,000 6,720,350
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.71%
Citigroup Inc. 119,221 5,289,836
========================================================================
PERSONAL PRODUCTS-6.21%
Avon Products, Inc. 349,800 13,834,590
- ------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 230,000 9,878,500
- ------------------------------------------------------------------------
Gillette Co. (The) 537,000 22,274,760
========================================================================
45,987,850
========================================================================
PHARMACEUTICALS-3.87%
Johnson & Johnson 491,000 28,664,580
========================================================================
PROPERTY & CASUALTY INSURANCE-0.82%
Allstate Corp. (The) 126,000 6,059,340
========================================================================
RESTAURANTS-4.96%
McDonald's Corp. 487,000 14,196,050
- ------------------------------------------------------------------------
Starbucks Corp.(a) 149,000 7,879,120
- ------------------------------------------------------------------------
Yum! Brands, Inc. 337,000 14,659,500
========================================================================
36,734,670
========================================================================
SEMICONDUCTORS-0.96%
Analog Devices, Inc. 95,300 3,836,778
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-(CONTINUED)
Intel Corp. 149,000 $ 3,316,740
========================================================================
7,153,518
========================================================================
SOFT DRINKS-1.71%
PepsiCo, Inc. 256,000 12,692,480
========================================================================
SPECIALTY STORES-2.49%
Staples, Inc. 620,000 18,438,800
========================================================================
STEEL-0.60%
Nucor Corp. 105,000 4,434,150
========================================================================
SYSTEMS SOFTWARE-6.80%
Adobe Systems Inc. 194,000 10,869,820
- ------------------------------------------------------------------------
Microsoft Corp. 429,280 12,015,547
- ------------------------------------------------------------------------
Oracle Corp.(a) 389,000 4,924,740
- ------------------------------------------------------------------------
Symantec Corp.(a) 396,000 22,548,240
========================================================================
50,358,347
========================================================================
THRIFTS & MORTGAGE FINANCE-1.68%
Countrywide Financial Corp. 389,000 12,420,770
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.83%
W.W. Grainger, Inc. 105,000 6,151,950
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $621,566,204) 710,395,190
========================================================================
MONEY MARKET FUNDS-3.85%
Liquid Assets Portfolio-Institutional
Class(c) 14,259,968 14,259,968
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 14,259,968 14,259,968
========================================================================
Total Money Market Funds (Cost
$28,519,936) 28,519,936
========================================================================
TOTAL INVESTMENTS-99.76% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $650,086,140) 738,915,126
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.66%
Liquid Assets Portfolio-Institutional
Class(c)(d) 4,905,700 4,905,700
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,905,700) 4,905,700
========================================================================
TOTAL INVESTMENTS-100.42% (Cost $654,991,840) 743,820,826
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.42%) (3,115,847)
========================================================================
NET ASSETS-100.00% $740,704,979
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-141
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$621,566,204)* $ 710,395,190
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $33,425,636) 33,425,636
============================================================
Total investments (cost $654,991,840) 743,820,826
============================================================
Receivables for:
Investments sold 2,182,403
- ------------------------------------------------------------
Fund shares sold 1,017,641
- ------------------------------------------------------------
Dividends 483,016
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 154,151
- ------------------------------------------------------------
Other assets 69,573
============================================================
Total assets 747,727,610
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,389,536
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 191,745
- ------------------------------------------------------------
Collateral upon return of securities
loaned 4,905,700
- ------------------------------------------------------------
Accrued distribution fees 262,952
- ------------------------------------------------------------
Accrued trustees' fees 1,728
- ------------------------------------------------------------
Accrued transfer agent fees 270,970
============================================================
Total liabilities 7,022,631
============================================================
Net assets applicable to shares outstanding $ 740,704,979
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,293,726,418
- ------------------------------------------------------------
Undistributed net investment income (loss) (131,109)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (1,641,719,316)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 88,828,986
============================================================
$ 740,704,979
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 177,497,860
____________________________________________________________
============================================================
Class B $ 112,930,837
____________________________________________________________
============================================================
Class C $ 48,420,471
____________________________________________________________
============================================================
Class R $ 2,761,191
____________________________________________________________
============================================================
Investor Class $ 376,904,848
____________________________________________________________
============================================================
Institutional Class $ 22,189,772
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 19,384,974
____________________________________________________________
============================================================
Class B 12,797,591
____________________________________________________________
============================================================
Class C 5,484,462
____________________________________________________________
============================================================
Class R 302,503
____________________________________________________________
============================================================
Investor Class 40,986,060
____________________________________________________________
============================================================
Institutional Class 2,417,583
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.16
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.16 divided by
94.50%) $ 9.69
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.82
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.83
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.13
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 9.20
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.18
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $4,820,915
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-142
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $49,547) $ 4,445,838
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $24,288)* 225,252
==========================================================================
Total investment income 4,671,090
==========================================================================
EXPENSES:
Advisory fees 5,663,512
- --------------------------------------------------------------------------
Administrative services fees 218,708
- --------------------------------------------------------------------------
Custodian fees 53,205
- --------------------------------------------------------------------------
Distribution fees:
Class A 606,542
- --------------------------------------------------------------------------
Class B 1,205,821
- --------------------------------------------------------------------------
Class C 499,243
- --------------------------------------------------------------------------
Class R 12,219
- --------------------------------------------------------------------------
Investor Class 888,532
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 2,635,697
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 3,478
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 25,808
- --------------------------------------------------------------------------
Other 442,622
==========================================================================
Total expenses 12,255,387
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (978,085)
==========================================================================
Net expenses 11,277,302
==========================================================================
Net investment income (loss) (6,606,212)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 98,241,139
- --------------------------------------------------------------------------
Foreign currencies (27,375)
==========================================================================
98,213,764
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (67,692,327)
- --------------------------------------------------------------------------
Foreign currencies (11)
==========================================================================
(67,692,338)
==========================================================================
Net gain from investment securities and foreign currencies 30,521,426
==========================================================================
Net increase in net assets resulting from operations $ 23,915,214
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-143
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,606,212) $ (3,634,169)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
futures contracts and foreign currencies 98,213,764 (11,557,152)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (67,692,338) 66,632,928
==========================================================================================
Net increase in net assets resulting from operations 23,915,214 51,441,607
==========================================================================================
Share transactions-net:
Class A 18,678,547 24,813,254
- ------------------------------------------------------------------------------------------
Class B (12,082,083) (2,160,788)
- ------------------------------------------------------------------------------------------
Class C 3,097,603 594,530
- ------------------------------------------------------------------------------------------
Class R 574,491 1,830,726
- ------------------------------------------------------------------------------------------
Investor Class 361,821,129 173,236
- ------------------------------------------------------------------------------------------
Institutional Class 22,063,157 --
==========================================================================================
Net increase in net assets resulting from share
transactions 394,152,844 25,250,958
==========================================================================================
Net increase in net assets 418,068,058 76,692,565
==========================================================================================
NET ASSETS:
Beginning of year 322,636,921 245,944,356
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(131,109) and $(32,869), respectively). $740,704,979 $322,636,921
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-144
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-145
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities.' Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% over $1 billion up to
and including $2 billion of the Fund's average daily net assets and 0.625% of
the Fund's average daily net assets in excess of $2 billion. AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash
FS-146
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $3,368.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $59,549 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $218,708 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $2,635,697 for Class A, Class B, Class C, Class R and
Investor Class shares and $3,478 for Institutional Class shares. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R, Investor Class and Institutional Class
shares of the Fund. Institutional Class shares commenced sales on April 30,
2004. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C, Class R and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B,
Class C and Class R Plans, pays AIM Distributors compensation at the annual rate
of 0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. The Fund, pursuant to the Investor Class
Plan, pays AIM Distributors for its allocated share of expenses incurred
pursuant to the Investor Class Plan for the period, up to a maximum annual rate
of 0.25% of the average daily net assets of the Investor Class shares. Pursuant
to the Plans, for the year ended October 31, 2004, the Class A, Class B, Class
C, Class R and Investor Class shares paid $606,542, $1,205,821, $499,243,
$12,219 and $888,532. AIM reimbursed $902,390 of Investor Class expenses related
to an overpayment of Rule 12b-1 fees of the INVESCO Growth Fund (a fund acquired
by the Fund in a merger on November 3, 2003) paid to INVESCO Distributors, Inc.,
the prior distributor of INVESCO Growth Fund and an AIM affiliate.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$83,801 in front-end sales commissions from the sale of Class A shares and $890,
$12,380, $4,895 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,325,601 $147,601,547 $(138,667,180) $ -- $14,259,968 $100,940 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 5,325,601 147,601,547 (138,667,180) -- 14,259,968 100,024 --
==================================================================================================================================
Subtotal $10,651,202 $295,203,094 $(277,334,360) $ -- $28,519,936 $200,964 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 5,969,563 $311,892,022 $(312,955,885) $ -- $ 4,905,700 $ 24,288 $ --
==================================================================================================================================
Total $16,620,765 $607,095,116 $(590,290,245) $ -- $33,425,636 $225,252 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
FS-147
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $10,034,447 and $17,960,639,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$12,205 and credits in custodian fees of $573 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $12,778.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $6,385
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $4,820,915 were
on loan to brokers. The loans were secured by cash collateral of $4,905,700
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $24,288 for securities
lending transactions.
FS-148
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 81,823,318
- -----------------------------------------------------------------------------
Temporary book/tax differences (131,109)
- -----------------------------------------------------------------------------
Capital loss carryforward (1,634,713,648)
- -----------------------------------------------------------------------------
Shares of Beneficial Interest 2,293,726,418
=============================================================================
Total net assets $ 740,704,979
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,546,950,857 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund utilized $83,728,510 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------------------
October 31, 2009 $1,067,082,723
- -----------------------------------------------------------------------------------------
October 31, 2010 532,535,321
- -----------------------------------------------------------------------------------------
October 31, 2011 35,095,604
=========================================================================================
Total capital loss carryforward $1,634,713,648
_________________________________________________________________________________________
=========================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $904,935,222 and $600,186,187, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $90,270,070
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,446,752)
===============================================================================
Net unrealized appreciation of investment securities $81,823,318
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $661,997,508.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions on October 31, 2004, undistributed net
investment income (loss) was increased by $6,616,586, undistributed net realized
gain (loss) was increased by $27,375 and shares of beneficial interest decreased
by $6,643,961. This reclassification had no effect on the net assets of the
Fund. Further, as a result of tax deferrals acquired in the reorganization of
INVESCO Growth Fund into the Fund, undistributed net investment income (loss)
was decreased by $108,614, undistributed net realized gain (loss) was decreased
by $1,337,791,398 and shares of beneficial interest increased by $1,337,900,012.
These reclassifications had no effect on the net assets of the Fund.
FS-149
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2004 2003
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,225,450 $ 57,170,463 9,469,394 $ 73,883,856
- ------------------------------------------------------------------------------------------------------------------------
Class B 2,516,228 22,341,073 4,041,264 29,817,268
- ------------------------------------------------------------------------------------------------------------------------
Class C 2,041,593 18,173,950 2,208,427 16,412,874
- ------------------------------------------------------------------------------------------------------------------------
Class R 111,709 1,022,930 278,067 2,156,076
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 4,268,368 39,323,955 20,194 178,134
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(c) 2,436,212 22,232,973 -- --
========================================================================================================================
Issued in connection with acquisitions:(d)
Class A 445,760 3,960,921 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class B 24,464 210,855 -- --
- ------------------------------------------------------------------------------------------------------------------------
Class C 426,258 3,668,554 -- --
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 50,546,207 449,143,077 -- --
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 472,810 4,373,299 325,063 2,536,902
- ------------------------------------------------------------------------------------------------------------------------
Class B (489,052) (4,373,299) (334,300) (2,536,902)
========================================================================================================================
Reacquired:
Class A (5,108,536) (46,826,136) (6,726,902) (51,607,504)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,420,244) (30,260,712) (3,989,440) (29,441,154)
- ------------------------------------------------------------------------------------------------------------------------
Class C (2,120,502) (18,744,901) (2,147,493) (15,818,344)
- ------------------------------------------------------------------------------------------------------------------------
Class R (48,964) (448,439) (39,568) (325,350)
- ------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (13,848,145) (126,645,903) (564) (4,898)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(c) (18,629) (169,816) -- --
========================================================================================================================
44,460,987 $ 394,152,844 3,104,142 $ 25,250,958
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder is also
owned beneficially.
(b) Investor Class shares commenced sales on September 30, 2003.
(c) Institutional Class shares commenced sales on April 30, 2004.
(d) As of the opening of business on November 3, 2003, the Fund acquired all of
the net assets of INVESCO Growth Fund pursuant to a plan of reorganization
approved by the Trustees of the Fund on June 11, 2003 and INVESCO Growth
Fund shareholders on October 21, 2003. The acquisition was accomplished by a
tax-free exchange of 51,442,689 shares of the Fund for 234,385,533 shares of
INVESCO Growth Fund outstanding as of the close of business on October 31,
2003. INVESCO Growth Fund's net assets at that date of $456,983,407,
including $93,333,500 of unrealized appreciation, were combined with those
of the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $322,706,968.
FS-150
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 7.37 $ 8.82 $ 17.74 $ 11.29
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08)(a) (0.09)(a) (0.08)(a) (0.15)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.36 1.59 (1.36) (8.84) 6.60
===========================================================================================================================
Total from investment operations 0.28 1.51 (1.45) (8.92) 6.45
===========================================================================================================================
Net asset value, end of period $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 3.15% 20.49% (16.44)% (50.28)% 57.13%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,498 $154,052 $105,320 $138,269 $225,255
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 1.54%(c)(d) 1.82% 1.70% 1.57% 1.58%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.92)%(c) (1.01)% (1.01)% (0.72)% (0.82)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $173,297,774.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.61 $ 7.20 $ 8.67 $ 17.54 $ 11.25
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.33) (8.71) 6.56
===========================================================================================================================
Total from investment operations 0.21 1.41 (1.47) (8.87) 6.29
===========================================================================================================================
Net asset value, end of period $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 2.44% 19.58% (16.96)% (50.57)% 55.91%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $112,931 $122,011 $104,040 $144,747 $210,224
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $120,582,108.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.20%.
FS-151
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.62 $ 7.21 $ 8.67 $ 17.55 $ 11.25
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.35 1.53 (1.32) (8.72) 6.57
======================================================================================================================
Total from investment operations 0.21 1.41 (1.46) (8.88) 6.30
======================================================================================================================
Net asset value, end of period $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.44% 19.56% (16.84)% (50.60)% 56.00%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,420 $44,272 $36,575 $57,865 $79,392
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 2.19%(c)(d) 2.47% 2.35% 2.23% 2.24%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.57)%(c) (1.66)% (1.66)% (1.39)% (1.48)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 111% 123% 111% 124% 113%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $49,924,256.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.20%.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.87 $ 7.37 $ 8.40
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.09)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.36 1.59 (0.99)
====================================================================================================
Total from investment operations 0.26 1.50 (1.03)
====================================================================================================
Net asset value, end of period $ 9.13 $ 8.87 $ 7.37
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 2.93% 20.35% (12.26)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,761 $2,127 $ 9
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.69%(c)(d) 1.97% 1.85%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (1.07)%(c) (1.16)% (1.16)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 111% 123% 111%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $2,443,827.
(d) After fee waivers and /or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.70%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-152
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
---------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2004 2003
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.88 $ 8.24
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)(b) (0.01)(a)
- -------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.37 0.65
=================================================================================================
Total from investment operations 0.32 0.64
=================================================================================================
Net asset value, end of period $ 9.20 $ 8.88
_________________________________________________________________________________________________
=================================================================================================
Total return(c) 3.60%(b) 7.77%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $376,905 $ 174
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.19%(b)(d)(e) 1.56%(f)
=================================================================================================
Ratio of net investment income (loss) to average net assets (0.57)%(d) (0.75)%(f)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(g) 111% 123%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) The advisor reimbursed Investor Class expenses related to an overpayment
of Rule 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 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.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $403,878,080.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.42%.
(f) Annualized.
(g) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.13
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.06
===================================================================================
Total from investment operations 0.05
===================================================================================
Net asset value, end of period $ 9.18
___________________________________________________________________________________
===================================================================================
Total return(b) 0.55%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,190
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.92%(c)
- -----------------------------------------------------------------------------------
With fee waivers and/or expense reimbursements 0.93%(c)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.30)%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 111%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$9,909,449.
(d) Not annualized for periods less than one year.
FS-153
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
FS-154
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
FS-155
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-156
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Mid Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Mid
Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Mid Cap Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-157
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.10%
ADVERTISING-0.73%
Omnicom Group Inc. 18,000 $ 1,420,200
=====================================================================
AEROSPACE & DEFENSE-0.68%
L-3 Communications Holdings, Inc. 20,000 1,318,600
=====================================================================
AIR FREIGHT & LOGISTICS-0.64%
Robinson (C.H.) Worldwide, Inc. 23,000 1,240,620
=====================================================================
APPAREL RETAIL-2.24%
Chico's FAS, Inc.(a) 44,000 1,761,320
- ---------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 55,000 1,289,200
- ---------------------------------------------------------------------
Urban Outfitters, Inc.(a) 32,000 1,312,000
=====================================================================
4,362,520
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.96%
Coach, Inc.(a) 40,000 1,865,200
=====================================================================
APPLICATION SOFTWARE-2.70%
Amdocs Ltd. (United Kingdom)(a) 85,200 2,142,780
- ---------------------------------------------------------------------
Intuit Inc.(a) 40,000 1,814,400
- ---------------------------------------------------------------------
Mercury Interactive Corp.(a) 30,000 1,302,900
=====================================================================
5,260,080
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.46%
Calamos Asset Management, Inc.-Class A(a) 60,700 1,183,650
- ---------------------------------------------------------------------
Franklin Resources, Inc. 18,000 1,091,160
- ---------------------------------------------------------------------
Investors Financial Services Corp.(b) 55,000 2,116,950
- ---------------------------------------------------------------------
Legg Mason, Inc. 37,000 2,357,270
=====================================================================
6,749,030
=====================================================================
AUTO PARTS & EQUIPMENT-0.55%
Autoliv, Inc. 25,000 1,068,750
=====================================================================
BIOTECHNOLOGY-3.87%
Cephalon, Inc.(a) 21,000 1,001,070
- ---------------------------------------------------------------------
Charles River Laboratories International,
Inc.(a) 22,000 1,029,380
- ---------------------------------------------------------------------
Gen-Probe Inc.(a) 32,000 1,121,280
- ---------------------------------------------------------------------
Gilead Sciences, Inc.(a) 35,000 1,212,050
- ---------------------------------------------------------------------
Invitrogen Corp.(a) 17,200 995,880
- ---------------------------------------------------------------------
Martek Biosciences Corp.(a) 26,000 1,223,456
- ---------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 15,000 974,700
=====================================================================
7,557,816
=====================================================================
BROADCASTING & CABLE TV-1.22%
Univision Communications Inc.-Class A(a) 77,000 2,383,920
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-1.02%
Masco Corp. 58,000 $ 1,987,080
=====================================================================
CASINOS & GAMING-0.52%
Station Casinos, Inc. 20,000 1,019,000
=====================================================================
COMMUNICATIONS EQUIPMENT-4.94%
Avaya Inc.(a) 140,000 2,016,000
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 100,000 2,064,000
- ---------------------------------------------------------------------
Juniper Networks, Inc.(a) 40,300 1,072,383
- ---------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 21,000 1,852,200
- ---------------------------------------------------------------------
Scientific-Atlanta, Inc. 52,400 1,435,236
- ---------------------------------------------------------------------
UTStarcom, Inc.(a)(b) 70,000 1,198,400
=====================================================================
9,638,219
=====================================================================
COMPUTER & ELECTRONICS RETAIL-0.76%
Best Buy Co., Inc. 25,000 1,480,500
=====================================================================
COMPUTER HARDWARE-0.82%
PalmOne, Inc.(a)(b) 55,000 1,593,350
=====================================================================
COMPUTER STORAGE & PERIPHERALS-1.16%
Emulex Corp.(a) 92,000 966,920
- ---------------------------------------------------------------------
QLogic Corp.(a) 40,000 1,300,000
=====================================================================
2,266,920
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
Cummins Inc.(b) 18,000 1,261,440
=====================================================================
CONSUMER FINANCE-0.82%
First Marblehead Corp. (The)(a) 30,000 1,608,000
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.52%
Affiliated Computer Services, Inc.-Class A(a) 20,000 1,091,000
- ---------------------------------------------------------------------
Alliance Data Systems Corp.(a) 50,000 2,114,000
- ---------------------------------------------------------------------
DST Systems, Inc.(a) 30,000 1,345,500
- ---------------------------------------------------------------------
Fiserv, Inc.(a) 65,000 2,310,100
=====================================================================
6,860,600
=====================================================================
DEPARTMENT STORES-1.70%
Kohl's Corp.(a) 39,900 2,025,324
- ---------------------------------------------------------------------
Nordstrom, Inc. 30,000 1,295,400
=====================================================================
3,320,724
=====================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.35%
Apollo Group, Inc.-Class A(a) 18,000 1,188,000
- ---------------------------------------------------------------------
Career Education Corp.(a) 35,000 1,097,950
- ---------------------------------------------------------------------
Cintas Corp. 30,000 1,294,200
- ---------------------------------------------------------------------
</Table>
FS-158
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Corporate Executive Board Co. (The) 32,000 $ 2,036,800
- ---------------------------------------------------------------------
Corrections Corp. of America(a) 48,800 1,695,800
- ---------------------------------------------------------------------
ITT Educational Services, Inc.(a) 31,000 1,178,310
=====================================================================
8,491,060
=====================================================================
DRUG RETAIL-0.60%
Shoppers Drug Mart Corp. (Canada)(a) 38,300 1,165,133
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.25%
Agilent Technologies, Inc.(a) 97,000 2,430,820
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.54%
Benchmark Electronics, Inc.(a) 31,000 1,053,070
=====================================================================
EMPLOYMENT SERVICES-1.69%
Manpower Inc. 42,000 1,900,500
- ---------------------------------------------------------------------
Monster Worldwide Inc.(a) 50,000 1,402,500
=====================================================================
3,303,000
=====================================================================
ENVIRONMENTAL SERVICES-0.65%
Stericycle, Inc.(a) 28,000 1,269,240
=====================================================================
GENERAL MERCHANDISE STORES-1.79%
Dollar Tree Stores, Inc.(a) 70,000 2,023,000
- ---------------------------------------------------------------------
Family Dollar Stores, Inc. 50,000 1,477,500
=====================================================================
3,500,500
=====================================================================
HEALTH CARE DISTRIBUTORS-0.80%
Schein (Henry), Inc.(a) 24,800 1,568,104
=====================================================================
HEALTH CARE EQUIPMENT-4.81%
Biomet, Inc. 22,000 1,026,960
- ---------------------------------------------------------------------
Fisher Scientific International Inc.(a) 25,000 1,434,000
- ---------------------------------------------------------------------
INAMED Corp.(a) 26,000 1,381,900
- ---------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 27,000 1,345,410
- ---------------------------------------------------------------------
PerkinElmer, Inc. 80,000 1,643,200
- ---------------------------------------------------------------------
Waters Corp.(a) 24,000 990,960
- ---------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 20,000 1,551,800
=====================================================================
9,374,230
=====================================================================
HEALTH CARE FACILITIES-1.24%
Community Health Systems Inc.(a) 90,000 2,413,800
=====================================================================
HEALTH CARE SERVICES-2.08%
Caremark Rx, Inc.(a) 65,000 1,948,050
- ---------------------------------------------------------------------
Express Scripts, Inc.(a) 33,000 2,112,000
=====================================================================
4,060,050
=====================================================================
HEALTH CARE SUPPLIES-0.50%
Cooper Cos., Inc. (The) 14,000 984,900
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
HOME FURNISHINGS-0.52%
Mohawk Industries, Inc.(a) 12,000 $ 1,020,960
=====================================================================
HOMEBUILDING-0.93%
Pulte Homes, Inc. 33,000 1,811,040
=====================================================================
HOTELS, RESORTS & CRUISE LINES-1.33%
Kerzner International Ltd. (Bahamas)(a) 19,000 963,680
- ---------------------------------------------------------------------
Marriott International, Inc.-Class A 30,000 1,634,700
=====================================================================
2,598,380
=====================================================================
HOUSEWARES & SPECIALTIES-0.96%
Jarden Corp.(a) 53,500 1,878,920
=====================================================================
INDUSTRIAL MACHINERY-0.75%
Eaton Corp. 23,000 1,470,850
=====================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 58,700 2,110,265
=====================================================================
INTEGRATED OIL & GAS-0.86%
Murphy Oil Corp. 21,000 1,680,420
=====================================================================
INTERNET SOFTWARE & SERVICES-1.28%
Ask Jeeves, Inc.(a) 45,000 1,160,100
- ---------------------------------------------------------------------
SINA Corp. (Cayman Islands)(a) 40,000 1,340,000
=====================================================================
2,500,100
=====================================================================
IT CONSULTING & OTHER SERVICES-1.13%
Cognizant Technology Solutions Corp.-Class
A(a) 65,000 2,210,000
=====================================================================
LEISURE PRODUCTS-1.51%
Brunswick Corp. 35,000 1,642,200
- ---------------------------------------------------------------------
Marvel Enterprises, Inc.(a) 85,000 1,309,000
=====================================================================
2,951,200
=====================================================================
MANAGED HEALTH CARE-2.29%
Aetna Inc. 19,000 1,805,000
- ---------------------------------------------------------------------
Anthem, Inc.(a) 33,000 2,653,200
=====================================================================
4,458,200
=====================================================================
MULTI-LINE INSURANCE-0.66%
Quanta Capital Holdings Ltd. (Bermuda)(a) 144,200 1,297,800
=====================================================================
OIL & GAS DRILLING-1.73%
Noble Corp. (Cayman Islands)(a) 25,000 1,142,000
- ---------------------------------------------------------------------
Patterson-UTI Energy, Inc. 63,000 1,211,490
- ---------------------------------------------------------------------
Pride International, Inc.(a) 55,000 1,016,400
=====================================================================
3,369,890
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.50%
Varco International, Inc.(a) 35,000 968,800
=====================================================================
</Table>
FS-159
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.73%
Ultra Petroleum Corp. (Canada)(a) 35,000 $ 1,701,000
- ---------------------------------------------------------------------
XTO Energy Inc. 50,000 1,669,000
=====================================================================
3,370,000
=====================================================================
PHARMACEUTICALS-4.14%
Barr Pharmaceuticals Inc.(a) 35,000 1,317,750
- ---------------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 36,000 1,285,200
- ---------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 40,000 1,626,800
- ---------------------------------------------------------------------
MGI Pharma, Inc.(a) 50,000 1,333,500
- ---------------------------------------------------------------------
Sepracor Inc.(a) 24,000 1,102,320
- ---------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 50,000 1,420,000
=====================================================================
8,085,570
=====================================================================
PUBLISHING-0.70%
Getty Images, Inc.(a)(b) 23,000 1,359,990
=====================================================================
REAL ESTATE-0.92%
New Century Financial Corp. 32,500 1,792,375
=====================================================================
REGIONAL BANKS-0.61%
Commerce Bancorp, Inc. 20,000 1,184,800
=====================================================================
REINSURANCE-0.77%
Everest Re Group, Ltd. (Bermuda) 19,000 1,508,030
=====================================================================
RESTAURANTS-0.65%
Brinker International, Inc.(a) 39,000 1,259,700
=====================================================================
SEMICONDUCTOR EQUIPMENT-0.99%
Novellus Systems, Inc.(a) 74,800 1,938,068
=====================================================================
SEMICONDUCTORS-3.07%
ATI Technologies Inc. (Canada)(a) 70,000 1,263,500
- ---------------------------------------------------------------------
Broadcom Corp.-Class A(a) 45,000 1,217,250
- ---------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 75,000 2,142,750
- ---------------------------------------------------------------------
Microchip Technology Inc. 45,000 1,361,250
=====================================================================
5,984,750
=====================================================================
SPECIALTY CHEMICALS-0.57%
Ecolab Inc. 33,000 1,117,050
=====================================================================
SPECIALTY STORES-3.64%
Advance Auto Parts, Inc.(a) 45,000 1,760,400
- ---------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 50,000 2,039,500
- ---------------------------------------------------------------------
Staples, Inc. 60,000 1,784,400
- ---------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,526,800
=====================================================================
7,111,100
=====================================================================
SYSTEMS SOFTWARE-3.10%
Computer Associates International, Inc. 50,000 1,385,500
- ---------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-(CONTINUED)
Novell, Inc.(a) 175,000 $ 1,258,250
- ---------------------------------------------------------------------
Red Hat, Inc.(a)(b) 80,000 1,027,200
- ---------------------------------------------------------------------
Symantec Corp.(a) 16,600 945,204
- ---------------------------------------------------------------------
VERITAS Software Corp.(a) 65,000 1,422,200
=====================================================================
6,038,354
=====================================================================
TECHNOLOGY DISTRIBUTORS-1.02%
CDW Corp. 32,000 1,984,960
=====================================================================
THRIFTS & MORTGAGE FINANCE-1.53%
Doral Financial Corp. (Puerto Rico) 40,000 1,679,200
- ---------------------------------------------------------------------
W Holding Co., Inc. (Puerto Rico) 65,000 1,299,350
=====================================================================
2,978,550
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.38%
Fastenal Co. 21,000 1,159,830
- ---------------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A 45,000 1,536,300
=====================================================================
2,696,130
=====================================================================
TRUCKING-1.11%
Sirva Inc.(a) 90,000 2,160,000
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.38%
AO VimpelCom-ADR (Russia)(a) 11,000 1,254,000
- ---------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 100,000 1,684,000
- ---------------------------------------------------------------------
NII Holdings Inc.(a)(b) 38,000 1,682,260
- ---------------------------------------------------------------------
SpectraSite, Inc.(a) 38,500 1,975,050
=====================================================================
6,595,310
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $164,645,208) 191,368,038
=====================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS PURCHASED-0.01%
PUTS-0.01%
XTO Energy Inc. (Oil & Gas Exploration &
Production) (Cost $70,660) 500 $30 Nov-04 8,750
===============================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.86%
Liquid Assets Portfolio-Institutional
Class(c) 1,818,420 1,818,420
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,818,420 1,818,420
=======================================================================
Total Money Market Funds (Cost
$3,636,840) 3,636,840
=======================================================================
TOTAL INVESTMENTS-99.97% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $168,352,708) 195,013,628
=======================================================================
</Table>
FS-160
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.48%
STIC Prime Portfolio-Institutional
Class(c)(d) 6,790,375 $ 6,790,375
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,790,375) 6,790,375
=======================================================================
TOTAL INVESTMENTS-103.45% (Cost $175,143,083) 201,804,003
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.45%) (6,732,117)
=======================================================================
NET ASSETS-100.00% $195,071,886
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-161
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$164,715,868)* $ 191,376,788
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $10,427,215) 10,427,215
============================================================
Total investments (cost $175,143,083) 201,804,003
============================================================
Receivables for:
Investments sold 5,998,273
- ------------------------------------------------------------
Fund shares sold 140,843
- ------------------------------------------------------------
Dividends 23,987
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 27,100
- ------------------------------------------------------------
Other assets 33,155
============================================================
Total assets 208,027,361
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 5,257,491
- ------------------------------------------------------------
Fund shares reacquired 663,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 32,411
- ------------------------------------------------------------
Collateral upon return of securities loaned 6,790,375
- ------------------------------------------------------------
Accrued distribution fees 104,705
- ------------------------------------------------------------
Accrued trustees' fees 941
- ------------------------------------------------------------
Accrued transfer agent fees 26,248
- ------------------------------------------------------------
Accrued operating expenses 79,804
============================================================
Total liabilities 12,955,475
============================================================
Net assets applicable to shares outstanding $ 195,071,886
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 307,591,806
- ------------------------------------------------------------
Undistributed net investment income (loss) (29,371)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (139,144,919)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 26,654,370
============================================================
$ 195,071,886
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 99,261,624
____________________________________________________________
============================================================
Class B $ 70,420,726
____________________________________________________________
============================================================
Class C $ 24,503,049
____________________________________________________________
============================================================
Class R $ 876,607
____________________________________________________________
============================================================
Institutional Class $ 9,880
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,934,912
____________________________________________________________
============================================================
Class B 8,033,455
____________________________________________________________
============================================================
Class C 2,794,530
============================================================
Class R 97,064
____________________________________________________________
============================================================
Institutional Class 1,085
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.08
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.08 divided by
94.50%) $ 9.61
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.03
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.11
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $6,544,219
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-162
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,918) $ 683,992
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $63,247)* 153,142
=========================================================================
Total investment income 837,134
=========================================================================
EXPENSES:
Advisory fees 1,780,749
- -------------------------------------------------------------------------
Administrative services fees 86,224
- -------------------------------------------------------------------------
Custodian fees 61,905
- -------------------------------------------------------------------------
Distribution fees:
Class A 394,349
- -------------------------------------------------------------------------
Class B 802,204
- -------------------------------------------------------------------------
Class C 291,132
- -------------------------------------------------------------------------
Class R 2,920
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 912,181
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 9
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,001
- -------------------------------------------------------------------------
Other 281,545
=========================================================================
Total expenses 4,629,219
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (42,438)
=========================================================================
Net expenses 4,586,781
=========================================================================
Net investment income (loss) (3,749,647)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 9,151,671
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,975,847)
- -------------------------------------------------------------------------
Foreign currencies (6,549)
=========================================================================
(2,982,396)
=========================================================================
Net gain from investment securities 6,169,275
=========================================================================
Net increase in net assets resulting from operations $ 2,419,628
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-163
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,749,647) $ (2,955,493)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 9,151,671 14,307,340
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (2,982,396) 42,907,455
==========================================================================================
Net increase in net assets resulting from operations 2,419,628 54,259,302
==========================================================================================
Share transactions-net:
Class A (10,422,993) 18,339,848
- ------------------------------------------------------------------------------------------
Class B (11,811,705) 1,788,121
- ------------------------------------------------------------------------------------------
Class C (4,684,464) 5,771,210
- ------------------------------------------------------------------------------------------
Class R 676,095 197,900
- ------------------------------------------------------------------------------------------
Institutional Class 10,000 --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (26,233,067) 26,097,079
==========================================================================================
Net increase (decrease) in net assets (23,813,439) 80,356,381
==========================================================================================
NET ASSETS:
Beginning of year 218,885,325 138,528,944
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(29,371) and $(24,611), respectively) $195,071,886 $218,885,325
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-164
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid 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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-165
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities.' Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
FS-166
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets plus 0.75% of the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily 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 and Institutional Class shares to 2.00%, 2.65%, 2.65%,
2.15% and 1.65% of average daily net assets, respectively. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (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, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $2,147.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $36,467 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $86,224 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $912,181 for Class A, Class B, Class C and Class R shares and
$9 for Institutional Class shares and reimbursed fees for the Institutional
Class shares of $4. AISI may make payments to intermediaries that provide
omnibus account services, sub-accounting services and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $394,349 $802,204, $291,132 and $2,920,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$77,275 in front-end sales commissions from the sale of Class A shares and $120,
$12,045, $4,411 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
FS-167
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,039,656 $ 60,161,675 $(64,382,911) $ -- $1,818,420 $45,344 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,039,656 60,161,675 (64,382,911) -- 1,818,420 44,551 --
===========================================================================================================================
Subtotal $12,079,312 $120,323,350 $(128,765,822) $ -- $3,636,840 $89,895 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,593,500 $ 86,506,068 $ (88,099,568) $ -- $ -- $58,446 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 19,094,475 (12,304,100) -- 6,790,375 4,801 --
===========================================================================================================================
Subtotal $ 1,593,500 $105,600,543 $(100,403,668) $ -- $ 6,790,375 $63,247 $ --
===========================================================================================================================
Total $13,672,812 $225,923,893 $(229,169,490) $ -- $10,427,215 $153,142 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,622,166 and $702,736,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $3,820 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$3,820.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,035
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.
FS-168
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $6,544,219 were
on loan to brokers. The loans were secured by cash collateral of $6,790,375
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $63,247 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 25,453,299
- ---------------------------------------------------------------------------
Temporary book/tax differences (29,371)
- ---------------------------------------------------------------------------
Capital loss carryforward (137,943,848)
- ---------------------------------------------------------------------------
Shares of beneficial interest 307,591,806
===========================================================================
Total net assets $ 195,071,886
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(6,550).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
FS-169
The Fund utilized $8,876,974 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2008 $ 407,338
- -----------------------------------------------------------------------------
October 31, 2009 86,724,292
- -----------------------------------------------------------------------------
October 31, 2010 50,812,218
=============================================================================
Total capital loss carryforward $137,943,848
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $358,096,030 and $382,393,967, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $29,338,178
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,878,329)
===============================================================================
Net unrealized appreciation of investment securities $25,459,849
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $176,344,154.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$3,744,887 and shares of beneficial interest decreased by $3,744,887. This
reclassification had no effect on the net assets of the Fund.
FS-170
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,366,280 $ 31,467,821 7,664,279 $ 58,252,871
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,689,471 15,326,444 3,281,689 24,068,217
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,055,967 9,613,286 1,644,878 12,124,964
- ----------------------------------------------------------------------------------------------------------------------
Class R 79,652 742,690 25,518 209,495
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,085 10,000 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 287,382 2,711,609 189,563 1,431,485
- ----------------------------------------------------------------------------------------------------------------------
Class B (296,604) (2,711,609) (194,530) (1,431,485)
======================================================================================================================
Reacquired:
Class A (4,869,016) (44,602,423) (5,404,259) (41,344,508)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,730,826) (24,426,540) (2,879,424) (20,848,611)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,595,627) (14,297,750) (872,689) (6,353,754)
- ----------------------------------------------------------------------------------------------------------------------
Class R (7,765) (66,595) (1,487) (11,595)
======================================================================================================================
(3,020,001) $(26,233,067) 3,453,538 $ 26,097,079
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM/or AIM affiliates including but not
limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge
as to whether all or any portion of the shares owned of record by this
shareholder is also owned beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
FS-171
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.29 2.49 (1.91) (5.69) 4.50
=================================================================================================================================
Total from investment operations 0.16 2.38 (2.04) (5.80) 4.38
=================================================================================================================================
Net asset value, end of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.79% 36.39% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,262 $108,436 $63,463 $94,457 $114,913
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.74%(c)(d) 1.90% 1.83% 1.65% 1.63%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.36)%(c) (1.42)% (1.49)% (1.06)% (0.76)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $112,671,098.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.76%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-172
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.62) 4.47
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.80) 4.25
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,421 $81,298 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $80,220,450.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.26 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.63) 4.48
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.81) 4.26
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,503 $28,928 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $29,113,161.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-173
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.89 $ 6.54 $ 8.73
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.05)(a)
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 2.48 (2.14)
=======================================================================================================
Total from investment operations 0.14 2.35 (2.19)
=======================================================================================================
Net asset value, end of period $9.03 $ 8.89 $ 6.54
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 1.57% 35.93% (25.09)%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 877 $ 224 $ 7
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 1.89%(c)(d) 2.05% 1.98%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets (1.51)%(c) (1.57)% (1.64)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 167% 211% 185%
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are based on average daily net assets of $584,032.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.91%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- -----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07)
===================================================================================
Total from investment operations (0.11)
===================================================================================
Net asset value, end of period $ 9.11
___________________________________________________________________________________
===================================================================================
Total return(b) (1.19)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.20%(c)(d)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.82)%
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 167%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of $9,671.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% (annualized).
(e) Not annualized for periods less than one year.
FS-174
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
FS-175
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
FS-176
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-177
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Select Basic Value Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Select Basic Value Fund (a portfolio of AIM Equity Funds), including the
schedule of investments, as of October 31, 2004, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Select Basic Value Fund as of October 31, 2004, the results of its operations
for the year then ended, the statements of changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-178
AIM SELECT BASIC VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS--98.73%
ADVERTISING--5.49%
Interpublic Group of Cos., Inc. (The)(a) 2,500 $30,650
- ---------------------------------------------------------------------------------------------------
Omnicom Group Inc. 500 39,450
===================================================================================================
70,100
===================================================================================================
AEROSPACE & DEFENSE--1.85%
Honeywell International Inc. 700 23,576
===================================================================================================
APPAREL RETAIL--2.50%
Gap, Inc. (The) 1,600 31,968
===================================================================================================
BUILDING PRODUCTS--2.15%
American Standard Cos. Inc.(a) 750 27,427
===================================================================================================
DATA PROCESSING & OUTSOURCED SERVICES--5.72%
Ceridian Corp.(a) 1,600 27,600
- ---------------------------------------------------------------------------------------------------
First Data Corp. 1,100 45,408
===================================================================================================
73,008
===================================================================================================
DIVERSIFIED COMMERCIAL SERVICES--7.65%
Cendant Corp. 2,000 41,180
- ---------------------------------------------------------------------------------------------------
H&R Block, Inc. 350 16,643
- ---------------------------------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 1,900 39,900
===================================================================================================
97,723
===================================================================================================
ENVIRONMENTAL SERVICES--3.12%
Waste Management, Inc. 1,400 39,872
===================================================================================================
FOOD RETAIL--3.10%
Kroger Co. (The)(a) 1,650 24,932
- ---------------------------------------------------------------------------------------------------
Safeway Inc.(a) 800 14,592
===================================================================================================
39,524
===================================================================================================
</Table>
FS-179
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES--2.35%
Target Corp. 600 $30,012
===================================================================================================
HEALTH CARE DISTRIBUTORS--4.99%
Cardinal Health, Inc. 850 39,738
- ---------------------------------------------------------------------------------------------------
McKesson Corp. 900 23,994
===================================================================================================
63,732
===================================================================================================
HEALTH CARE EQUIPMENT--2.59%
Waters Corp.(a) 800 33,032
===================================================================================================
HEALTH CARE FACILITIES--1.15%
HCA, Inc. 400 14,692
===================================================================================================
HEALTH CARE SERVICES--1.08%
IMS Health Inc. 650 13,767
===================================================================================================
HOTELS, RESORTS & CRUISE LINES--2.99%
Starwood Hotels & Resorts Worldwide, Inc. 800 38,184
===================================================================================================
INDUSTRIAL CONGLOMERATES--4.64%
Tyco International Ltd. (Bermuda) 1,900 59,185
===================================================================================================
INVESTMENT BANKING & BROKERAGE--3.38%
Merrill Lynch & Co., Inc. 800 43,152
===================================================================================================
LEISURE PRODUCTS--3.31%
Brunswick Corp. 900 42,228
===================================================================================================
MANAGED HEALTH CARE--3.15%
Anthem, Inc.(a) 500 40,200
===================================================================================================
OIL & GAS DRILLING--4.86%
Pride International, Inc.(a) 1,450 26,796
- ---------------------------------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 1,000 35,250
===================================================================================================
62,046
===================================================================================================
OIL & GAS EQUIPMENT & SERVICES--1.84%
Weatherford International Ltd. (Bermuda)(a) 450 23,517
===================================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--7.38%
Citigroup Inc. 1,100 48,807
- ---------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,175 45,355
===================================================================================================
94,162
===================================================================================================
</Table>
FS-180
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--8.37%
Pfizer Inc. 1,100 $ 31,845
- ---------------------------------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 687 50,402
- ---------------------------------------------------------------------------------------------------
Wyeth 620 24,583
===================================================================================================
106,830
===================================================================================================
PROPERTY & CASUALTY INSURANCE--2.53%
ACE Ltd. (Cayman Islands) 850 32,351
===================================================================================================
SEMICONDUCTOR EQUIPMENT--1.62%
Novellus Systems, Inc.(a) 800 20,728
===================================================================================================
SYSTEMS SOFTWARE--4.78%
Computer Associates International, Inc. 2,200 60,962
===================================================================================================
THRIFTS & MORTGAGE FINANCE--6.14%
Fannie Mae 775 54,366
- ---------------------------------------------------------------------------------------------------
Radian Group Inc. 500 23,965
===================================================================================================
78,331
===================================================================================================
Total Common Stocks (Cost $1,028,314) 1,260,309
===================================================================================================
TOTAL INVESTMENTS--98.73%(Cost $1,028,314) 1,260,309
===================================================================================================
OTHER ASSETS LESS LIABILITIES--1.27% 16,213
===================================================================================================
NET ASSETS--100.00% $1,276,522
___________________________________________________________________________________________________
===================================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at October 31, 2004 represented 4.00% of the
Fund's Total Investments. See Note 1A.
See accompanying notes which are an integral part of the financial statements.
FS-181
AIM SELECT BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $1,028,314) $1,260,309
- --------------------------------------------------------------------------------------------------------
Cash 18,783
- --------------------------------------------------------------------------------------------------------
Receivables for:
Dividends 1,331
- --------------------------------------------------------------------------------------------------------
Amount due from advisor 16,241
- --------------------------------------------------------------------------------------------------------
Other assets 236
========================================================================================================
Total assets 1,296,900
________________________________________________________________________________________________________
========================================================================================================
LIABILITIES:
Payables for investments purchased 4,678
- --------------------------------------------------------------------------------------------------------
Accrued trustees' fees 2,467
- --------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 7
- --------------------------------------------------------------------------------------------------------
Accrued operating expenses 13,226
========================================================================================================
Total liabilities 20,378
========================================================================================================
Net assets applicable to shares outstanding $1,276,522
========================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $982,776
- --------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign currencies 61,745
- --------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign currencies 232,001
========================================================================================================
$1,276,522
________________________________________________________________________________________________________
========================================================================================================
NET ASSETS:
Class A $510,606
________________________________________________________________________________________________________
========================================================================================================
Class B $382,958
________________________________________________________________________________________________________
========================================================================================================
Class C $382,958
________________________________________________________________________________________________________
========================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 40,477
________________________________________________________________________________________________________
========================================================================================================
Class B 30,357
________________________________________________________________________________________________________
========================================================================================================
Class C 30,357
________________________________________________________________________________________________________
========================================================================================================
Class A :
Net asset value per share $12.61
- --------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $12.61 (divided by) 94.50%) $13.34
________________________________________________________________________________________________________
========================================================================================================
Class B :
Net asset value and offering price per share $12.62
________________________________________________________________________________________________________
========================================================================================================
Class C :
Net asset value and offering price per share $12.62
________________________________________________________________________________________________________
========================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-182
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
OCTOBER 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $156) $ 13,424
=======================================================================================================
EXPENSES:
Advisory fees 9,586
- -------------------------------------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------------------------------------
Custodian fees 1,835
- -------------------------------------------------------------------------------------------------------
Distribution fees:
- -------------------------------------------------------------------------------------------------------
Class A 1,790
- -------------------------------------------------------------------------------------------------------
Class B 3,834
- -------------------------------------------------------------------------------------------------------
Class C 3,834
- -------------------------------------------------------------------------------------------------------
Transfer agent fees 211
- -------------------------------------------------------------------------------------------------------
Trustees' fees 10,687
- -------------------------------------------------------------------------------------------------------
Professional fees 25,771
- -------------------------------------------------------------------------------------------------------
Market timing and litigation fees 17,399
- -------------------------------------------------------------------------------------------------------
Other 7,345
=======================================================================================================
Total expenses 132,292
=======================================================================================================
Less: Fees waived, expenses reimbursed and expense offset arrangements (109,930)
=======================================================================================================
Net expenses 22,362
=======================================================================================================
Net investment income (loss) (8,938)
=======================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 89,848
- -------------------------------------------------------------------------------------------------------
Foreign currencies (2)
=======================================================================================================
89,846
=======================================================================================================
Change in net unrealized appreciation of:
Investment securities 16,783
- -------------------------------------------------------------------------------------------------------
Foreign currencies 6
=======================================================================================================
16,789
=======================================================================================================
Net gain from investment securities and foreign currencies 106,635
=======================================================================================================
Net increase in net assets resulting from operations $ 97,697
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-183
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2004 AND 2003
<Table>
<Caption>
2004 2003
---------- ----------
OPERATIONS:
Net investment income (loss) $ (8,938) $ (7,616)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and foreign currencies 89,846 (7,698)
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 16,789 281,016
=============================================================================================================================
Net increase in net assets resulting from operations 97,697 265,702
=============================================================================================================================
Distributions to shareholders from net investment income:
Class A -- (4,400)
- -----------------------------------------------------------------------------------------------------------------------------
Class B -- (3,300)
- -----------------------------------------------------------------------------------------------------------------------------
Class C -- (3,300)
=============================================================================================================================
Decrease in net assets resulting from distributions -- (11,000)
=============================================================================================================================
Share transactions-net:
Class A -- 4,400
- -----------------------------------------------------------------------------------------------------------------------------
Class B -- 3,300
- -----------------------------------------------------------------------------------------------------------------------------
Class C -- 3,300
=============================================================================================================================
Net increase in net assets resulting from share transactions -- 11,000
=============================================================================================================================
Net increase in net assets 97,697 265,702
=============================================================================================================================
NET ASSETS:
Beginning of year 1,178,825 913,123
=============================================================================================================================
End of year (including undistributed net investment income
(loss) of $0 and $(3,792), respectively) $1,276,522 $1,178,825
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-184
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Basic Value Fund, formerly Basic Value II 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 fifteen separate portfolios, each authorized to issue an unlimited number of
shares of beneficial interest. The Fund currently consists of multiple classes
of shares. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund is currently not open to investors.
The Fund's investment objective is to provide long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers,
trustees, employees and agents are indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in the
normal course of business, the Fund enters into contracts that contain a variety
of indemnification clauses. The Fund's maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is valued
at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of issue,
coupon rate, maturity, individual trading characteristics and other market
data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and are
valued at the last bid price in the case of equity securities and in the case
of debt obligations, the mean between the last bid and asked prices.
FS-185
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of the close of the respective markets. Events
affecting the values of such foreign securities may occur between the times
at which the particular foreign market closes and the close of the customary
trading session of the NYSE which would not ordinarily be reflected in the
computation of the Fund's net asset value. If the event is likely to have
affected the closing price of the security, the security will be valued at
fair value in good faith using procedures approved by the Board of Trustees.
Adjustments to closing prices to reflect fair value may also be based on a
screening process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the principal
market where a foreign security trades is not the current market value as of
the close of the NYSE. Foreign securities meeting the approved degree of
certainty that the price is not reflective of current market value will be
priced at the indication of fair value from the independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net investment
income reported in the Statement of Operations and Statement of Changes in
Net Assets, or the net investment income per share and ratios of expenses and
net investment income reported in the Financial Highlights, nor are they
limited by any expense limitation arrangements between the Fund and the
advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a regulated
investment company and, as such, will not be subject to federal income taxes
on otherwise taxable income (including net realized capital gain) which is
distributed to shareholders. Therefore, no provision for federal income taxes
is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular class
of the Fund and which are directly attributable to that class are charged to
the operations of such class. All other expenses are allocated among the
classes based on relative net assets.
FS-186
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts at date of valuation. Purchases and sales of portfolio securities
(net of foreign taxes withheld on disposition) and income items denominated
in foreign currencies are translated into U.S. dollar amounts on the
respective dates of such transactions. The Fund does not separately account
for the portion of the results of operations resulting from changes in
foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of changes
in foreign exchange rates and the fluctuation of market prices on investments
(net of estimated foreign tax withholding) are included with the net realized
and unrealized gain or loss from investments in the 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, plus 0.70% of the next $1
billion of the Fund's average daily net assets, plus 0.65% of the Fund's average
daily net assets in excess of $2 billion. AIM has voluntarily agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B and Class C shares to 1.75% of average daily net assets. In determining
the advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (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, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds. Voluntary fee waivers or reimbursements may
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended October 31,
2004, AIM waived fees of $9,586 and reimbursed expenses of $72,639.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $18,019 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $50,000 for such services.
FS-187
The Fund, pursuant to a transfer agency and service agreement, has
agreed to pay AIM Investment Services, Inc. ("AISI") a fee for providing
transfer agency and shareholder services to the Fund and reimburse AISI for
certain expenses incurred by AISI in the course of providing such services. For
the year ended October 31, 2004, the Fund paid AISI $211. AISI may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total amount of sales charges, including asset-based sales charges that
may be paid by any class of shares of the Fund. AIM Distributors has voluntarily
agreed to waive all fees during the time the shares are not available for sale.
Waivers may be modified or discontinued at any time. AIM Distributors waived all
plan fees of $1,790, $3,834, and $3,834 for the Class A, Class B and Class C
shares, respectively.
Certain officers and trustees of the Trust are officers and directors
of AIM, AISI and/or AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended October 31, 2004, the Fund received credits in transfer agency fees of $16
and credits in custodian fees of $212 under expense offset arrangements, which
resulted in a reduction of the Fund's total expenses of $228.
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans
represent unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of
$4,268 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 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
FS-188
the credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------
Distributions paid from ordinary income $ -- $ 11,000
========================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------
Undistributed long-term gain $ 61,745
- -------------------------------------------------------------
Unrealized appreciation - investments 232,001
- -------------------------------------------------------------
Shares of beneficial interest 982,776
=============================================================
Total net assets $ 1,276,522
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The tax-basis unrealized
appreciation (depreciation) on investments amount includes appreciation on
foreign currencies of $6.
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 $28,102 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes.
The Fund had no capital loss carryforward as of October 31, 2004.
FS-189
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $235,807 and $260,695, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 277,994
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (45,999)
===============================================================================
Net unrealized appreciation of investment securities $ 231,995
_______________________________________________________________________________
===============================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of nondeductible excise
tax paid and net operating losses, on October 31, 2004, undistributed net
investment income was increased by $12,730, undistributed net realized gain
(loss) was increased by $1 and shares of beneficial interest decreased by
$12,731. This reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
The Fund currently consists of three different classes of shares that are not
available for sale: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with CDSC. Under certain circumstances, Class A shares are subject to
CDSC. Generally, Class B shares will automatically convert to Class A shares
eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003
--------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A -- $ -- 476 $ 4,400
- -----------------------------------------------------------------------------------------------------------------
Class B -- -- 356 3,300
- -----------------------------------------------------------------------------------------------------------------
Class C -- -- 356 3,300
=================================================================================================================
-- $ -- 1,188 $ 11,000
_________________________________________________________________________________________________________________
=================================================================================================================
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
</Table>
FS-190
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.05 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.96 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.61 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.24% 29.12% (8.70)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 511 $ 472 $ 365
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 9.96%(b) 10.27% 23.74%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $511,233.
(c) Annualized.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
----------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.06 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.97 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.62 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.33% 29.12% (8.70)%
Ratios/supplemental data:
________________________________________________________________________________________________________________________
========================================================================================================================
Net assets, end of period (000s omitted) $ 383 $ 354 $ 274
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 10.61%(b) 10.92% 24.39%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $383,430.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-191
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------- OCTOBER 31
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.06 2.70 (0.86)
========================================================================================================================
Total from investment operations 0.97 2.63 (0.87)
========================================================================================================================
Less dividends from net investment income -- (0.11) --
========================================================================================================================
Net asset value, end of period $ 12.62 $ 11.65 $ 9.13
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(a) 8.33% 29.12% (8.70)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 383 $ 354 $ 274
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.83% 1.75%(c)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 10.61%(b) 10.92% 24.39%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.70)%(b) (0.75)% (0.49)%(c)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(d) 19% 20% 4%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and the returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are based on average daily net assets of $383,430.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-192
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an
FS-193
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
independent distribution consultant to be appointed under the settlements. The
settlement payments will be distributed in accordance with a methodology to be
determined by the independent distribution consultant, in consultation with AIM
and the independent trustees of the AIM Funds and acceptable to the staff of the
SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause the
AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay all
of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
FS-194
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
FS-195
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM
FS-196
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Funds over other mutual funds and that the defendants concealed such payments
from investors by disguising them as brokerage commissions. These lawsuits
allege a variety of theories of recovery, including but not limited to: (i)
violation of various provisions of the Federal securities laws; (ii) breach of
fiduciary duty; and (iii) aiding and abetting a breach of fiduciary duty. These
lawsuits have been filed in Federal courts and seek such remedies as
compensatory and punitive damages; rescission of certain Funds' advisory
agreements and distribution plans and recovery of all fees paid; an accounting
of all fund-related fees, commissions and soft dollar payments; restitution of
all unlawfully or discriminatorily obtained fees and charges; and attorneys' and
experts' fees.
FS-197
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Weingarten Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM
Weingarten Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Weingarten Fund as of October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
FS-198
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.24%
AEROSPACE & DEFENSE-2.24%
Boeing Co. (The) 350,000 $ 17,465,000
- --------------------------------------------------------------------------
General Dynamics Corp. 150,000 15,318,000
- --------------------------------------------------------------------------
Honeywell International Inc. 600,000 20,208,000
==========================================================================
52,991,000
==========================================================================
AIR FREIGHT & LOGISTICS-0.58%
FedEx Corp. 150,000 13,668,000
==========================================================================
APPAREL RETAIL-1.65%
Chico's FAS, Inc.(a)(b) 400,000 16,012,000
- --------------------------------------------------------------------------
Gap, Inc. (The) 1,150,000 22,977,000
==========================================================================
38,989,000
==========================================================================
APPLICATION SOFTWARE-1.76%
Amdocs Ltd. (United Kingdom)(a) 1,200,000 30,180,000
- --------------------------------------------------------------------------
Intuit Inc.(a) 250,000 11,340,000
==========================================================================
41,520,000
==========================================================================
BIOTECHNOLOGY-3.13%
Biogen Idec Inc.(a) 400,000 23,264,000
- --------------------------------------------------------------------------
Genentech, Inc.(a) 600,000 27,318,000
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 675,000 23,375,250
==========================================================================
73,957,250
==========================================================================
BROADCASTING & CABLE TV-0.79%
Univision Communications Inc.-Class A(a) 600,000 18,576,000
==========================================================================
COMMUNICATIONS EQUIPMENT-6.69%
Avaya Inc.(a) 475,000 6,840,000
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 2,500,000 48,025,000
- --------------------------------------------------------------------------
Motorola, Inc. 2,000,000 34,520,000
- --------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 1,500,000 23,130,000
- --------------------------------------------------------------------------
QUALCOMM Inc. 400,000 16,724,000
- --------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 325,000 28,665,000
==========================================================================
157,904,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.75%
Best Buy Co., Inc. 300,000 17,766,000
==========================================================================
COMPUTER HARDWARE-4.47%
Apple Computer, Inc.(a) 675,000 35,457,750
- --------------------------------------------------------------------------
Dell Inc.(a) 1,500,000 52,590,000
- --------------------------------------------------------------------------
PalmOne, Inc.(a)(c) 600,000 17,382,000
==========================================================================
105,429,750
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
COMPUTER STORAGE & PERIPHERALS-1.06%
Lexmark International, Inc.-Class A(a) 300,000 $ 24,933,000
==========================================================================
CONSUMER FINANCE-2.27%
American Express Co. 550,000 29,188,500
- --------------------------------------------------------------------------
MBNA Corp. 950,000 24,348,500
==========================================================================
53,537,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.66%
Alliance Data Systems Corp.(a) 62,100 2,625,588
- --------------------------------------------------------------------------
Automatic Data Processing, Inc. 300,000 13,017,000
==========================================================================
15,642,588
==========================================================================
DEPARTMENT STORES-3.83%
J.C. Penney Co., Inc. 650,000 22,483,500
- --------------------------------------------------------------------------
Kohl's Corp.(a) 1,000,000 50,760,000
- --------------------------------------------------------------------------
Nordstrom, Inc. 400,000 17,272,000
==========================================================================
90,515,500
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.67%
Apollo Group, Inc.-Class A(a) 175,000 11,550,000
- --------------------------------------------------------------------------
Cendant Corp. 2,500,000 51,475,000
==========================================================================
63,025,000
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.41%
Rockwell Automation, Inc. 800,000 33,352,000
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.70%
Agilent Technologies, Inc.(a) 1,600,000 40,096,000
==========================================================================
FOOTWEAR-1.03%
NIKE, Inc.-Class B 300,000 24,393,000
==========================================================================
GENERAL MERCHANDISE STORES-2.01%
Target Corp. 950,000 47,519,000
==========================================================================
HEALTH CARE EQUIPMENT-1.51%
Bard (C.R.), Inc. 300,000 17,040,000
- --------------------------------------------------------------------------
Waters Corp.(a) 450,000 18,580,500
==========================================================================
35,620,500
==========================================================================
HEALTH CARE SERVICES-1.37%
Caremark Rx, Inc.(a) 550,000 16,483,500
- --------------------------------------------------------------------------
IMS Health Inc. 750,000 15,885,000
==========================================================================
32,368,500
==========================================================================
</Table>
FS-199
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.06%
Alcon, Inc. (Switzerland) 350,000 $ 24,920,000
==========================================================================
HOME IMPROVEMENT RETAIL-0.87%
Home Depot, Inc. (The) 500,000 20,540,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.01%
Starwood Hotels & Resorts Worldwide, Inc. 500,000 23,865,000
==========================================================================
HOUSEHOLD PRODUCTS-1.73%
Procter & Gamble Co. (The) 800,000 40,944,000
==========================================================================
HOUSEWARES & SPECIALTIES-1.08%
Fortune Brands, Inc. 350,000 25,487,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.22%
Costco Wholesale Corp. 600,000 28,764,000
==========================================================================
INDUSTRIAL CONGLOMERATES-4.45%
3M Co. 150,000 11,635,500
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 3,000,000 93,450,000
==========================================================================
105,085,500
==========================================================================
INDUSTRIAL MACHINERY-2.81%
Danaher Corp. 600,000 33,078,000
- --------------------------------------------------------------------------
Eaton Corp. 200,000 12,790,000
- --------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 300,000 20,532,000
==========================================================================
66,400,000
==========================================================================
INTEGRATED OIL & GAS-1.33%
BP PLC-ADR (United Kingdom) 175,000 10,193,750
- --------------------------------------------------------------------------
ChevronTexaco Corp. 200,000 10,612,000
- --------------------------------------------------------------------------
ConocoPhillips 125,000 10,538,750
==========================================================================
31,344,500
==========================================================================
INTERNET RETAIL-1.88%
Amazon.com, Inc.(a) 300,000 10,239,000
- --------------------------------------------------------------------------
eBay Inc.(a) 350,000 34,163,500
==========================================================================
44,402,500
==========================================================================
INTERNET SOFTWARE & SERVICES-3.49%
Google Inc.-Class A(a)(c) 100,000 19,070,500
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 1,750,000 63,332,500
==========================================================================
82,403,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.85%
Goldman Sachs Group, Inc. (The) 400,000 39,352,000
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 300,000 24,645,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 500,000 26,970,000
==========================================================================
90,967,000
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
MANAGED HEALTH CARE-3.90%
Aetna Inc. 600,000 $ 57,000,000
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 485,000 35,114,000
==========================================================================
92,114,000
==========================================================================
MOTORCYCLE MANUFACTURERS-0.73%
Harley-Davidson, Inc. 300,000 17,271,000
==========================================================================
MOVIES & ENTERTAINMENT-0.86%
Walt Disney Co. (The) 800,000 20,176,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.65%
Varco International, Inc.(a) 550,000 15,224,000
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.67%
Citigroup Inc. 550,000 24,403,500
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 1,000,000 38,600,000
==========================================================================
63,003,500
==========================================================================
PERSONAL PRODUCTS-3.62%
Avon Products, Inc. 450,000 17,797,500
- --------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 900,000 38,655,000
- --------------------------------------------------------------------------
Gillette Co. (The) 700,000 29,036,000
==========================================================================
85,488,500
==========================================================================
PHARMACEUTICALS-6.35%
Johnson & Johnson 800,000 46,704,000
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 250,000 13,727,500
- --------------------------------------------------------------------------
Pfizer Inc. 1,200,000 34,740,000
- --------------------------------------------------------------------------
Sepracor Inc.(a)(c) 500,000 22,965,000
- --------------------------------------------------------------------------
Wyeth 800,000 31,720,000
==========================================================================
149,856,500
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.61%
Allstate Corp. (The) 300,000 14,427,000
==========================================================================
RESTAURANTS-2.34%
McDonald's Corp. 1,000,000 29,150,000
- --------------------------------------------------------------------------
Yum! Brands, Inc. 600,000 26,100,000
==========================================================================
55,250,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-1.65%
Novellus Systems, Inc.(a) 1,500,000 38,865,000
==========================================================================
SEMICONDUCTORS-2.69%
Analog Devices, Inc. 900,000 36,234,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 900,000 27,225,000
==========================================================================
63,459,000
==========================================================================
SOFT DRINKS-0.84%
PepsiCo, Inc. 400,000 19,832,000
==========================================================================
</Table>
FS-200
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.57%
Ecolab Inc. 400,000 $ 13,540,000
==========================================================================
SYSTEMS SOFTWARE-3.81%
Microsoft Corp. 850,000 23,791,500
- --------------------------------------------------------------------------
Oracle Corp.(a) 1,600,000 20,256,000
- --------------------------------------------------------------------------
Symantec Corp.(a) 500,000 28,470,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 800,000 17,504,000
==========================================================================
90,021,500
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.59%
Fannie Mae 200,000 14,030,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,847,833,159) 2,319,483,588
==========================================================================
MONEY MARKET FUNDS-0.55%
Liquid Assets Portfolio-Institutional
Class(d) 6,546,085 6,546,085
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
STIC Prime Portfolio-Institutional Class(d) 6,546,085 $ 6,546,085
==========================================================================
Total Money Market Funds (Cost
$13,092,170) 13,092,170
==========================================================================
TOTAL INVESTMENTS-98.79% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,860,925,329) 2,332,575,758
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.74%
STIC Prime Portfolio-Institutional
Class(d)(e) 40,952,850 40,952,850
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $40,952,850) 40,952,850
==========================================================================
TOTAL INVESTMENTS-100.53% (Cost
$1,901,878,179) 2,373,528,608
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.53%) (12,485,091)
==========================================================================
NET ASSETS-100.00% $2,361,043,517
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1H
and Note 9.
(c) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-201
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,847,833,159)* $ 2,319,483,588
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $54,045,020) 54,045,020
============================================================
Total investments (cost $1,901,878,179) 2,373,528,608
============================================================
Receivables for:
Investments sold 50,411,057
- ------------------------------------------------------------
Fund shares sold 448,667
- ------------------------------------------------------------
Dividends 1,592,101
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 269,768
- ------------------------------------------------------------
Other assets 104,007
============================================================
Total assets 2,426,354,208
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 15,055,134
- ------------------------------------------------------------
Fund shares reacquired 5,956,291
- ------------------------------------------------------------
Options written, at market value
(premiums received $421,040) 397,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 534,825
- ------------------------------------------------------------
Collateral upon return of securities
loaned 40,952,850
- ------------------------------------------------------------
Accrued distribution fees 865,367
- ------------------------------------------------------------
Accrued trustees' fees 3,163
- ------------------------------------------------------------
Accrued transfer agent fees 963,599
- ------------------------------------------------------------
Accrued operating expenses 581,962
============================================================
Total liabilities 65,310,691
============================================================
Net assets applicable to shares outstanding $ 2,361,043,517
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 5,229,262,118
- ------------------------------------------------------------
Undistributed net investment income (loss) (484,385)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,339,408,185)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 471,673,969
============================================================
$ 2,361,043,517
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,844,930,443
____________________________________________________________
============================================================
Class B $ 434,572,230
____________________________________________________________
============================================================
Class C $ 78,330,084
____________________________________________________________
============================================================
Class R $ 1,448,080
____________________________________________________________
============================================================
Institutional Class $ 1,762,680
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 153,486,063
____________________________________________________________
============================================================
Class B 39,386,838
____________________________________________________________
============================================================
Class C 7,092,782
____________________________________________________________
============================================================
Class R 121,135
____________________________________________________________
============================================================
Institutional Class 138,489
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.02
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.02 divided by
94.50%) $ 12.72
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 11.03
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.04
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.95
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.73
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $39,055,836
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-202
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $168,938) $ 18,735,081
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $91,112)* 336,832
===========================================================================
Total investment income 19,071,913
===========================================================================
EXPENSES:
Advisory fees 17,028,857
- ---------------------------------------------------------------------------
Administrative services fees 533,540
- ---------------------------------------------------------------------------
Custodian fees 272,422
- ---------------------------------------------------------------------------
Distribution fees:
Class A 6,122,534
- ---------------------------------------------------------------------------
Class B 5,114,549
- ---------------------------------------------------------------------------
Class C 873,155
- ---------------------------------------------------------------------------
Class R 5,355
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 9,316,175
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,931
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 61,515
- ---------------------------------------------------------------------------
Other 1,785,513
===========================================================================
Total expenses 41,115,546
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (276,057)
===========================================================================
Net expenses 40,839,489
===========================================================================
Net investment income (loss) (21,767,576)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 236,255,290
- ---------------------------------------------------------------------------
Foreign currencies 24
===========================================================================
236,255,314
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (114,844,681)
- ---------------------------------------------------------------------------
Foreign currencies (7)
- ---------------------------------------------------------------------------
Option contracts written 23,540
===========================================================================
(114,821,148)
===========================================================================
Net gain from investment securities, foreign currencies and
option contracts 121,434,166
===========================================================================
Net increase in net assets resulting from operations $ 99,666,590
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
FS-203
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (21,767,576) $ (22,244,366)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and options contracts 236,255,314 (152,819,227)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (114,821,148) 703,701,978
==============================================================================================
Net increase in net assets resulting from operations 99,666,590 528,638,385
==============================================================================================
Share transactions-net:
Class A (395,056,301) (354,029,189)
- ----------------------------------------------------------------------------------------------
Class B (138,803,397) (78,758,321)
- ----------------------------------------------------------------------------------------------
Class C (15,793,039) (11,803,823)
- ----------------------------------------------------------------------------------------------
Class R 1,126,374 190,176
- ----------------------------------------------------------------------------------------------
Institutional Class (547,138) (83,682)
==============================================================================================
Net increase (decrease) in net assets resulting from share
transactions (549,073,501) (444,484,839)
==============================================================================================
Net increase (decrease) in net assets (449,406,911) 84,153,546
==============================================================================================
NET ASSETS:
Beginning of year 2,810,450,428 2,726,296,882
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(484,385) and $(462,775), respectively) $2,361,043,517 $2,810,450,428
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-204
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten 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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to provide growth of capital. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
FS-205
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
FS-206
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 1.00% of the first
$30 million of the Fund's average daily net assets, plus 0.75% of the Fund's
average daily net assets in excess of $30 million up to and including $350
million, plus 0.625% of the Fund's average daily net assets in excess of $350
million. AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money market
funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended October 31, 2004, AIM waived fees of $5,987. Under the terms of a master
sub-advisory agreement between AIM and A I M Capital Management, Inc. ("AIM
Capital"), AIM pays AIM Capital 50% of the amount paid by the Fund to AIM.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $227,266 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $533,540 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the year ended October 31, 2004,
the Fund paid AISI $9,316,175 for Class A, Class B, Class C and Class R shares
and $1,931 for Institutional Class shares. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.30% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to selected dealers and financial
institutions who furnish continuing personal shareholder services to customers
who purchase and own shares of such classes. Any amounts not paid as a service
fee under the Plans would constitute an asset-based sales charge. NASD Rules
also impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2004, the Class A, Class B, Class C and
Class R shares paid $6,122,534, $5,114,549, $873,155 and $5,355, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$252,306 in front-end sales commissions from the sale of Class A shares and
$1,900, $55,846, $6,948 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
FS-207
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $36,428,079 $ 401,226,654 $ (431,108,648) $ -- $ 6,546,085 $124,213 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 36,428,079 401,226,654 (431,108,648) -- 6,546,085 121,507 --
==================================================================================================================================
Subtotal $72,856,158 $ 802,453,308 $ (862,217,296) $ -- $13,092,170 $245,720 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $38,996,800 $ 574,759,331 $ (613,756,131) $ -- $ -- $ 79,923 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class -- 125,196,850 (84,244,000) -- 40,952,850 $ 11,189 --
==================================================================================================================================
Subtotal $38,996,800 $ 699,956,181 $ (698,000,131) $ -- $40,952,850 $ 91,112 $ --
==================================================================================================================================
Total $111,852,958 $1,502,409,489 $(1,560,217,427) $ -- $54,045,020 $336,832 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $79,267,272 and $21,738,445,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $42,804 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$42,804.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $13,966
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
FS-208
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $39,055,836 were
on loan to brokers. The loans were secured by cash collateral of $40,952,850
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $91,112 for securities
lending transactions.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 3,000 421,040
===================================================================================
End of year 3,000 $421,040
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, 2004
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET UNREALIZED
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
Chico's FAS, Inc. Nov-04 $40.0 3,000 $421,040 $397,500 $23,540
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
FS-209
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 450,268,418
- -----------------------------------------------------------------------------
Temporary book/tax differences (484,385)
- -----------------------------------------------------------------------------
Capital loss carryforward (3,318,002,634)
- -----------------------------------------------------------------------------
Shares of beneficial interest 5,229,262,118
=============================================================================
Total net assets $ 2,361,043,517
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the tax deferral of losses
on wash sales and the deferral of losses on certain straddles. The tax-basis
unrealized appreciation on investments amount includes appreciation on option
contracts of $23,539.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $200,737,719 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------------------------
October 31, 2009 $2,358,363,619
- ------------------------------------------------------------------------------
October 31, 2010 763,027,747
- ------------------------------------------------------------------------------
October 31, 2011 196,611,268
==============================================================================
Total capital loss carryforward $3,318,002,634
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $1,931,481,698 and $2,445,456,487, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $466,806,274
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (16,561,395)
==============================================================================
Net unrealized appreciation of investment securities $450,244,879
______________________________________________________________________________
==============================================================================
</Table>
Cost of investments for tax purposes is $1,923,283,729.
NOTE 12--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2004, undistributed net
investment income increased by $21,745,966, undistributed net realized gain
(loss) was decreased by $25 and shares of beneficial interest decreased by
$21,745,941. This reclassification had no effect on the net assets of the Fund.
FS-210
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,161,430 $ 74,474,713 10,192,956 $ 102,256,843
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,836,554 31,535,843 5,051,931 47,044,808
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,109,204 12,390,482 1,715,252 15,941,057
- --------------------------------------------------------------------------------------------------------------------------
Class R 139,257 1,669,192 23,136 234,973
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 13,498 172,948 16,638 177,847
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 4,502,782 54,704,748 1,369,192 14,331,798
- --------------------------------------------------------------------------------------------------------------------------
Class B (4,888,349) (54,704,748) (1,477,850) (14,331,798)
==========================================================================================================================
Reacquired:
Class A (43,655,916) (524,235,762) (47,251,093) (470,617,830)
- --------------------------------------------------------------------------------------------------------------------------
Class B (10,449,964) (115,634,492) (12,154,199) (111,471,331)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,535,106) (28,183,521) (2,990,841) (27,744,880)
- --------------------------------------------------------------------------------------------------------------------------
Class R (45,049) (542,818) (4,184) (44,797)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (56,324) (720,086) (25,361) (261,529)
==========================================================================================================================
(46,867,983) $(549,073,501) (45,534,423) $(444,484,839)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 17% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
FS-211
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.59 $ 9.47 $ 12.65 $ 28.16 $ 28.31
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.07) (0.07)(a) (0.10) (0.14)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.51 2.19 (3.11) (11.87) 3.18
============================================================================================================================
Total from investment operations 0.43 2.12 (3.18) (11.97) 3.04
============================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
============================================================================================================================
Net asset value, end of period $ 12.02 $ 11.59 $ 9.47 $ 12.65 $ 28.16
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 3.71% 22.39% (25.14)% (47.38)% 10.61%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,844,930 $2,160,823 $2,104,660 $4,001,552 $8,948,781
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.39%(c) 1.47% 1.33% 1.21% 1.03%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.40%(c) 1.47% 1.33% 1.22% 1.07%
============================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.67)%(c) (0.68)% (0.64)% (0.56)% (0.45)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $2,040,844,523.
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.71 $ 8.82 $ 11.86 $ 26.82 $ 27.29
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.14) (0.15)(a) (0.21) (0.36)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 2.03 (2.89) (11.21) 3.08
==========================================================================================================================
Total from investment operations 0.32 1.89 (3.04) (11.42) 2.72
==========================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
==========================================================================================================================
Net asset value, end of period $ 11.03 $ 10.71 $ 8.82 $ 11.86 $ 26.82
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 2.99% 21.43% (25.63)% (47.75)% 9.76%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $434,572 $555,779 $533,224 $922,476 $1,927,514
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.09%(c) 2.17% 2.04% 1.92% 1.78%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(c) 2.17% 2.04% 1.93% 1.82%
==========================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.37)%(c) (1.38)% (1.34)% (1.27)% (1.20)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $511,454,890.
FS-212
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.72 $ 8.83 $ 11.87 $ 26.85 $ 27.30
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.14) (0.15)(a) (0.21) (0.36)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 2.03 (2.89) (11.23) 3.10
======================================================================================================================
Total from investment operations 0.32 1.89 (3.04) (11.44) 2.74
======================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
======================================================================================================================
Net asset value, end of period $ 11.04 $ 10.72 $ 8.83 $ 11.87 $ 26.85
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.99% 21.40% (25.61)% (47.77)% 9.83%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $78,330 $91,325 $86,455 $150,604 $301,590
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.09%(c) 2.17% 2.04% 1.92% 1.78%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(c) 2.17% 2.04% 1.93% 1.82%
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.37)%(c) (1.38)% (1.34)% (1.27)% (1.20)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $87,315,520.
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.56 $ 9.47 $ 11.36
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.06) (0.03)(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.49 2.15 (1.86)
====================================================================================================
Total from investment operations 0.39 2.09 (1.89)
====================================================================================================
Net asset value, end of period $ 11.95 $11.56 $ 9.47
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 3.37% 22.07% (16.64)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,448 $ 311 $ 76
====================================================================================================
Ratio of expenses to average net assets 1.59%(c)(d) 1.67% 1.53%(e)
====================================================================================================
Ratio of net investment income (loss) to average net assets (0.87)%(c) (0.88)% (0.84)%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate 74% 111% 217%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,071,094.
(d) After fee waivers and/or expense reimbursements. Ratio of expense to
average net asset prior to fee waivers and/or expense reimbursements is
1.60%.
(e) Annualized.
FS-213
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.20 $ 9.91 $13.16 $29.00 $ 28.96
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.00 (0.01)(a) (0.01) (0.06)(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.54 2.29 (3.24) (12.29) 3.29
================================================================================================================
Total from investment operations 0.53 2.29 (3.25) (12.30) 3.23
================================================================================================================
Less distributions from net realized gains -- -- -- (3.54) (3.19)
================================================================================================================
Net asset value, end of period $12.73 $12.20 $ 9.91 $13.16 $ 29.00
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 4.34% 23.11% (24.70)% (47.11)% 11.07%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,763 $2,213 $1,883 $7,667 $18,634
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.84%(c) 0.78% 0.82% 0.69% 0.64%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.85%(c) 0.78% 0.82% 0.70% 0.68%
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.12)%(c) 0.01% (0.12)% (0.04)% (0.04)%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 74% 111% 217% 240% 145%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(c) Ratios are based on average daily net assets of $1,931,035.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
FS-214
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office
FS-215
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
for the Southern District of New York, some of which concern one or more of the
AIM Funds formerly advised by IFG. IFG is providing full cooperation with
respect to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
FS-216
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
FS-217
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.65%
ADVERTISING-1.51%
Lamar Advertising Co.-Class A(a) 700,000 $ 26,166,000
==========================================================================
AEROSPACE & DEFENSE-0.72%
L-3 Communications Holdings, Inc. 175,000 12,419,750
==========================================================================
APPAREL RETAIL-1.26%
Aeropostale, Inc.(a) 400,000 11,172,000
- --------------------------------------------------------------------------
Hot Topic, Inc.(a) 531,000 10,614,690
==========================================================================
21,786,690
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.71%
Fossil, Inc.(a) 530,000 12,327,800
==========================================================================
APPLICATION SOFTWARE-2.22%
Amdocs Ltd. (United Kingdom)(a) 400,000 10,684,000
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 1,250,000 8,625,000
- --------------------------------------------------------------------------
Synopsys, Inc.(a) 579,947 9,534,329
- --------------------------------------------------------------------------
TIBCO Software Inc.(a) 1,350,000 9,639,000
==========================================================================
38,482,329
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.84%
Affiliated Managers Group, Inc.(a) 250,000 15,632,500
- --------------------------------------------------------------------------
Investors Financial Services Corp. 850,000 35,657,500
- --------------------------------------------------------------------------
Nuveen Investments-Class A 443,700 15,081,363
==========================================================================
66,371,363
==========================================================================
BIOTECHNOLOGY-3.75%
Amylin Pharmaceuticals, Inc.(a) 675,000 11,475,000
- --------------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 370,000 8,506,300
- --------------------------------------------------------------------------
MedImmune, Inc.(a) 500,000 12,685,000
- --------------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 350,000 12,236,000
- --------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 165,000 7,810,275
- --------------------------------------------------------------------------
QLT Inc. (Canada)(a)(b) 1,130,000 12,113,600
==========================================================================
64,826,175
==========================================================================
BREWERS-0.71%
Molson Coors Brewing Co.-Class B 200,000 12,350,000
==========================================================================
BROADCASTING & CABLE TV-2.92%
Radio One, Inc.-Class D(a) 1,100,000 14,377,000
- --------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 1,375,000 36,148,750
==========================================================================
50,525,750
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-1.08%
American Standard Cos. Inc. 300,000 $ 13,413,000
- --------------------------------------------------------------------------
York International Corp. 135,000 5,282,550
==========================================================================
18,695,550
==========================================================================
CASINOS & GAMING-1.25%
Aztar Corp.(a) 400,000 10,924,000
- --------------------------------------------------------------------------
International Game Technology 400,000 10,756,000
==========================================================================
21,680,000
==========================================================================
COMMUNICATIONS EQUIPMENT-1.00%
Juniper Networks, Inc.(a) 625,000 14,118,750
- --------------------------------------------------------------------------
Tekelec(a) 231,169 3,146,210
==========================================================================
17,264,960
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.87%
Best Buy Co., Inc. 300,000 15,102,000
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.97%
Brocade Communications Systems, Inc.(a) 1,500,000 6,540,000
- --------------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 625,000 10,262,500
==========================================================================
16,802,500
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.48%
Terex Corp.(a) 224,000 8,373,120
==========================================================================
CONSUMER ELECTRONICS-0.45%
Harman International Industries, Inc. 100,000 7,858,000
==========================================================================
CONSUMER FINANCE-0.62%
SLM Corp. 225,000 10,719,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-7.89%
Affiliated Computer Services, Inc.-Class A(a) 350,000 16,684,500
- --------------------------------------------------------------------------
Alliance Data Systems Corp.(a) 1,000,000 40,400,000
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 575,000 24,322,500
- --------------------------------------------------------------------------
Iron Mountain Inc.(a) 825,000 24,502,500
- --------------------------------------------------------------------------
Paychex, Inc. 1,000,000 30,600,000
==========================================================================
136,509,500
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.95%
ARAMARK Corp.-Class B 600,000 14,706,000
- --------------------------------------------------------------------------
Career Education Corp.(a) 267,000 8,394,480
- --------------------------------------------------------------------------
ChoicePoint Inc.(a) 471,500 18,610,105
- --------------------------------------------------------------------------
Cintas Corp. 450,000 17,365,500
- --------------------------------------------------------------------------
CoStar Group Inc.(a) 205,000 8,107,750
- --------------------------------------------------------------------------
</Table>
FS-218
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-(CONTINUED)
Jackson Hewitt Tax Service Inc. 625,000 $ 11,512,500
- --------------------------------------------------------------------------
Sirva Inc.(a) 1,000,000 6,980,000
==========================================================================
85,676,335
==========================================================================
ELECTRIC UTILITIES-0.60%
DPL Inc. 405,000 10,303,200
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.60%
EnerSys(a) 1,100,000 10,373,000
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.56%
Amphenol Corp.-Class A 250,000 9,860,000
- --------------------------------------------------------------------------
Cogent Inc.(a) 375,000 8,437,500
- --------------------------------------------------------------------------
Tektronix, Inc. 400,000 8,664,000
==========================================================================
26,961,500
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.27%
Molex Inc. 183,800 4,670,358
==========================================================================
GENERAL MERCHANDISE STORES-0.61%
Tuesday Morning Corp.(a) 400,000 10,504,000
==========================================================================
HEALTH CARE EQUIPMENT-7.77%
Biomet, Inc. 500,000 19,345,000
- --------------------------------------------------------------------------
Cytyc Corp.(a) 900,000 19,179,000
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 425,000 25,236,500
- --------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 425,000 26,116,250
- --------------------------------------------------------------------------
Kyphon Inc.(a) 425,000 11,113,750
- --------------------------------------------------------------------------
PerkinElmer, Inc. 500,000 9,250,000
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 305,000 10,290,700
- --------------------------------------------------------------------------
Waters Corp.(a) 350,000 13,870,500
==========================================================================
134,401,700
==========================================================================
HEALTH CARE FACILITIES-0.59%
Triad Hospitals, Inc.(a) 200,000 10,250,000
==========================================================================
HEALTH CARE SERVICES-3.35%
Caremark Rx, Inc.(a) 475,000 19,023,750
- --------------------------------------------------------------------------
Cerner Corp.(a)(c) 210,000 12,192,600
- --------------------------------------------------------------------------
DaVita, Inc.(a) 450,000 18,135,000
- --------------------------------------------------------------------------
Omnicare, Inc. 250,000 8,667,500
==========================================================================
58,018,850
==========================================================================
HEALTH CARE SUPPLIES-1.88%
Advanced Medical Optics, Inc.(a) 435,000 16,086,300
- --------------------------------------------------------------------------
Cooper Cos., Inc. (The) 100,000 6,755,000
- --------------------------------------------------------------------------
Millipore Corp.(a) 200,000 9,644,000
==========================================================================
32,485,300
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.09%
Royal Caribbean Cruises Ltd. (Liberia) 450,000 18,909,000
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HOUSEHOLD APPLIANCES-1.01%
Blount International, Inc.(a) 1,173,900 $ 17,385,459
==========================================================================
INDUSTRIAL CONGLOMERATES-1.09%
Textron Inc. 250,000 18,837,500
==========================================================================
INDUSTRIAL GASES-0.30%
Airgas, Inc. 239,000 5,238,880
==========================================================================
INDUSTRIAL MACHINERY-1.21%
Dover Corp. 300,000 10,908,000
- --------------------------------------------------------------------------
Pentair, Inc. 250,000 9,945,000
==========================================================================
20,853,000
==========================================================================
INTERNET SOFTWARE & SERVICES-0.76%
VeriSign, Inc.(a) 500,000 13,230,000
==========================================================================
IT CONSULTING & OTHER SERVICES-0.99%
Acxiom Corp. 500,000 9,500,000
- --------------------------------------------------------------------------
Perot Systems Corp.-Class A(a) 600,000 7,578,000
==========================================================================
17,078,000
==========================================================================
METAL & GLASS CONTAINERS-0.53%
Owens-Illinois, Inc.(a) 375,000 9,195,000
==========================================================================
MOVIES & ENTERTAINMENT-0.88%
Regal Entertainment Group-Class A 750,000 15,217,500
==========================================================================
OFFICE SERVICES & SUPPLIES-0.78%
Mine Safety Appliances Co. 380,000 13,566,000
==========================================================================
OIL & GAS DRILLING-1.33%
ENSCO International Inc. 525,000 17,115,000
- --------------------------------------------------------------------------
Rowan Cos., Inc. 225,000 5,969,250
==========================================================================
23,084,250
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.49%
BJ Services Co. 175,000 8,531,250
==========================================================================
PAPER PRODUCTS-0.21%
Sappi Ltd.-ADR (South Africa) 371,500 3,707,570
==========================================================================
PHARMACEUTICALS-4.54%
Endo Pharmaceuticals Holdings Inc.(a) 500,000 9,925,000
- --------------------------------------------------------------------------
Impax Laboratories, Inc.(a) 400,000 6,508,000
- --------------------------------------------------------------------------
IVAX Corp.(a) 937,500 17,718,750
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 542,200 15,235,820
- --------------------------------------------------------------------------
MGI Pharma, Inc.(a) 720,000 15,876,000
- --------------------------------------------------------------------------
Valeant Pharmaceuticals International 636,900 13,215,675
==========================================================================
78,479,245
==========================================================================
PUBLISHING-0.63%
Dow Jones & Co., Inc. 325,000 10,868,000
==========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.75%
CB Richard Ellis Group, Inc.-Class A(a) 375,000 13,031,250
==========================================================================
</Table>
FS-219
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
REGIONAL BANKS-1.91%
Amegy Bancorp., Inc. 800,000 $ 13,280,000
- --------------------------------------------------------------------------
North Fork Bancorp., Inc. 700,000 19,705,000
==========================================================================
32,985,000
==========================================================================
RESTAURANTS-1.65%
RARE Hospitality International, Inc.(a) 500,000 13,910,000
- --------------------------------------------------------------------------
Ruby Tuesday, Inc. 650,000 14,625,000
==========================================================================
28,535,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-2.23%
KLA-Tencor Corp. 540,600 21,094,212
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 750,000 17,572,500
==========================================================================
38,666,712
==========================================================================
SEMICONDUCTORS-8.51%
Altera Corp.(a) 775,000 16,065,750
- --------------------------------------------------------------------------
AMIS Holdings, Inc.(a) 1,124,900 12,666,374
- --------------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 875,000 12,950,000
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 475,000 14,207,250
- --------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 850,000 15,529,500
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 700,000 26,180,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 1,000,000 28,480,000
- --------------------------------------------------------------------------
Micron Technology, Inc.(a) 875,000 8,496,250
- --------------------------------------------------------------------------
Semtech Corp.(a) 750,000 12,667,500
==========================================================================
147,242,624
==========================================================================
SOFT DRINKS-0.73%
Coca-Cola Enterprises Inc. 625,000 12,687,500
==========================================================================
SPECIALIZED FINANCE-0.57%
Chicago Mercantile Exchange Holdings Inc. 50,000 9,776,000
==========================================================================
SPECIALTY CHEMICALS-0.98%
Nalco Holding Co.(a) 393,300 7,079,400
- --------------------------------------------------------------------------
Rohm & Haas Co. 225,000 9,823,500
==========================================================================
16,902,900
==========================================================================
SPECIALTY STORES-4.11%
Bed Bath & Beyond Inc.(a) 400,000 14,884,000
- --------------------------------------------------------------------------
Linens 'n Things, Inc.(a) 750,000 17,497,500
- --------------------------------------------------------------------------
PETCO Animal Supplies, Inc.(a) 550,000 17,215,000
- --------------------------------------------------------------------------
Staples, Inc. 1,125,000 21,453,750
==========================================================================
71,050,250
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-1.58%
Internet Security Systems, Inc.(a) 302,100 $ 5,875,845
- --------------------------------------------------------------------------
McAfee Inc.(a) 600,000 12,546,000
- --------------------------------------------------------------------------
RSA Security Inc.(a) 833,000 8,946,420
==========================================================================
27,368,265
==========================================================================
TECHNOLOGY DISTRIBUTORS-1.42%
CDW Corp. 450,000 24,610,500
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.34%
Independence Community Bank Corp. 400,000 14,272,000
- --------------------------------------------------------------------------
New York Community Bancorp, Inc.(b) 500,000 8,850,000
==========================================================================
23,122,000
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.60%
WESCO International, Inc.(a) 428,000 10,349,040
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,672,089,105) 1,672,412,425
==========================================================================
MONEY MARKET FUNDS-3.33%
Liquid Assets Portfolio-Institutional
Class(d) 28,814,361 28,814,361
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 28,814,361 28,814,361
==========================================================================
Total Money Market Funds (Cost
$57,628,722) 57,628,722
==========================================================================
TOTAL INVESTMENTS-99.98% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,729,717,827) 1,730,041,147
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.50%
Liquid Assets Portfolio-Institutional
Class(d)(e) 4,312,476 4,312,476
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(d)(e) 4,312,476 4,312,476
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $8,624,952) 8,624,952
==========================================================================
TOTAL INVESTMENTS-100.48% (Cost
$1,738,342,779) 1,738,666,099
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.48%) (8,222,318)
==========================================================================
NET ASSETS-100.00% $1,730,443,781
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) A portion of this security is subject to call options written. See Note 1F
and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-220
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,672,089,105)* $1,672,412,425
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $66,253,674) 66,253,674
============================================================
Total investments (cost $1,738,342,779) 1,738,666,099
============================================================
Cash 430,787
- ------------------------------------------------------------
Receivables for:
Investments sold 51,570,142
- ------------------------------------------------------------
Fund shares sold 645,511
- ------------------------------------------------------------
Dividends 884,416
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 122,564
- ------------------------------------------------------------
Other assets 37,058
============================================================
Total assets 1,792,356,577
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 45,868,921
- ------------------------------------------------------------
Fund shares reacquired 3,945,753
- ------------------------------------------------------------
Options written, at market value (premiums
received $894,670) 1,039,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 277,955
- ------------------------------------------------------------
Collateral upon return of securities
loaned 8,624,952
- ------------------------------------------------------------
Accrued distribution fees 527,070
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,991
- ------------------------------------------------------------
Accrued transfer agent fees 1,365,362
- ------------------------------------------------------------
Accrued operating expenses 259,292
============================================================
Total liabilities 61,912,796
============================================================
Net assets applicable to shares outstanding $1,730,443,781
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,042,444,909
- ------------------------------------------------------------
Undistributed net investment income (loss) (7,810,218)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (304,369,400)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 178,490
============================================================
$1,730,443,781
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,436,493,212
____________________________________________________________
============================================================
Class B $ 225,604,269
____________________________________________________________
============================================================
Class C $ 61,741,279
____________________________________________________________
============================================================
Class R $ 2,893,402
____________________________________________________________
============================================================
Institutional Class $ 3,711,619
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 149,077,981
____________________________________________________________
============================================================
Class B 24,708,549
____________________________________________________________
============================================================
Class C 6,762,746
____________________________________________________________
============================================================
Class R 302,664
____________________________________________________________
============================================================
Institutional Class 378,464
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.64
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.64 divided by
94.50%) $ 10.20
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.13
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.13
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.56
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.81
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $8,607,138
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-221
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 5,692,958
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $26,928 after rebates of
$1,816,491) 1,329,242
===========================================================================
Total investment income 7,022,200
===========================================================================
EXPENSES:
Advisory fees 6,107,255
- ---------------------------------------------------------------------------
Administrative services fees 218,543
- ---------------------------------------------------------------------------
Custodian fees 104,525
- ---------------------------------------------------------------------------
Distribution fees:
Class A 1,987,892
- ---------------------------------------------------------------------------
Class B 1,237,604
- ---------------------------------------------------------------------------
Class C 346,921
- ---------------------------------------------------------------------------
Class R 7,650
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 4,188,297
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,065
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 43,044
- ---------------------------------------------------------------------------
Other 395,650
===========================================================================
Total expenses 14,638,446
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (62,902)
===========================================================================
Net expenses 14,575,544
===========================================================================
Net investment income (loss) (7,553,344)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from securities sold
to affiliates of $3,518,942) 284,356,269
- ---------------------------------------------------------------------------
Option contracts written 2,927,072
===========================================================================
287,283,341
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (266,505,753)
- ---------------------------------------------------------------------------
Option contracts written 25,372
===========================================================================
(266,480,381)
===========================================================================
Net gain from investment securities and option contracts 20,802,960
===========================================================================
Net increase in net assets resulting from operations $ 13,249,616
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-222
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,553,344) $ (21,355,366)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 287,283,341 456,200,097
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (266,480,381) (288,045,284)
==============================================================================================
Net increase in net assets resulting from operations 13,249,616 146,799,447
==============================================================================================
Share transactions-net:
Class A (216,309,735) (469,733,957)
- ----------------------------------------------------------------------------------------------
Class B (23,412,369) (28,990,427)
- ----------------------------------------------------------------------------------------------
Class C (9,786,533) (14,524,768)
- ----------------------------------------------------------------------------------------------
Class R 60,180 1,554,735
- ----------------------------------------------------------------------------------------------
Institutional Class 3,737,875 (2,730,852)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (245,710,582) (514,425,269)
==============================================================================================
Net increase (decrease) in net assets (232,460,966) (367,625,822)
==============================================================================================
NET ASSETS:
Beginning of period 1,962,904,747 2,330,530,569
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(7,810,218) and $(256,874),
respectively) $1,730,443,781 $1,962,904,747
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-223
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Aggressive 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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-224
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE
NET ASSETS RATE
- ----------------------------------------------------------------------
First $150 million 0.80%
- ----------------------------------------------------------------------
Over $150 million 0.625%
______________________________________________________________________
======================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the
amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market
funds (excluding investments made in affiliated money market funds with
cash collateral from securities loaned by the fund). AIM is also
voluntarily waiving a portion of the advisory fee payable by the Fund equal
to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from
investing in an appropriate comparative benchmark. Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to
investors.
For the six months ended April 30, 2005, AIM waived fees of $13,901.
For the six months ended April 30, 2005, at the request of the Trustees
of the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $20,795 of
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.
The Fund, pursuant to a master administrative services agreement with
AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund. Pursuant to such agreement, for
the six months ended April 30, 2005, AIM was paid $218,543.
FS-225
The Fund, pursuant to a transfer agency and service agreement, has agreed
to pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer
agency and shareholder services to the Fund and reimburse AISI for certain
expenses incurred by AISI in the course of providing such services. AISI
may make payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the six months
ended April 30, 2005, the Fund paid AISI $4,188,297 for Class A, Class B,
Class C and Class R share classes and $1,065 for Institutional Class
shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A,
Class B, Class C, Class R and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net
assets of Class A shares, 1.00% of the average daily net assets of Class B
and Class C shares and 0.50% of the average daily net assets of Class R
shares. Of these amounts, up to 0.25% of the average daily net assets of
the Class A, Class B, Class C or Class R shares may be paid to furnish
continuing personal shareholder services to customers who purchase and own
shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules impose a cap
on the total sales charges, including asset-based sales charges that may be
paid by any class of shares of the Fund. Pursuant to the Plans, for the six
months ended April 30, 2005, the Class A, Class B, Class C and Class R
shares paid $1,987,892, $1,237,604, $346,921 and $7,650, respectively.
Front-end sales commissions and contingent deferred sales charges
("CDSC") (collectively the "sales charges") are not recorded as expenses of
the Fund. Front-end sales commissions are deducted from proceeds from the
sales of Fund shares prior to investment in Class A shares of the Fund.
CDSC are deducted from redemption proceeds prior to remittance to the
shareholder. During the six months ended April 30, 2005, ADI advised the
Fund that it retained $92,801 in front-end sales commissions from the sale
of Class A shares and $4,696, $43,974, $4,385 and $0 from Class A, Class B,
Class C and Class R shares, respectively, for CDSC imposed upon redemptions
by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 10/31/04 AT COST SALES (DEPRECIATION) 04/30/05 INCOME
- -----------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $48,442,076 $354,337,510 $(373,965,225) $ -- $28,814,361 $ 645,683
- -----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 48,442,076 354,337,510 (373,965,225) -- 28,814,361 656,631
=======================================================================================================================
Subtotal $96,884,152 $708,675,020 $(747,930,450) $ -- $57,628,722 $1,302,314
_______________________________________________________________________________________________________________________
=======================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ------------------------
Liquid Assets Portfolio-
Institutional Class $ --
- ------------------------
STIC Prime
Portfolio-Institutional
Class --
========================
Subtotal $ --
________________________
========================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
PROCEEDS UNREALIZED
MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 10/31/04 AT COST SALES (DEPRECIATION) 04/30/05 INCOME*
- --------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $127,900,554 $ 59,176,773 $ (182,764,851) $ -- $ 4,312,476 $ 13,350
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 127,900,554 58,845,661 (182,433,739) -- 4,312,476 13,578
__________________________________________________________________________________________________________________________
==========================================================================================================================
Subtotal $255,801,108 $118,022,434 $ (365,198,590) $ -- $ 8,624,952 $ 26,928
==========================================================================================================================
Total $352,685,260 $826,697,454 $(1,113,129,040) $ -- $66,253,674 $1,329,242
__________________________________________________________________________________________________________________________
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -------------------------
Liquid Assets
Portfolio-Institutional
Class $ --
- -------------------------
STIC Prime Portfolio-
Institutional Class --
_________________________
=========================
Subtotal $ --
=========================
Total $ --
_________________________
=========================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $14,639,624 and sales of $24,480,661,
which resulted in net realized gains of $3,518,942.
FS-226
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended April 30, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $28,206.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$5,289 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $8,607,138 were on
loan to brokers. The loans were secured by cash collateral of $8,624,952
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2005, the Fund received dividends on cash
collateral of $26,928 for securities lending transactions, which are net of
rebates.
FS-227
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of period 16,109 $ 830,758
- --------------------------------------------------------------------------------------
Written 40,896 4,782,450
- --------------------------------------------------------------------------------------
Closed (8,000) (730,416)
- --------------------------------------------------------------------------------------
Exercised (11,375) (1,036,938)
- --------------------------------------------------------------------------------------
Expired (35,530) (2,951,184)
======================================================================================
End of period 2,100 $ 894,670
______________________________________________________________________________________
======================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
APRIL 30,
2005 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------------------
Cerner Corp. Jun-05 $55 2,100 $894,670 $1,039,500 $(144,830)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $125,040,407
- -----------------------------------------------------------------------------
October 31, 2010 463,739,024
=============================================================================
Total capital loss carryforward $588,779,431
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $1,757,362,997 and $1,974,761,207, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $120,864,846
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (120,799,591)
==============================================================================
Net unrealized appreciation of investment securities $ 65,255
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,738,600,844.
</Table>
FS-228
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,661,755 $ 56,828,822 19,503,343 $ 183,246,538
- --------------------------------------------------------------------------------------------------------------------------
Class B 1,430,698 13,608,333 2,785,031 24,931,760
- --------------------------------------------------------------------------------------------------------------------------
Class C 560,427 5,341,131 1,454,243 13,022,624
- --------------------------------------------------------------------------------------------------------------------------
Class R 66,443 664,409 233,461 2,175,865
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 466,025 4,770,693 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 192,845 1,939,103 366,882 3,476,875
- --------------------------------------------------------------------------------------------------------------------------
Class B (203,182) (1,939,103) (384,365) (3,476,875)
==========================================================================================================================
Reacquired:
Class A (27,322,010) (275,077,660) (69,860,562) (656,457,370)
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,676,528) (35,081,599) (5,651,768) (50,445,312)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,585,192) (15,127,664) (3,075,625) (27,547,392)
- --------------------------------------------------------------------------------------------------------------------------
Class R (60,437) (604,229) (66,756) (621,130)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (100,702) (1,032,818) (272,069) (2,730,852)
==========================================================================================================================
(24,569,858) $(245,710,582) (54,968,185) $(514,425,269)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are record owners of more than 5% of the
outstanding shares of the Fund and in aggregate they own 16% of the
outstanding shares of the Fund. AIM Distributors has an agreement with
these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates
may make payments to these entities, which are considered to be related
to the Fund, for providing services to the Fund, AIM and/or AIM
affiliates including but not limited to services such as, securities
brokerage, distribution, third part record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on March 22,
2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Buying Fund") a series of Buyer, would acquire all of the
assets of AIM Emerging Growth Fund and AIM Libra Fund ("Selling Funds"), a
series of AIM Equity Funds and AIM Investment Funds, respectively ("the
Reorganization"). Upon closing of the transaction, shareholders of Selling Funds
will receive a corresponding class of shares of Buying Fund in exchange for
their shares of Selling Funds, and Selling Funds will cease operations.
The Agreement requires approval of Selling Funds' shareholders. The Fund
currently intends to submit the Agreement to the shareholders for their
consideration at a meeting to be held on or around June 28, 2005. Additional
information regarding the Agreement will be included in proxy materials to be
mailed to shareholders for consideration. If the Agreement is approved by the
shareholders of Selling Funds and certain conditions required by the Agreement
are satisfied, the transaction is expected to become effective shortly
thereafter.
FS-229
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.62 $ 8.99 $ 7.30 $ 8.68 $ 18.41 $ 13.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04) (0.08)(a) (0.07)(a) (0.09)(a) (0.09)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.06 0.71 1.76 (1.29) (6.34) 11.08
=================================================================================================================================
Total from investment
operations 0.02 0.63 1.69 (1.38) (6.43) 10.95
=================================================================================================================================
Less distributions from net
realized gains -- -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.64 $ 9.62 $ 8.99 $ 7.30 $ 8.68 $ 18.41
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 0.21% 7.01% 23.15% (15.90)% (40.51)% 47.53%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,436,493 $1,640,288 $1,983,600 $1,798,318 $2,516,407 $4,444,515
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.41%(c) 1.29%(d) 1.30% 1.32% 1.17% 1.04%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.67)%(c) (0.86)% (0.96)% (1.00)% (0.79)% (0.77)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 98% 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized based on average daily net assets of
$1,603,492,960.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.30%.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.12 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(d) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.05 0.67 1.71 (1.26) (6.20) 11.04
=================================================================================================================================
Total from investment operations (0.02) 0.53 1.58 (1.41) (6.37) 10.75
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.13 $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.12
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.22)% 6.15% 22.44% (16.69)% (40.90)% 46.29%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $225,604 $248,425 $262,098 $226,806 $294,303 $374,010
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.16%(c) 2.04%(d) 2.05% 2.07% 1.94% 1.86%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.42)%(c) (1.61)% (1.71)% (1.75)% (1.55)% (1.59)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 98% 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized based on average daily net assets of $249,572,126.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
(e) Not annualized for periods less than one year.
FS-230
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.11 $ 13.81
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.05 0.67 1.71 (1.26) (6.19) 11.03
=================================================================================================================================
Total from investment operations (0.02) 0.53 1.58 (1.41) (6.36) 10.74
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.30) (6.44)
=================================================================================================================================
Net asset value, end of period $ 9.13 $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.11
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) (0.22)% 6.15% 22.44% (16.69)% (40.86)% 46.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 61,741 $ 71,229 $ 81,079 $ 72,676 $ 96,640 $120,591
=================================================================================================================================
Ratio of expenses to average net assets 2.16%(c) 2.04%(d) 2.05% 2.07% 1.94% 1.86%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.42)%(c) (1.61)% (1.71)% (1.75)% (1.55)% (1.59)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 98% 115% 78% 68% 89% 79%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized based on average daily net assets of $69,959,234.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.05%.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
----------------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------------- OCTOBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.55 $ 8.96 $ 7.29 $ 8.89
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.10)(a) (0.10)(a) (0.04)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.06 0.69 1.77 (1.56)
==============================================================================================================================
Total from investment operations 0.01 0.59 1.67 (1.60)
==============================================================================================================================
Net asset value, end of period $ 9.56 $ 9.55 $ 8.96 $ 7.29
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 0.10% 6.58% 22.91% (18.00)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,893 $ 2,834 $ 1,164 $ 137
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 1.66%(c) 1.54%(d) 1.55% 1.62%(e)
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.92)%(c) (1.11)% (1.21)% (1.30)%(e)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate(f) 98% 115% 78% 68%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$3,085,426.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.55%.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-231
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------------- OCTOBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.76 $ 9.08 $ 7.32 $ 9.53
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.03)(a) (0.03)(a) (0.02)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.05 0.71 1.79 (2.19)
===============================================================================================================================
Total from investment operations 0.05 0.68 1.76 (2.21)
===============================================================================================================================
Net asset value, end of period $ 9.81 $ 9.76 $ 9.08 $ 7.32
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 0.51% 7.49% 24.04% (23.19)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 3,712 $ 128 $ 2,589 $ 138
===============================================================================================================================
Ratio of expenses to average net assets 0.81%(c) 0.72%(d) 0.71% 0.81%(e)
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.07)%(c) (0.29)% (0.37)% (0.49)%(e)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 98% 115% 78% 68%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$2,408,044.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.73%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits
FS-232
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
related to one or more of these issues. Regulatory actions and/or additional
civil lawsuits related to these or other issues may be filed against the AIM
Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-233
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.64%
AEROSPACE & DEFENSE-1.10%
United Technologies Corp. 240,000 $ 24,412,800
==========================================================================
AIR FREIGHT & LOGISTICS-0.86%
FedEx Corp. 225,000 19,113,750
==========================================================================
ALUMINUM-0.50%
Alcoa Inc. 385,000 11,172,700
==========================================================================
APPLICATION SOFTWARE-1.14%
Amdocs Ltd. (United Kingdom)(a) 950,000 25,374,500
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.70%
Franklin Resources, Inc. 225,000 15,453,000
==========================================================================
BIOTECHNOLOGY-2.28%
Amgen Inc.(a) 475,000 27,649,750
- --------------------------------------------------------------------------
Genentech, Inc.(a)(b) 325,000 23,055,500
==========================================================================
50,705,250
==========================================================================
COMMUNICATIONS EQUIPMENT-3.67%
Cisco Systems, Inc.(a) 2,500,000 43,200,000
- --------------------------------------------------------------------------
QUALCOMM Inc.(c) 1,100,000 38,379,000
==========================================================================
81,579,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.79%
Best Buy Co., Inc. 350,000 17,619,000
==========================================================================
COMPUTER HARDWARE-2.77%
Dell Inc.(a) 1,250,000 43,537,500
- --------------------------------------------------------------------------
International Business Machines Corp. 235,000 17,949,300
==========================================================================
61,486,800
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.54%
EMC Corp.(a) 2,600,000 34,112,000
==========================================================================
CONSUMER FINANCE-2.42%
American Express Co. 600,000 31,620,000
- --------------------------------------------------------------------------
SLM Corp. 465,000 22,152,600
==========================================================================
53,772,600
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.78%
Automatic Data Processing, Inc. 400,000 17,376,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DEPARTMENT STORES-1.58%
J.C. Penney Co., Inc. 365,000 $ 17,304,650
- --------------------------------------------------------------------------
Nordstrom, Inc. 350,000 17,790,500
==========================================================================
35,095,150
==========================================================================
DIVERSIFIED BANKS-3.00%
Bank of America Corp. 760,000 34,230,400
- --------------------------------------------------------------------------
U.S. Bancorp 410,000 11,439,000
- --------------------------------------------------------------------------
Wells Fargo & Co. 350,000 20,979,000
==========================================================================
66,648,400
==========================================================================
DIVERSIFIED CHEMICALS-0.98%
Dow Chemical Co. (The) 475,000 21,816,750
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.69%
Cendant Corp. 770,000 15,330,700
==========================================================================
ELECTRIC UTILITIES-1.03%
FPL Group, Inc. 560,000 22,859,200
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.94%
Cooper Industries, Ltd.-Class A (Bermuda) 160,000 10,185,600
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 230,000 10,632,900
==========================================================================
20,818,500
==========================================================================
FOOTWEAR-1.16%
NIKE, Inc.-Class B 335,000 25,731,350
==========================================================================
HEALTH CARE EQUIPMENT-4.20%
Bard (C.R.), Inc. 175,000 12,454,750
- --------------------------------------------------------------------------
Becton, Dickinson & Co. 225,000 13,167,000
- --------------------------------------------------------------------------
Medtronic, Inc. 470,000 24,769,000
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 350,000 11,809,000
- --------------------------------------------------------------------------
Waters Corp.(a) 375,000 14,861,250
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 200,000 16,284,000
==========================================================================
93,345,000
==========================================================================
HEALTH CARE FACILITIES-0.69%
HCA Inc. 275,000 15,356,000
==========================================================================
HEALTH CARE SERVICES-0.54%
Express Scripts, Inc.(a) 134,061 12,017,228
==========================================================================
HOME IMPROVEMENT RETAIL-1.75%
Home Depot, Inc. (The) 1,100,000 38,907,000
==========================================================================
</Table>
FS-234
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-1.24%
Carnival Corp. (Panama)(d) 315,000 $ 15,397,200
- --------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(d) 225,000 12,226,500
==========================================================================
27,623,700
==========================================================================
HOUSEHOLD PRODUCTS-2.64%
Clorox Co. (The)(c) 200,000 12,660,000
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 850,000 46,027,500
==========================================================================
58,687,500
==========================================================================
HOUSEWARES & SPECIALTIES-0.95%
Fortune Brands, Inc. 250,000 21,145,000
==========================================================================
HYPERMARKETS & SUPER CENTERS-2.75%
Costco Wholesale Corp. 400,000 16,232,000
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 950,000 44,783,000
==========================================================================
61,015,000
==========================================================================
INDUSTRIAL CONGLOMERATES-5.00%
General Electric Co. 1,940,000 70,228,000
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 1,300,000 40,703,000
==========================================================================
110,931,000
==========================================================================
INDUSTRIAL GASES-0.53%
Air Products & Chemicals, Inc. 200,000 11,746,000
==========================================================================
INDUSTRIAL MACHINERY-1.03%
Danaher Corp. 453,000 22,935,390
==========================================================================
INTEGRATED OIL & GAS-4.05%
Exxon Mobil Corp. 1,575,000 89,822,250
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.78%
SBC Communications Inc. 725,000 17,255,000
==========================================================================
INTERNET RETAIL-0.43%
eBay Inc.(a) 300,000 9,519,000
==========================================================================
INTERNET SOFTWARE & SERVICES-1.46%
VeriSign, Inc.(a) 575,000 15,214,500
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 500,000 17,255,000
==========================================================================
32,469,500
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.38%
Goldman Sachs Group, Inc. (The) 400,000 42,716,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 600,000 32,358,000
==========================================================================
75,074,000
==========================================================================
IT CONSULTING & OTHER SERVICES-0.73%
Accenture Ltd.-Class A (Bermuda)(a) 750,000 16,275,000
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MANAGED HEALTH CARE-3.17%
UnitedHealth Group Inc. 475,000 $ 44,892,250
- --------------------------------------------------------------------------
WellPoint Inc.(a) 200,000 25,550,000
==========================================================================
70,442,250
==========================================================================
MOVIES & ENTERTAINMENT-1.04%
Walt Disney Co. (The) 875,000 23,100,000
==========================================================================
MULTI-LINE INSURANCE-0.78%
Genworth Financial Inc.-Class A 616,400 17,228,380
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.88%
Dominion Resources, Inc. 260,000 19,604,000
==========================================================================
OIL & GAS DRILLING-1.23%
ENSCO International Inc. 425,000 13,855,000
- --------------------------------------------------------------------------
GlobalSantaFe Corp. (Cayman Islands) 400,000 13,440,000
==========================================================================
27,295,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.88%
BJ Services Co. 325,000 15,843,750
- --------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 380,000 25,995,800
==========================================================================
41,839,550
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.79%
Valero Energy Corp. 255,000 17,475,150
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.27%
Citigroup Inc. 1,300,000 61,048,000
- --------------------------------------------------------------------------
JPMorgan Chase & Co. 950,000 33,715,500
==========================================================================
94,763,500
==========================================================================
PERSONAL PRODUCTS-1.28%
Gillette Co. (The) 550,000 28,402,000
==========================================================================
PHARMACEUTICALS-6.90%
Allergan, Inc. 190,000 13,374,100
- --------------------------------------------------------------------------
Johnson & Johnson 1,100,000 75,493,000
- --------------------------------------------------------------------------
Pfizer Inc. 1,455,000 39,532,350
- --------------------------------------------------------------------------
Wyeth 550,000 24,717,000
==========================================================================
153,116,450
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.05%
Allstate Corp. (The) 415,000 23,306,400
==========================================================================
RAILROADS-1.24%
Burlington Northern Santa Fe Corp. 225,000 10,856,250
- --------------------------------------------------------------------------
Canadian National Railway Co. (Canada) 290,000 16,590,900
==========================================================================
27,447,150
==========================================================================
</Table>
FS-235
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
RESTAURANTS-1.79%
McDonald's Corp. 850,000 $ 24,913,500
- --------------------------------------------------------------------------
Starbucks Corp.(a) 300,000 14,856,000
==========================================================================
39,769,500
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.75%
KLA-Tencor Corp.(c) 425,000 16,583,500
==========================================================================
SEMICONDUCTORS-4.37%
Analog Devices, Inc. 475,000 16,202,250
- --------------------------------------------------------------------------
Intel Corp. 1,535,000 36,103,200
- --------------------------------------------------------------------------
Linear Technology Corp. 450,000 16,083,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 300,000 8,544,000
- --------------------------------------------------------------------------
Xilinx, Inc.(c) 750,000 20,205,000
==========================================================================
97,137,450
==========================================================================
SOFT DRINKS-0.75%
PepsiCo, Inc. 300,000 16,692,000
==========================================================================
SPECIALTY STORES-1.06%
Bed Bath & Beyond Inc.(a) 360,000 13,395,600
- --------------------------------------------------------------------------
Staples, Inc. 525,000 10,011,750
==========================================================================
23,407,350
==========================================================================
STEEL-0.43%
United States Steel Corp. 225,000 9,621,000
==========================================================================
SYSTEMS SOFTWARE-5.08%
Microsoft Corp. 2,300,000 58,190,000
- --------------------------------------------------------------------------
Oracle Corp.(a) 3,300,000 38,148,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SYSTEMS SOFTWARE-(CONTINUED)
Symantec Corp.(a) 875,000 $ 16,432,500
==========================================================================
112,770,500
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.82%
Vodafone Group PLC-ADR (United Kingdom) 700,000 18,298,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,784,461,037) 2,212,900,148
==========================================================================
MONEY MARKET FUNDS-0.06%
Liquid Assets Portfolio-Institutional
Class(e) 728,931 728,931
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 728,931 728,931
==========================================================================
Total Money Market Funds (Cost
$1,457,862) 1,457,862
==========================================================================
TOTAL INVESTMENTS-99.70% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,785,918,899) 2,214,358,010
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-1.25%
STIC Prime Portfolio-Institutional
Class(e)(f) 27,735,550 27,735,550
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,735,550) 27,735,550
==========================================================================
TOTAL INVESTMENTS-100.95% (Cost
$1,813,654,449) 2,242,093,560
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.95%) (21,162,361)
==========================================================================
NET ASSETS-100.00% $2,220,931,199
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1H
and Note 9.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(d) Consists of more than one class of securities traded together as a unit. In
addition to the security listed, each unit includes common, preferred or
trust shares of the issuer.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-236
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,784,461,037)* $2,212,900,148
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $29,193,412) 29,193,412
============================================================
Total investments (cost $1,813,654,449) 2,242,093,560
============================================================
Receivables for:
Investments sold 15,164,479
- ------------------------------------------------------------
Fund shares sold 1,042,706
- ------------------------------------------------------------
Dividends 2,212,152
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 132,704
- ------------------------------------------------------------
Other assets 80,139
============================================================
Total assets 2,260,725,740
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,375,000
- ------------------------------------------------------------
Fund shares reacquired 7,325,367
- ------------------------------------------------------------
Options written, at market value (premiums
received $139,114) 232,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 279,087
- ------------------------------------------------------------
Collateral upon return of securities
loaned 27,735,550
- ------------------------------------------------------------
Accrued distribution fees 1,203,930
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,909
- ------------------------------------------------------------
Accrued transfer agent fees 1,377,934
- ------------------------------------------------------------
Accrued operating expenses 260,264
============================================================
Total liabilities 39,794,541
============================================================
Net assets applicable to shares outstanding $2,220,931,199
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $3,350,918,043
- ------------------------------------------------------------
Undistributed net investment income 6,173,924
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (1,564,506,493)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 428,345,725
============================================================
$2,220,931,199
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,084,894,105
____________________________________________________________
============================================================
Class B $ 862,550,699
____________________________________________________________
============================================================
Class C $ 179,232,106
____________________________________________________________
============================================================
Class R $ 6,521,732
____________________________________________________________
============================================================
Investor Class $ 27,844,659
____________________________________________________________
============================================================
Institutional Class $ 59,887,898
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 98,831,301
____________________________________________________________
============================================================
Class B 82,968,000
____________________________________________________________
============================================================
Class C 17,240,922
____________________________________________________________
============================================================
Class R 596,503
____________________________________________________________
============================================================
Investor Class 2,530,825
____________________________________________________________
============================================================
Institutional Class 5,340,504
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.98
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.98 divided by
94.50%) $ 11.62
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.40
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.40
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.93
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 11.00
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.21
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $26,790,416
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-237
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $18,373) $ 27,140,718
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $7,985 after rebates of
$140,546) 194,118
- ---------------------------------------------------------------------------
Interest 4,703
===========================================================================
Total investment income 27,339,539
===========================================================================
EXPENSES:
Advisory fees 7,911,958
- ---------------------------------------------------------------------------
Administrative services fees 259,234
- ---------------------------------------------------------------------------
Custodian fees 50,615
- ---------------------------------------------------------------------------
Distribution fees:
Class A 2,069,237
- ---------------------------------------------------------------------------
Class B 4,910,433
- ---------------------------------------------------------------------------
Class C 1,025,952
- ---------------------------------------------------------------------------
Class R 16,350
- ---------------------------------------------------------------------------
Investor Class 38,481
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 4,370,253
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,297
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 53,798
- ---------------------------------------------------------------------------
Other 379,535
===========================================================================
Total expenses 21,088,143
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (151,220)
===========================================================================
Net expenses 20,936,923
===========================================================================
Net investment income 6,402,616
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 126,480,417
- ---------------------------------------------------------------------------
Option contracts written 1,315,993
===========================================================================
127,796,410
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (114,441,959)
- ---------------------------------------------------------------------------
Option contracts written (93,386)
===========================================================================
(114,535,345)
===========================================================================
Net gain from investment securities and option contracts 13,261,065
===========================================================================
Net increase in net assets resulting from operations $ 19,663,681
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-238
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 6,402,616 $ (14,677,760)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and option contracts 127,796,410 141,551,945
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (114,535,345) (63,358,526)
==============================================================================================
Net increase in net assets resulting from operations 19,663,681 63,515,659
==============================================================================================
Share transactions-net:
Class A (162,427,892) (236,834,043)
- ----------------------------------------------------------------------------------------------
Class B (176,861,515) (213,672,955)
- ----------------------------------------------------------------------------------------------
Class C (45,473,256) (73,035,331)
- ----------------------------------------------------------------------------------------------
Class R 528,612 4,401,189
- ----------------------------------------------------------------------------------------------
Investor Class (4,551,113) 30,994,771
- ----------------------------------------------------------------------------------------------
Institutional Class 10,877,834 48,256,952
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (377,907,330) (439,889,417)
==============================================================================================
Net increase (decrease) in net assets (358,243,649) (376,373,758)
==============================================================================================
NET ASSETS:
Beginning of period 2,579,174,848 2,955,548,606
==============================================================================================
End of period (including undistributed net investment
income (loss) of $6,173,924 and $(228,692),
respectively) $2,220,931,199 $2,579,174,848
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-239
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Blue Chip 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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-240
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write and buy call options, including
securities index options. Options written by the Fund normally will have
expiration dates between three and nine months from the date written. The
exercise price of a call option may be below, equal to, or above the
current market value of the underlying security at the time the option is
written. When the Fund writes a call option, an amount equal to the premium
received by the Fund is recorded as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect
the current market value of the option written. The current market value of
a written option is the mean between the last bid and asked prices on that
day. If a written call option expires on the stipulated expiration date, or
if the Fund enters into a closing purchase transaction, the Fund realizes a
gain (or a loss if the closing purchase transaction exceeds the premium
received when the option was written) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such
option is extinguished. If a written option is exercised, the Fund realizes
a gain or a loss from the sale of the underlying security and the proceeds
of the sale are increased by the premium originally received. A risk in
writing a call option is that the Fund gives up the opportunity for profit
if the market price of the security increases and the option is exercised.
A call option gives the purchaser of such option the right to buy, and
the writer (the Fund) the obligation to sell, the underlying security at
the stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the
call option at any time during the option period. During the option period,
in return for the premium paid by the purchaser of the option, the Fund has
FS-241
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security
decline. During the option period, the Fund may be required at any time to
deliver the underlying security against payment of the exercise price. This
obligation is terminated upon the expiration of the option period or at
such earlier time at which the Fund effects a closing purchase transaction
by purchasing (at a price which may be higher than that received when the
call option was written) a call option identical to the one originally
written.
An option on a securities index gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by a fixed "index multiplier." A securities
index fluctuates with changes in the market values of the securities
included in the index. In the purchase of securities index options, the
principal risk is that the premium and transaction costs paid by the Fund
in purchasing an option will be lost if the changes in the level of the
index do not exceed the cost of the option. In writing securities index
options, the principal risk is that the Fund could bear a loss on the
options that would be only partially offset (or not offset at all) by the
increased value or reduced cost of hedged securities. Moreover, in the
event the Fund was unable to close an option it had written, it might be
unable to sell the securities used as cover.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are received or
made depending upon whether unrealized gains or losses are incurred. When
the contracts are closed, the Fund recognizes a realized gain or loss equal
to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ---------------------------------------------------------------------
First $350 million 0.75%
- ---------------------------------------------------------------------
Over $350 million 0.625%
_____________________________________________________________________
=====================================================================
</Table>
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund (based on the Fund's average daily net assets) do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ---------------------------------------------------------------------
First $250 million 0.695%
- ---------------------------------------------------------------------
Next $250 million 0.67%
- ---------------------------------------------------------------------
Next $500 million 0.645%
- ---------------------------------------------------------------------
Next $1.5 billion 0.62%
- ---------------------------------------------------------------------
Next $2.5 billion 0.595%
- ---------------------------------------------------------------------
Next $2.5 billion 0.57%
- ---------------------------------------------------------------------
Next $2.5 billion 0.545%
- ---------------------------------------------------------------------
Over $10 billion 0.52%
_____________________________________________________________________
=====================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $41,822.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $79,427 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $259,234.
FS-242
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $4,370,253 for Class A, Class B, Class C, Class R and
Investor Class share classes and $2,297 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R, Investor Class and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect
to the Fund's Class A, Class B, Class C, Class R and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% 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 these amounts, up to 0.25%
of the average daily net assets of the Class A, Class B, Class C, Class R or
Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the six months ended April 30, 2005, the Class A,
Class B, Class C, Class R and Investor Class shares paid $2,069,237, $4,910,433,
$1,025,952, $16,350 and $38,481, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $120,144 in
front-end sales commissions from the sale of Class A shares and $1,482,
$165,460, $9,526 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 7,279,701 $162,259,621 $(168,810,391) $ -- $ 728,931 $ 92,216 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 7,279,701 162,259,621 (168,810,391) -- 728,931 93,917 --
==================================================================================================================================
Subtotal $14,559,402 $324,519,242 $(337,620,782) $ -- $1,457,862 $186,133 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $34,975,975 $227,795,300 $ (235,035,725) $ -- $27,735,550 $ 7,985 $ --
==================================================================================================================================
Total $49,535,377 $552,314,542 $ (572,656,507) $ -- $29,193,412 $194,118 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of rebates.
FS-243
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $10,662,464 and sales of $0, which
resulted in net realized gain (loss) of $0.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $29,971.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$6,356 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
FS-244
At April 30, 2005, securities with an aggregate value of $26,790,416 were on
loan to brokers. The loans were secured by cash collateral of $27,735,550
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2005, the Fund received dividends on
cash collateral of $7,985 for securities lending transactions, which are net of
rebates.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of period -- $ --
- -------------------------------------------------------------------------------------
Written 20,528 1,858,250
- -------------------------------------------------------------------------------------
Closed (11,772) (965,369)
- -------------------------------------------------------------------------------------
Exercised (2,900) (306,290)
- -------------------------------------------------------------------------------------
Expired (4,856) (447,477)
=====================================================================================
End of period 1,000 $ 139,114
_____________________________________________________________________________________
=====================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
APRIL 30,
2005 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
Genentech, Inc. Jun-05 $75.0 1,000 $139,114 $232,500 $(93,386)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,642,177,803 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2008 $ 85,920,513
- ------------------------------------------------------------------------------
October 31, 2009 845,288,837
- ------------------------------------------------------------------------------
October 31, 2010 617,527,392
- ------------------------------------------------------------------------------
October 31, 2011 102,944,109
==============================================================================
Total capital loss carryforward $1,651,680,851
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth & Income Fund into the Fund, are realized on
securities held in each fund on such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
FS-245
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $591,303,464 and $947,944,913, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $448,627,717
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (51,140,090)
==============================================================================
Net unrealized appreciation of investment securities $397,487,627
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,844,605,933.
</Table>
NOTE 12--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,359,730 $ 72,482,429 21,493,299 $ 237,822,246
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,254,845 24,336,885 7,106,647 75,074,355
- --------------------------------------------------------------------------------------------------------------------------
Class C 878,657 9,489,987 2,785,689 29,371,888
- --------------------------------------------------------------------------------------------------------------------------
Class R 119,906 1,364,272 672,346 7,394,140
- --------------------------------------------------------------------------------------------------------------------------
Investor Class 155,266 1,763,079 513,156 5,688,744
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 975,823 11,324,304 4,421,094 48,593,658
==========================================================================================================================
Issued in connection with acquisitions:(b)
Class A -- -- 63,333 676,707
- --------------------------------------------------------------------------------------------------------------------------
Class B -- -- 14,065 143,763
- --------------------------------------------------------------------------------------------------------------------------
Class C -- -- 98,131 1,002,254
- --------------------------------------------------------------------------------------------------------------------------
Investor Class -- -- 3,554,717 38,013,823
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 3,171,481 35,902,680 2,357,674 26,110,071
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,345,084) (35,902,680) (2,474,910) (26,110,071)
==========================================================================================================================
Reacquired:
Class A (23,714,089) (270,813,001) (45,616,888) (501,443,066)
- --------------------------------------------------------------------------------------------------------------------------
Class B (15,296,751) (165,295,720) (25,052,874) (262,781,002)
- --------------------------------------------------------------------------------------------------------------------------
Class C (5,076,515) (54,963,243) (9,864,695) (103,409,473)
- --------------------------------------------------------------------------------------------------------------------------
Class R (73,643) (835,660) (270,057) (2,992,951)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (551,773) (6,314,192) (1,149,919) (12,707,797)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (38,700) (446,470) (30,273) (336,706)
==========================================================================================================================
(34,180,847) $(377,907,330) (41,379,465) $(439,889,417)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by this entity are also owned beneficially.
(b) As of the opening of business on November 3, 2003, the Fund acquired all
of the net assets of INVESCO Growth & Income Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Growth & Income Fund shareholders on October 21, 2003. The
acquisition was accomplished by a tax-free exchange of 3,730,246 shares
of the Fund for 5,685,449 shares of INVESCO Growth & Income Fund
outstanding as of the close of business on October 31, 2003. INVESCO
Growth & Income Fund's net assets at that date of $39,836,547, including
$4,907,031 of unrealized appreciation, were combined with those of the
Fund. The aggregate net assets of the Fund immediately before the
acquisition were $2,958,513,063.
FS-246
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.94 $ 10.69 $ 9.22 $ 11.22 $ 17.29 $ 15.49
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.05(a) (0.02) (0.02) (0.04)(b) (0.04) (0.05)(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.01) 0.27 1.49 (1.96) (6.03) 1.85
============================================================================================================================
Total from investment
operations 0.04 0.25 1.47 (2.00) (6.07) 1.80
============================================================================================================================
Net asset value, end of period $ 10.98 $ 10.94 $ 10.69 $ 9.22 $ 11.22 $ 17.29
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 0.37% 2.34% 15.94% (17.82)% (35.11)% 11.60%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,084,894 $1,236,434 $1,439,518 $1,402,589 $2,067,602 $3,163,453
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average
net assets 1.41%(d)(e) 1.44%(e) 1.47% 1.40% 1.28% 1.19%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.81%(a)(d) (0.19)% (0.17)% (0.33)% (0.29)% (0.31)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(f) 24% 29% 28% 28% 31% 22%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$0.01 and 0.08%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,192,220,397.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.42% (annualized) and 1.45% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(f) Not annualized for periods less than one year.
FS-247
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.87 $ 15.22
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.01(a) (0.10) (0.08) (0.10)(b) (0.13) (0.17)(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.00 0.27 1.42 (1.89) (5.87) 1.82
===========================================================================================================================
Total from investment
operations 0.01 0.17 1.34 (1.99) (6.00) 1.65
===========================================================================================================================
Net asset value, end of period $ 10.40 $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.87
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 0.10% 1.66% 15.09% (18.31)% (35.57)% 10.87%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $862,551 $1,032,774 $1,223,821 $1,198,513 $1,806,464 $2,746,149
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average
net assets 2.06%(d)(e) 2.09%(e) 2.12% 2.05% 1.94% 1.88%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.16%(a)(d) (0.84)% (0.82)% (0.98)% (0.94)% (1.00)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(f) 24% 29% 28% 28% 31% 22%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.03) and (0.57)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$990,225,357.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.07% (annualized) and 2.10% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(f) Not annualized for periods less than one year.
FS-248
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.86 $ 15.21
- -----------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.01(a) (0.10) (0.08) (0.10)(b) (0.13) (0.17)(b)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.00 0.27 1.42 (1.89) (5.86) 1.82
=================================================================================================================
Total from investment
operations 0.01 0.17 1.34 (1.99) (5.99) 1.65
=================================================================================================================
Net asset value, end of period $ 10.40 $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.86
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(c) 0.10% 1.66% 15.09% (18.31)% (35.53)% 10.82%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $179,232 $222,840 $290,396 $302,555 $487,838 $720,186
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average
net assets 2.06%(d)(e) 2.09%(e) 2.12% 2.05% 1.94% 1.88%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.16%(a)(d) (0.84)% (0.82)% (0.98)% (0.94)% (1.00)%
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate(f) 24% 29% 28% 28% 31% 22%
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.03) and (0.57)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$206,890,847.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.07% (annualized) and 2.10% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(f) Not annualized for periods less than one year.
FS-249
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.91 $10.66 $ 9.22 $ 10.53
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) (0.03) (0.00) (0.02)(b)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.02) 0.28 1.44 (1.29)
================================================================================================================
Total from investment operations 0.02 0.25 1.44 (1.31)
================================================================================================================
Net asset value, end of period $10.93 $10.91 $10.66 $ 9.22
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) 0.18% 2.35% 15.62% (12.44)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,522 $6,000 $1,578 $ 37
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets 1.56%(d)(e) 1.59%(e) 1.62% 1.55%(f)
________________________________________________________________________________________________________________
================================================================================================================
Ratio of net investment income (loss) to average net assets 0.66%(a)(d) (0.34)% (0.32)% (0.49)(f)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(g) 24% 29% 28% 28%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.00) and (0.07)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$6,594,065.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.57% (annualized) and 1.60% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(f) Annualized.
(g) Not annualized for periods less than one year.
FS-250
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
--------------------------------------------------
SEPTEMBER 30, 2003
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
APRIL 30, OCTOBER 31, OCTOBER 31,
2005 2004 2003
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.96 $ 10.69 $10.16
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.24 (0.00)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.02) 0.03 0.53
================================================================================================================
Total from investment operations 0.04 0.27 0.53
================================================================================================================
Net asset value, end of period $ 11.00 $ 10.96 $10.69
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 0.37% 2.53% 5.22%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,845 $32,084 $ 100
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets 1.31%(c)(d) 1.34%(d) 1.29%(e)
________________________________________________________________________________________________________________
================================================================================================================
Ratio of net investment income (loss) to average net assets 0.91%(a)(c) (0.09)% (0.01)(e)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(f) 24% 29% 28%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$0.01 and 0.18%, respectively.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$31,040,288.
(d) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.32% (annualized) and 1.35% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-251
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ----------------- OCTOBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.14 $ 10.81 $ 9.26 $ 12.13
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08(a) 0.04 0.06 0.02(b)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.01) 0.29 1.49 (2.89)
==================================================================================================================
Total from investment operations 0.07 0.33 1.55 (2.87)
==================================================================================================================
Net asset value, end of period $ 11.21 $ 11.14 $10.81 $ 9.26
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(c) 0.63% 3.05% 16.74% (23.66)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,888 $49,044 $ 136 $ 160
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 0.70%(d)(e) 0.74%(e) 0.77% 0.77%(f)
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of net investment income to average net assets 1.52%(a)(d) 0.51% 0.53% 0.30%(f)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(g) 24% 29% 28% 28%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$0.04 and 0.79%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$55,837,682.
(e) After fee waivers and/or expense reimbursements. Ratio to expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.71% (annualized) and 0.75% for the six months ended April 30, 2005
and the year ended October 31, 2004, respectively.
(f) Annualized.
(g) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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
FS-252
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
sharing and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-253
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS OTHER EQUITY INTERESTS-93.62%
ADVERTISING-1.59%
Omnicom Group Inc. 67,800 $ 5,620,620
- --------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 210,700 11,999,365
==========================================================================
17,619,985
==========================================================================
AEROSPACE & DEFENSE-1.04%
L-3 Communications Holdings, Inc.(b) 161,800 11,482,946
==========================================================================
AIR FREIGHT & LOGISTICS-0.84%
Robinson (C.H.) Worldwide, Inc.(b) 179,700 9,272,520
==========================================================================
APPAREL RETAIL-2.40%
Abercrombie & Fitch Co.-Class A 271,900 14,669,005
- --------------------------------------------------------------------------
Ross Stores, Inc. 446,900 11,941,168
==========================================================================
26,610,173
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.48%
Polo Ralph Lauren Corp. 152,100 5,338,710
==========================================================================
APPLICATION SOFTWARE-4.27%
Amdocs Ltd. (United Kingdom)(a) 412,200 11,009,862
- --------------------------------------------------------------------------
Autodesk, Inc. 395,900 12,601,497
- --------------------------------------------------------------------------
Hyperion Solutions Corp.(a) 195,000 7,930,650
- --------------------------------------------------------------------------
Macromedia, Inc.(a) 125,200 4,959,172
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a)(b) 262,700 10,857,391
==========================================================================
47,358,572
==========================================================================
AUTO PARTS & EQUIPMENT-0.71%
Autoliv, Inc. 176,600 7,814,550
==========================================================================
BIOTECHNOLOGY-1.74%
Charles River Laboratories International,
Inc.(a) 246,600 11,681,442
- --------------------------------------------------------------------------
Martek Biosciences Corp.(a) 200,000 7,654,000
==========================================================================
19,335,442
==========================================================================
BUILDING PRODUCTS-1.02%
American Standard Cos. Inc. 253,800 11,347,398
==========================================================================
CASINOS & GAMING-2.53%
Harrah's Entertainment, Inc.(b) 234,400 15,381,328
- --------------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 590,600 12,680,182
==========================================================================
28,061,510
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
COMMODITY CHEMICALS-0.89%
Celanese Corp.-Series A(a) 677,200 $ 9,853,260
==========================================================================
COMMUNICATIONS EQUIPMENT-4.42%
Avaya Inc.(a)(b) 857,200 7,440,496
- --------------------------------------------------------------------------
Corning Inc.(a) 489,900 6,736,125
- --------------------------------------------------------------------------
Harris Corp. 347,800 9,807,960
- --------------------------------------------------------------------------
Juniper Networks, Inc.(a) 275,800 6,230,322
- --------------------------------------------------------------------------
Plantronics, Inc. 324,700 10,224,803
- --------------------------------------------------------------------------
Scientific-Atlanta, Inc. 278,200 8,507,356
==========================================================================
48,947,062
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.12%
Emulex Corp.(a)(b) 463,700 7,201,261
- --------------------------------------------------------------------------
Storage Technology Corp.(a)(b) 187,200 5,204,160
==========================================================================
12,405,421
==========================================================================
CONSUMER FINANCE-1.05%
AmeriCredit Corp.(a)(b) 497,100 11,632,140
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.64%
Alliance Data Systems Corp.(a)(b) 268,600 10,851,440
- --------------------------------------------------------------------------
CSG Systems International, Inc.(a) 644,400 11,077,236
- --------------------------------------------------------------------------
Iron Mountain Inc.(a)(b) 246,650 7,325,505
==========================================================================
29,254,181
==========================================================================
DEPARTMENT STORES-1.42%
Kohl's Corp.(a) 216,200 10,291,120
- --------------------------------------------------------------------------
Nordstrom, Inc. 106,100 5,393,063
==========================================================================
15,684,183
==========================================================================
DISTILLERS & VINTNERS-1.07%
Constellation Brands, Inc.-Class A(a) 224,000 11,807,040
==========================================================================
DIVERSIFIED BANKS-0.83%
Centennial Bank Holdings, Inc. (Acquired
12/27/2004; Cost $8,963,850)(a)(c) 853,700 9,219,960
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.42%
Career Education Corp.(a) 212,900 6,693,576
- --------------------------------------------------------------------------
ChoicePoint Inc.(a) 315,300 12,444,891
- --------------------------------------------------------------------------
Corrections Corp. of America(a) 349,300 13,221,005
- --------------------------------------------------------------------------
</Table>
FS-254
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Jackson Hewitt Tax Service Inc. 299,300 $ 5,513,106
==========================================================================
37,872,578
==========================================================================
DRUG RETAIL-1.05%
Shoppers Drug Mart Corp. (Canada) 374,800 11,690,626
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.00%
Cooper Industries, Ltd.-Class A (Bermuda)(b) 174,100 11,083,206
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.71%
Aeroflex Inc.(a) 616,500 4,888,845
- --------------------------------------------------------------------------
Amphenol Corp.-Class A 327,500 12,916,600
- --------------------------------------------------------------------------
Dolby Laboratories Inc.-Class A(a) 57,600 1,177,920
==========================================================================
18,983,365
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.84%
Benchmark Electronics, Inc.(a) 346,100 9,358,544
==========================================================================
GAS UTILITIES-0.95%
Questar Corp.(b) 180,000 10,512,000
==========================================================================
GENERAL MERCHANDISE STORES-1.56%
Dollar General Corp. 565,600 11,509,960
- --------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a)(b) 235,900 5,777,191
==========================================================================
17,287,151
==========================================================================
HEALTH CARE DISTRIBUTORS-0.86%
Henry Schein, Inc.(a)(b) 253,800 9,520,038
==========================================================================
HEALTH CARE EQUIPMENT-6.21%
Biomet, Inc. 237,600 9,192,744
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 205,900 12,226,342
- --------------------------------------------------------------------------
INAMED Corp.(a) 96,000 5,840,640
- --------------------------------------------------------------------------
Kinetic Concepts, Inc.(a)(b) 204,200 12,548,090
- --------------------------------------------------------------------------
PerkinElmer, Inc. 545,500 10,091,750
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a)(b) 258,900 8,735,286
- --------------------------------------------------------------------------
Waters Corp.(a) 256,500 10,165,095
==========================================================================
68,799,947
==========================================================================
HEALTH CARE FACILITIES-2.22%
Community Health Systems Inc.(a) 300,000 10,935,000
- --------------------------------------------------------------------------
VCA Antech, Inc.(a)(b) 586,200 13,646,736
==========================================================================
24,581,736
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HEALTH CARE SERVICES-6.23%
Caremark Rx, Inc.(a) 290,000 $ 11,614,500
- --------------------------------------------------------------------------
Cerner Corp.(a)(b) 114,000 6,618,840
- --------------------------------------------------------------------------
Covance Inc.(a) 198,900 9,077,796
- --------------------------------------------------------------------------
DaVita, Inc.(a) 270,000 10,881,000
- --------------------------------------------------------------------------
Express Scripts, Inc.(a)(b) 115,000 10,308,600
- --------------------------------------------------------------------------
Omnicare, Inc.(b) 255,000 8,840,850
- --------------------------------------------------------------------------
Renal Care Group, Inc.(a)(b) 306,900 11,708,235
==========================================================================
69,049,821
==========================================================================
HEALTH CARE SUPPLIES-0.97%
Cooper Cos., Inc. (The) 159,600 10,780,980
==========================================================================
HOME FURNISHINGS-0.89%
Tempur-Pedic International Inc.(a) 518,200 9,892,438
==========================================================================
HOMEBUILDING-1.07%
Ryland Group, Inc. (The) 192,700 11,831,780
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.10%
Hilton Hotels Corp. 557,800 12,176,774
==========================================================================
HOUSEHOLD PRODUCTS-0.19%
Central Garden & Pet Co.(a) 50,900 2,116,931
==========================================================================
HOUSEWARES & SPECIALTIES-1.66%
Fortune Brands, Inc. 65,300 5,523,074
- --------------------------------------------------------------------------
Jarden Corp.(a)(b) 287,700 12,851,559
==========================================================================
18,374,633
==========================================================================
INDUSTRIAL MACHINERY-1.06%
Ingersoll-Rand Co.-Class A (Bermuda) 152,100 11,691,927
==========================================================================
INTEGRATED OIL & GAS-1.04%
Murphy Oil Corp.(b) 129,500 11,537,155
==========================================================================
INTERNET SOFTWARE & SERVICES-1.40%
Digital River, Inc.(a) 252,600 6,719,160
- --------------------------------------------------------------------------
VeriSign, Inc.(a)(b) 331,200 8,763,552
==========================================================================
15,482,712
==========================================================================
LEISURE PRODUCTS-1.00%
Brunswick Corp.(b) 262,700 11,033,400
==========================================================================
MANAGED HEALTH CARE-0.51%
Molina Healthcare Inc.(a) 130,000 5,687,500
==========================================================================
MULTI-LINE INSURANCE-0.19%
Quanta Capital Holdings Ltd. (Bermuda)(a)(d) 264,441 2,115,528
==========================================================================
OFFICE ELECTRONICS-0.61%
Zebra Technologies Corp.-Class A(a)(b) 140,825 6,725,802
==========================================================================
</Table>
FS-255
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS DRILLING-1.84%
Nabors Industries, Ltd. (Bermuda)(a) 100,000 $ 5,387,000
- --------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(b) 190,000 9,671,000
- --------------------------------------------------------------------------
Pride International, Inc.(a) 237,900 5,305,170
==========================================================================
20,363,170
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.17%
National-Oilwell Varco Inc.(a) 250,000 9,935,000
- --------------------------------------------------------------------------
Smith International, Inc. 92,000 5,352,560
- --------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 168,000 8,761,200
==========================================================================
24,048,760
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.38%
Williams Cos., Inc. (The) 900,000 15,318,000
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.05%
Alliance Capital Management Holding L.P.(b) 256,300 11,518,122
- --------------------------------------------------------------------------
CapitalSource Inc.(a)(b) 531,400 11,159,400
==========================================================================
22,677,522
==========================================================================
PHARMACEUTICALS-0.48%
Medicis Pharmaceutical Corp.-Class A(b) 191,000 5,367,100
==========================================================================
RAILROADS-0.48%
CSX Corp. 132,100 5,301,173
==========================================================================
REAL ESTATE-3.21%
Aames Investment Corp. 877,800 7,417,410
- --------------------------------------------------------------------------
Fieldstone Investment Corp.(d) 574,779 7,339,928
- --------------------------------------------------------------------------
KKR Financial Corp. (Acquired 08/05/2004;
Cost $10,250,000)(a)(c) 1,025,000 10,506,250
- --------------------------------------------------------------------------
People's Choice Financial Corp. (Acquired
12/21/2004; Cost $10,296,000)(a)(c) 1,029,600 10,296,000
==========================================================================
35,559,588
==========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.04%
CB Richard Ellis Group, Inc.-Class A(a) 332,300 11,547,425
==========================================================================
REGIONAL BANKS-0.55%
Signature Bank(a) 48,100 1,184,703
- --------------------------------------------------------------------------
UCBH Holdings, Inc. 314,000 4,939,220
==========================================================================
6,123,923
==========================================================================
RESTAURANTS-0.69%
Applebee's International, Inc. 307,400 7,617,372
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
SEMICONDUCTOR EQUIPMENT-0.93%
KLA-Tencor Corp.(b) 128,800 $ 5,025,776
- --------------------------------------------------------------------------
Novellus Systems, Inc.(a) 223,900 5,245,977
==========================================================================
10,271,753
==========================================================================
SEMICONDUCTORS-2.53%
ATI Technologies Inc. (Canada)(a) 717,100 10,613,080
- --------------------------------------------------------------------------
Microchip Technology Inc. 374,762 10,673,222
- --------------------------------------------------------------------------
National Semiconductor Corp.(b) 351,300 6,702,804
==========================================================================
27,989,106
==========================================================================
SPECIALIZED FINANCE-0.65%
Chicago Mercantile Exchange Holdings Inc.(b) 36,700 7,175,584
==========================================================================
SPECIALTY CHEMICALS-0.55%
Minerals Technologies Inc. 92,700 6,055,164
==========================================================================
SPECIALTY STORES-3.23%
Advance Auto Parts, Inc.(a) 281,200 15,002,020
- --------------------------------------------------------------------------
Office Depot, Inc.(a) 476,700 9,333,786
- --------------------------------------------------------------------------
Williams-Sonoma, Inc.(a)(b) 341,600 11,440,184
==========================================================================
35,775,990
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.47%
W.W. Grainger, Inc. 93,300 5,158,557
==========================================================================
TRUCKING-0.52%
Swift Transportation Co., Inc.(a)(b) 268,000 5,716,440
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.05%
American Tower Corp.-Class A(a)(b) 668,500 11,518,255
- --------------------------------------------------------------------------
NII Holdings Inc.(a)(b) 205,800 10,304,406
- --------------------------------------------------------------------------
SpectraSite, Inc.(a) 213,100 11,961,303
==========================================================================
33,783,964
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $904,282,154) 1,037,082,216
==========================================================================
MONEY MARKET FUNDS-4.73%
Liquid Assets Portfolio-Institutional
Class(e) 26,175,446 26,175,446
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 26,175,446 26,175,446
==========================================================================
Total Money Market Funds (Cost
$52,350,892) 52,350,892
==========================================================================
TOTAL INVESTMENTS-98.35% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $956,633,046) 1,089,433,108
==========================================================================
</Table>
FS-256
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-15.50%
Liquid Assets Portfolio-Institutional
Class(e)(f) 85,882,352 $ 85,882,352
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(e)(f) 85,882,352 85,882,352
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $171,764,704) 171,764,704
==========================================================================
TOTAL INVESTMENTS--113.85% (Cost
$1,128,397,750) 1,261,197,812
==========================================================================
OTHER ASSETS LESS LIABILITIES-(13.85%) (153,404,137)
==========================================================================
NET ASSETS-100.00% $1,107,793,675
__________________________________________________________________________
==========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at April 30, 2005 was
$30,022,210, which represented 2.71% of the Fund's Net Assets. These
securities are considered to be illiquid; the portfolio is limited to
investing 15% of net assets in illiquid securities.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at April 30, 2005 was $9,455,456, which represented 0.75% of the
Fund's Total Investments. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-257
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$904,282,154)* $1,037,082,216
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $224,115,596) 224,115,596
============================================================
Total investments (cost $1,128,397,750) 1,261,197,812
============================================================
Receivables for:
Investments sold 24,437,428
- ------------------------------------------------------------
Fund shares sold 3,065,688
- ------------------------------------------------------------
Dividends 688,950
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 64,460
- ------------------------------------------------------------
Other assets 88,497
============================================================
Total assets 1,289,542,835
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 6,313,971
- ------------------------------------------------------------
Fund shares reacquired 2,332,651
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 119,733
- ------------------------------------------------------------
Collateral upon return of securities
loaned 171,764,704
- ------------------------------------------------------------
Accrued distribution fees 623,293
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,831
- ------------------------------------------------------------
Accrued transfer agent fees 510,896
- ------------------------------------------------------------
Accrued operating expenses 81,081
============================================================
Total liabilities 181,749,160
============================================================
Net assets applicable to shares outstanding $1,107,793,675
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 831,763,514
- ------------------------------------------------------------
Undistributed net investment income (loss) (4,501,168)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 147,731,267
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 132,800,062
============================================================
$1,107,793,675
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 686,699,298
____________________________________________________________
============================================================
Class B $ 331,944,271
____________________________________________________________
============================================================
Class C $ 76,854,483
____________________________________________________________
============================================================
Class R $ 6,683,041
____________________________________________________________
============================================================
Investor Class $ 899,915
____________________________________________________________
============================================================
Institutional Class $ 4,712,667
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 40,349,814
____________________________________________________________
============================================================
Class B 20,922,648
____________________________________________________________
============================================================
Class C 4,847,990
____________________________________________________________
============================================================
Class R 394,803
____________________________________________________________
============================================================
Investor Class 52,857
____________________________________________________________
============================================================
Institutional Class 271,604
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 17.02
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $17.02 divided by
94.50%) $ 18.01
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 15.87
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 15.85
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 16.93
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 17.03
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 17.35
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $168,399,005
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-258
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,612) $ 4,268,388
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $187,500 after rebates of
$1,315,192) 554,377
===========================================================================
Total investment income 4,822,765
===========================================================================
EXPENSES:
Advisory fees 3,798,809
- ---------------------------------------------------------------------------
Administrative services fees 155,785
- ---------------------------------------------------------------------------
Custodian fees 25,623
- ---------------------------------------------------------------------------
Distribution fees:
Class A 1,193,863
- ---------------------------------------------------------------------------
Class B 1,866,911
- ---------------------------------------------------------------------------
Class C 396,294
- ---------------------------------------------------------------------------
Class R 16,255
- ---------------------------------------------------------------------------
Investor Class 772
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R and Investor Class 1,614,175
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2,114
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 26,242
- ---------------------------------------------------------------------------
Other 158,613
===========================================================================
Total expenses 9,255,456
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (29,830)
===========================================================================
Net expenses 9,225,626
===========================================================================
Net investment income (loss) (4,402,861)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold
to affiliates of $3,329,583) 148,146,801
- ---------------------------------------------------------------------------
Foreign currencies (14,460)
===========================================================================
148,132,341
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (114,816,847)
- ---------------------------------------------------------------------------
Foreign currencies 36,281
===========================================================================
(114,780,566)
===========================================================================
Net gain from investment securities and foreign currencies 33,351,775
===========================================================================
Net increase in net assets resulting from operations $ 28,948,914
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-259
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,402,861) $ (7,843,507)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 148,132,341 92,544,722
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (114,780,566) 9,256,653
==============================================================================================
Net increase in net assets resulting from operations 28,948,914 93,957,868
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (50,048,191) (13,528,020)
- ----------------------------------------------------------------------------------------------
Class B (30,864,454) (10,257,718)
- ----------------------------------------------------------------------------------------------
Class C (6,304,794) (1,789,455)
- ----------------------------------------------------------------------------------------------
Class R (466,191) (30,198)
- ----------------------------------------------------------------------------------------------
Investor Class (46,094) --
- ----------------------------------------------------------------------------------------------
Institutional Class (282,499) (242)
==============================================================================================
Decrease in net assets resulting from distributions (88,012,223) (25,605,633)
==============================================================================================
Share transactions-net:
Class A 104,559,478 31,588,830
- ----------------------------------------------------------------------------------------------
Class B (25,649,780) (40,086,908)
- ----------------------------------------------------------------------------------------------
Class C 7,461,334 1,351,823
- ----------------------------------------------------------------------------------------------
Class R 1,424,126 4,312,014
- ----------------------------------------------------------------------------------------------
Investor Class 991,725 --
- ----------------------------------------------------------------------------------------------
Institutional Class 4,903,915 55,370
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 93,690,798 (2,778,871)
==============================================================================================
Net increase in net assets 34,627,489 65,573,364
==============================================================================================
NET ASSETS:
Beginning of period 1,073,166,186 1,007,592,822
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(4,501,168) and $(98,307),
respectively) $1,107,793,675 $1,073,166,186
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
FS-260
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
FS-261
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $350 million 0.75%
- ----------------------------------------------------------------------
Over $350 million 0.625%
______________________________________________________________________
======================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $3,995.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $10,778 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $155,785.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $1,614,175 for Class A, Class B, Class C, Class R and
Investor Class share classes and $2,114 for Institutional Class shares.
FS-262
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R, Investor Class and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect
to the Fund's Class A, Class B, Class C, Class R and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% 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 these amounts, up to 0.25%
of the average daily net assets of the Class A, Class B, Class C, Class R or
Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the six months ended April 30, 2005, the Class A,
Class B, Class C, Class R and Investor Class shares paid $1,193,863, $1,866,911,
$396,294, $16,255 and $772, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During six months
ended April 30, 2005, ADI advised the Fund that it retained $91,807 in front-end
sales commissions from the sale of Class A shares and $2,662, $34,307, $2,747
and $0 from Class A, Class B, Class C and Class R shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 10,261,930 $159,404,328 $(143,490,812) $ -- $ 26,175,446 $181,994 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,261,930 159,404,328 (143,490,812) -- 26,175,446 184,883 --
==================================================================================================================================
Subtotal $ 20,523,860 $318,808,656 $(286,981,624) $ -- $ 52,350,892 $366,877 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 69,189,281 $123,289,477 $(106,596,406) $ -- $ 85,882,352 $ 92,867 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 69,189,281 123,002,865 (106,309,794) -- 85,882,352 94,633 --
==================================================================================================================================
Subtotal $138,378,562 $246,292,342 $(212,906,200) $ -- $171,764,704 $187,500 $ --
==================================================================================================================================
Total $158,902,422 $565,100,998 $(499,887,824) $ -- $224,115,596 $554,377 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $12,999,593 and sales of $9,146,726,
which resulted in net realized gains of $3,329,583.
FS-263
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended April 30, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $15,057.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$3,791 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $168,399,005 were
on loan to brokers. The loans were secured by cash collateral of $171,764,704
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2005, the Fund received dividends on cash
collateral of $187,500 for securities lending transactions, which are net of
rebates.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or
FS-264
available capital loss carryforward) under income tax regulations. The tax
character of distributions paid during the year and the tax components of net
assets will be reported at the Fund's fiscal year-end.
The Fund did not have a capital loss carryforward as of October 31, 2004.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $723,195,929 and $767,399,814, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $176,331,788
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (43,860,098)
==============================================================================
Net unrealized appreciation of investment securities $132,471,690
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,128,726,122.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R, Investor
Class and Institutional Class shares are sold at net asset value. Under certain
circumstances, Class A and Class R shares are subject to CDSC. Generally, Class
B shares will automatically convert to Class A shares eight years after the end
of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,997,225 $109,076,125 6,956,116 $ 121,226,684
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,700,765 28,882,787 2,589,525 42,660,392
- -----------------------------------------------------------------------------------------------------------------------
Class C 716,719 12,158,309 1,128,395 18,630,607
- -----------------------------------------------------------------------------------------------------------------------
Class R 104,427 1,883,794 275,328 4,806,109
- -----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 52,336 981,692 -- --
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class 299,603 5,486,891 3,080 55,129
=======================================================================================================================
Issued as reinvestment of dividends:
Class A 2,609,949 47,005,175 727,483 12,170,787
- -----------------------------------------------------------------------------------------------------------------------
Class B 1,735,416 29,207,056 564,080 8,923,747
- -----------------------------------------------------------------------------------------------------------------------
Class C 358,665 6,032,748 96,104 1,519,408
- -----------------------------------------------------------------------------------------------------------------------
Class R 25,963 465,263 1,810 30,198
- -----------------------------------------------------------------------------------------------------------------------
Investor Class(b) 2,559 46,113 -- --
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class 15,412 282,498 14 241
=======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,032,011 36,812,905 834,769 14,693,499
- -----------------------------------------------------------------------------------------------------------------------
Class B (2,173,866) (36,812,905) (886,014) (14,693,499)
=======================================================================================================================
Reacquired:
Class A (4,855,136) (88,334,727) (6,701,600) (116,502,140)
- -----------------------------------------------------------------------------------------------------------------------
Class B (2,761,426) (46,926,718) (4,698,851) (76,977,548)
- -----------------------------------------------------------------------------------------------------------------------
Class C (634,973) (10,729,723) (1,149,534) (18,798,192)
- -----------------------------------------------------------------------------------------------------------------------
Class R (51,771) (924,931) (30,395) (524,293)
- -----------------------------------------------------------------------------------------------------------------------
Investor Class(b) (2,038) (36,080) -- --
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class (47,085) (865,474) -- --
=======================================================================================================================
5,124,755 $ 93,690,798 (289,690) $ (2,778,871)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 6% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this entity are also owned
beneficially.
(b) Investor Class shares commenced sales on November 30, 2004.
FS-265
NOTE 12--SIGNIFICANT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on March 22,
2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Buying Fund") a series of Buyer, would acquire all of the
assets of AIM Mid Cap Stock Fund ("Selling Fund"), a series of AIM Stock Funds
("the Reorganization"). Upon closing of the transaction, shareholders of Selling
Fund will receive a corresponding class of shares of Buying Fund in exchange for
their shares of Selling Fund, and Selling Fund will cease operations.
The Agreement requires approval of Selling Fund shareholders. The Fund
currently intends to submit the Agreement to the shareholders for their
consideration at a meeting to be held on or around June 28, 2005. Additional
information regarding the Agreement will be included in proxy materials to be
mailed to shareholders for consideration. If the Agreement is approved by the
shareholders of Selling Fund and certain conditions required by the Agreement
are satisfied, the transaction is expected to become effective shortly
thereafter.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.86 $ 16.66 $ 12.80 $ 14.69 $ 21.79 $ 15.24
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.08)(a) (0.08)(a) (0.04)(a) (0.04) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.63 1.70 3.94 (1.85) (4.27) 6.68
=================================================================================================================================
Total from investment operations 0.58 1.62 3.86 (1.89) (4.31) 6.55
=================================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 17.02 $ 17.86 $ 16.66 $ 12.80 $ 14.69 $ 21.79
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 2.81% 9.87% 30.16% (12.87)% (21.76)% 42.98%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $686,699 $617,194 $545,691 $456,268 $576,660 $759,838
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.40%(d) 1.53% 1.38% 1.33% 1.28%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.51)%(c) (0.46)% (0.56)% (0.29)% (0.21)% (0.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 65% 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$687,861,007.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.41%.
(e) Not annualized for periods less than one year.
FS-266
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -----------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.79 $ 15.79 $ 12.21 $ 14.10 $ 21.16 $ 14.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.18)(a) (0.16)(a) (0.14)(a) (0.15) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.60 1.60 3.74 (1.75) (4.12) 6.52
=================================================================================================================================
Total from investment operations 0.50 1.42 3.58 (1.89) (4.27) 6.26
=================================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 15.87 $ 16.79 $ 15.79 $ 12.21 $ 14.10 $ 21.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 2.50% 9.13% 29.32% (13.40)% (22.29)% 42.01%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $331,944 $376,355 $392,382 $346,456 $454,018 $617,576
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.01%(c) 2.05%(d) 2.18% 2.03% 1.99% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.16)%(c) (1.11)% (1.21)% (0.94)% (0.87)% (1.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 65% 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$376,476,499.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.77 $ 15.78 $ 12.20 $ 14.10 $ 21.15 $ 14.89
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.18)(a) (0.16)(a) (0.14)(a) (0.14) (0.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.60 1.59 3.74 (1.76) (4.12) 6.51
=================================================================================================================================
Total from investment operations 0.50 1.41 3.58 (1.90) (4.26) 6.26
=================================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79) --
=================================================================================================================================
Net asset value, end of period $ 15.85 $ 16.77 $ 15.78 $ 12.20 $ 14.10 $ 21.15
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 2.49% 9.07% 29.34% (13.48)% (22.24)% 42.04%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $76,854 $73,929 $68,356 $56,298 $66,127 $82,982
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.01%(c) 2.05%(d) 2.18% 2.03% 1.99% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.16)%(c) (1.11)% (1.21)% (0.94)% (0.87)% (1.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 65% 74% 101% 120% 130% 101%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$79,915,759.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.06%.
(e) Not annualized for periods less than one year.
FS-267
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.78 $16.62 $12.79 $ 16.62
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.10)(a) (0.10)(a) (0.03)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.63 1.68 3.93 (3.80)
======================================================================================================================
Total from investment operations 0.57 1.58 3.83 (3.83)
======================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- --
======================================================================================================================
Net asset value, end of period $16.93 $17.78 $16.62 $ 12.79
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 2.77% 9.65% 29.95% (23.05)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,683 $5,622 $1,154 $ 10
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.51%(c) 1.55%(d) 1.68% 1.54%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.66)%(c) (0.61)% (0.71)% (0.44)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 65% 74% 101% 120%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$6,555,819.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.56%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INVESTOR CLASS
--------------
NOVEMBER 30,
2004
(DATE SALES
COMMENCED) TO
APRIL 30,
2005
- ------------------------------------------------------------------------------
Net asset value, beginning of period $18.95
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a)
- ------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.47)
==============================================================================
Total from investment operations (0.50)
==============================================================================
Less distributions from net realized gains (1.42)
==============================================================================
Net asset value, end of period $17.03
______________________________________________________________________________
==============================================================================
Total return(b) (3.05)%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 900
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets 1.26%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.41)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 65%
______________________________________________________________________________
==============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $741,486.
(d) Not annualized for periods less than one year.
FS-268
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------- OCTOBER 31,
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.13 $16.83 $12.84 $ 17.25
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00(a) 0.01(a) 0.01(a) 0.02(a)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.64 1.71 3.98 (4.43)
=================================================================================================================
Total from investment operations 0.64 1.72 3.99 (4.41)
=================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- --
=================================================================================================================
Net asset value, end of period $17.35 $18.13 $16.83 $ 12.84
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(b) 3.11% 10.38% 31.08% (25.57)%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,713 $ 67 $ 10 $ 7
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average net assets
With fee waivers and/or expense reimbursements 0.83%(c) 0.86% 0.87% 0.84%(d)
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.83%(c) 1.15% 1.25% 0.99%(d)
=================================================================================================================
Ratio of net investment income to average net assets 0.02%(c) 0.08% 0.10% 0.25%(d)
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate(e) 65% 74% 101% 120%
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net assets values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$4,261,254.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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
FS-269
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
Section 529 college savings plans and procedures for locating lost
securityholders. IFG, AIM and ADI are providing full cooperation with respect to
these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-270
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-72.76%
AEROSPACE & DEFENSE-1.48%
Northrop Grumman Corp. 700,000 $ 38,388,000
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.99%
Bank of New York Co., Inc. (The) 915,000 25,565,100
==========================================================================
COMPUTER HARDWARE-1.23%
International Business Machines Corp. 418,000 31,926,840
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.36%
Lexmark International, Inc.-Class A(a) 507,900 35,273,655
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.00%
First Data Corp. 685,000 26,050,550
==========================================================================
DEPARTMENT STORES-1.88%
Kohl's Corp.(a) 1,022,100 48,651,960
==========================================================================
DIVERSIFIED BANKS-1.40%
Bank of America Corp. 807,000 36,347,280
==========================================================================
DIVERSIFIED CHEMICALS-1.34%
Dow Chemical Co. (The) 758,000 34,814,940
==========================================================================
ELECTRIC UTILITIES-1.19%
FPL Group, Inc. 759,100 30,986,462
==========================================================================
ENVIRONMENTAL SERVICES-2.20%
Waste Management, Inc. 2,006,500 57,165,185
==========================================================================
FOOD RETAIL-1.77%
Kroger Co. (The)(a) 2,912,000 45,922,240
==========================================================================
HOUSEHOLD PRODUCTS-1.23%
Kimberly-Clark Corp. 513,000 32,036,850
==========================================================================
INDUSTRIAL CONGLOMERATES-2.00%
General Electric Co. 1,434,500 51,928,900
==========================================================================
INDUSTRIAL MACHINERY-1.43%
Dover Corp. 1,023,800 37,225,368
==========================================================================
INTEGRATED OIL & GAS-3.75%
Amerada Hess Corp.(b) 400,600 37,516,190
- --------------------------------------------------------------------------
Exxon Mobil Corp. 603,500 34,417,605
- --------------------------------------------------------------------------
Murphy Oil Corp. 284,650 25,359,468
==========================================================================
97,293,263
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.27%
SBC Communications Inc. 1,382,000 32,891,600
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-1.36%
Morgan Stanley 668,250 35,163,315
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.29%
Dominion Resources, Inc. 445,000 $ 33,553,000
==========================================================================
OFFICE ELECTRONICS-1.61%
Xerox Corp.(a) 3,156,300 41,820,975
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.78%
Baker Hughes Inc. 638,000 28,148,560
- --------------------------------------------------------------------------
BJ Services Co. 830,000 40,462,500
- --------------------------------------------------------------------------
Smith International, Inc. 504,800 29,369,264
==========================================================================
97,980,324
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.96%
Apache Corp. 442,200 24,891,438
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.21%
Citigroup Inc. 670,000 31,463,200
==========================================================================
PACKAGED FOODS & MEATS-6.25%
Campbell Soup Co. 1,507,000 44,818,180
- --------------------------------------------------------------------------
General Mills, Inc. 1,610,000 79,534,000
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A(b) 1,170,000 37,919,700
==========================================================================
162,271,880
==========================================================================
PAPER PRODUCTS-1.44%
Georgia-Pacific Corp. 1,087,000 37,251,490
==========================================================================
PHARMACEUTICALS-7.68%
Bristol-Myers Squibb Co. 1,635,000 42,510,000
- --------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 1,070,000 38,177,600
- --------------------------------------------------------------------------
Merck & Co. Inc. 2,420,000 82,038,000
- --------------------------------------------------------------------------
Wyeth 815,000 36,626,100
==========================================================================
199,351,700
==========================================================================
PROPERTY & CASUALTY INSURANCE-4.70%
Berkshire Hathaway Inc.-Class A(a) 710 59,888,500
- --------------------------------------------------------------------------
Chubb Corp. (The) 398,000 32,548,440
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 828,122 29,646,768
==========================================================================
122,083,708
==========================================================================
PUBLISHING-2.67%
Gannett Co., Inc. 450,000 34,650,000
- --------------------------------------------------------------------------
Tribune Co. 900,000 34,740,000
==========================================================================
69,390,000
==========================================================================
RAILROADS-1.33%
Union Pacific Corp. 538,000 34,394,340
==========================================================================
</Table>
FS-271
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
REGIONAL BANKS-1.06%
Fifth Third Bancorp 631,400 $ 27,465,900
==========================================================================
SEMICONDUCTORS-4.55%
Analog Devices, Inc. 751,000 25,616,610
- --------------------------------------------------------------------------
Intel Corp. 1,441,500 33,904,080
- --------------------------------------------------------------------------
National Semiconductor Corp.(b) 1,771,000 33,790,680
- --------------------------------------------------------------------------
Xilinx, Inc. 915,000 24,650,100
==========================================================================
117,961,470
==========================================================================
SOFT DRINKS-1.52%
Coca-Cola Co. (The) 910,000 39,530,400
==========================================================================
SYSTEMS SOFTWARE-4.66%
Computer Associates International, Inc. 1,403,093 37,743,202
- --------------------------------------------------------------------------
Microsoft Corp. 3,287,000 83,161,100
==========================================================================
120,904,302
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.17%
Washington Mutual, Inc. 734,560 30,352,019
==========================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $1,706,485,623) 1,888,297,654
==========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-20.59%
BERMUDA-4.57%
Accenture Ltd.-Class A (IT Consulting & Other
Services)(a) 1,812,800 39,337,760
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Oil & Gas
Drilling)(a) 585,200 31,524,724
- --------------------------------------------------------------------------
Tyco International Ltd. (Industrial
Conglomerates) 1,523,000 47,685,130
==========================================================================
118,547,614
==========================================================================
CAYMAN ISLANDS-2.81%
ACE Ltd. (Property & Casualty Insurance) 1,030,000 44,248,800
- --------------------------------------------------------------------------
GlobalSantaFe Corp. (Oil & Gas Drilling) 852,100 28,630,560
==========================================================================
72,879,360
==========================================================================
FINLAND-1.18%
Nokia Oyj-ADR (Communications Equipment) 1,924,100 30,747,118
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
FRANCE-1.80%
TOTAL S.A. (Integrated Oil & Gas)(c) 210,000 46,697,625
==========================================================================
ISRAEL-1.83%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals)(b) 1,518,000 $ 47,422,320
==========================================================================
NETHERLANDS-4.27%
Heineken N.V. (Brewers)(c) 1,347,106 42,780,158
- --------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics)(a)(c) 1,570,900 38,967,777
- --------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(c) 450,000 28,961,162
==========================================================================
110,709,097
==========================================================================
UNITED KINGDOM-4.13%
BP PLC-ADR (Integrated Oil & Gas) 573,100 34,901,790
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals)(b) 1,430,000 72,286,500
==========================================================================
107,188,290
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $461,517,613) 534,191,424
==========================================================================
MONEY MARKET FUNDS-7.64%
Liquid Assets Portfolio-Institutional
Class(d) 99,092,267 99,092,267
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 99,092,267 99,092,267
==========================================================================
Total Money Market Funds (Cost
$198,184,534) 198,184,534
==========================================================================
TOTAL INVESTMENTS-100.99% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,366,187,770) 2,620,673,612
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.87%
STIC Prime Portfolio-Institutional
Class(d)(e) 48,554,750 48,554,750
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $48,554,750) 48,554,750
==========================================================================
TOTAL INVESTMENTS-102.86% (Cost
$2,414,742,520) 2,669,228,362
==========================================================================
OTHER ASSETS LESS LIABILITIES-(2.86%) (74,116,177)
==========================================================================
NET ASSETS-100.00% $2,595,112,185
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at April 30, 2005 was
$157,406,722, which represented 5.90% of the Fund's Total Investments. See
Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-272
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$2,168,003,236)* $2,422,489,078
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $246,739,284) 246,739,284
============================================================
Total Investments (Cost $2,414,742,520) 2,669,228,362
============================================================
Receivables for:
Investments sold 10,259,283
- ------------------------------------------------------------
Fund shares sold 1,154,630
- ------------------------------------------------------------
Dividends 3,504,023
- ------------------------------------------------------------
Investments matured (Note 10) 3,726,980
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 182,582
- ------------------------------------------------------------
Other assets 77,730
============================================================
Total assets 2,688,133,590
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 35,732,912
- ------------------------------------------------------------
Fund shares reacquired 5,459,001
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 427,471
- ------------------------------------------------------------
Collateral upon return of securities
loaned 48,554,750
- ------------------------------------------------------------
Accrued distribution fees 1,154,170
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,283
- ------------------------------------------------------------
Accrued transfer agent fees 1,401,614
- ------------------------------------------------------------
Accrued operating expenses 287,204
============================================================
Total liabilities 93,021,405
============================================================
Net assets applicable to shares outstanding $2,595,112,185
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,864,487,450
- ------------------------------------------------------------
Undistributed net investment income 7,469,377
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (531,341,969)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 254,497,327
============================================================
$2,595,112,185
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,728,245,191
____________________________________________________________
============================================================
Class B $ 737,901,802
____________________________________________________________
============================================================
Class C $ 122,064,170
____________________________________________________________
============================================================
Class R $ 2,638,154
____________________________________________________________
============================================================
Institutional Class $ 4,262,868
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 138,840,425
____________________________________________________________
============================================================
Class B 61,847,517
____________________________________________________________
============================================================
Class C 10,202,499
____________________________________________________________
============================================================
Class R 212,871
____________________________________________________________
============================================================
Institutional Class 333,492
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.45
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.45 divided by
94.50%) $ 13.17
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 11.93
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.96
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.39
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.78
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $47,654,302
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-273
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $311,181) $ 37,178,554
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $7,888 after rebates of
$302,180) 2,434,220
- --------------------------------------------------------------------------
Interest 3,097
==========================================================================
Total investment income 39,615,871
==========================================================================
EXPENSES:
Advisory fees 8,856,261
- --------------------------------------------------------------------------
Administrative services fees 275,722
- --------------------------------------------------------------------------
Custodian fees 125,795
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,728,904
- --------------------------------------------------------------------------
Class B 4,171,339
- --------------------------------------------------------------------------
Class C 661,778
- --------------------------------------------------------------------------
Class R 6,750
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 3,726,604
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,879
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 57,881
- --------------------------------------------------------------------------
Other 446,148
==========================================================================
Total expenses 21,059,061
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (226,717)
==========================================================================
Net expenses 20,832,344
==========================================================================
Net investment income 18,783,527
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(5,982)) 136,018,869
- --------------------------------------------------------------------------
Foreign currencies 174,782
==========================================================================
136,193,651
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (59,923,704)
- --------------------------------------------------------------------------
Foreign currencies 11,485
==========================================================================
(59,912,219)
==========================================================================
Net gain from investment securities and foreign currencies 76,281,432
==========================================================================
Net increase in net assets resulting from operations $ 95,064,959
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-274
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 18,783,527 $ 8,535,340
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 136,193,651 284,944,396
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (59,912,219) (662,843)
==============================================================================================
Net increase in net assets resulting from operations 95,064,959 292,816,893
==============================================================================================
Distributions to shareholders from net investment income:
Class A (16,183,702) (4,234,798)
- ----------------------------------------------------------------------------------------------
Class B (655,402) --
- ----------------------------------------------------------------------------------------------
Class C (102,493) --
- ----------------------------------------------------------------------------------------------
Class R (17,158) (2,682)
- ----------------------------------------------------------------------------------------------
Institutional Class (51,616) (14,410)
==============================================================================================
Decrease in net assets resulting from distributions (17,010,371) (4,251,890)
==============================================================================================
Share transactions-net:
Class A (161,731,225) (343,025,821)
- ----------------------------------------------------------------------------------------------
Class B (174,967,858) (360,933,716)
- ----------------------------------------------------------------------------------------------
Class C (20,451,511) (39,355,393)
- ----------------------------------------------------------------------------------------------
Class R 40,302 642,358
- ----------------------------------------------------------------------------------------------
Institutional Class 921,463 1,074,851
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (356,188,829) (741,597,721)
==============================================================================================
Net increase (decrease) in net assets (278,134,241) (453,032,718)
==============================================================================================
NET ASSETS:
Beginning of period 2,873,246,426 3,326,279,144
==============================================================================================
End of period (including undistributed net investment
income of $7,469,377 and $5,696,221, respectively) $2,595,112,185 $2,873,246,426
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-275
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-276
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $30 million 1.00%
- --------------------------------------------------------------------
Next $120 million 0.75%
- --------------------------------------------------------------------
Over $150 million 0.625%
____________________________________________________________________
====================================================================
</Table>
FS-277
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund (based on the Fund's average daily net assets) do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $150 million 0.75%
- --------------------------------------------------------------------
Next $4.85 billion 0.615%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Over $10 billion 0.52%
____________________________________________________________________
====================================================================
</Table>
Under the terms of a master sub-advisory agreement between AIM and A I M
Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount
paid by the Fund to AIM.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $138,646.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $54,403 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $275,722.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $3,726,604 for Class A, Class B, Class C and Class R share
classes and $1,879 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R and Institutional Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.30% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to selected dealers and financial institutions who furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules impose a cap on the total sales charges,
including asset-based sales charges that may be paid by any class of shares of
the Fund. Pursuant to the Plans, for the six months ended April 30, 2005, the
Class A, Class B, Class C and Class R shares paid $2,728,904, $4,171,339,
$661,778 and $6,750, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $102,930 in
front-end sales commissions from the sale of Class A shares and $2,228, $80,265,
$3,803 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or ADI.
FS-278
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 83,058,993 $250,248,566 $(234,215,292) $ -- $ 99,092,267 $1,201,857 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 83,058,993 250,248,566 (234,215,292) -- 99,092,267 1,224,475 --
===================================================================================================================================
Subtotal $166,117,986 $500,497,132 $(468,430,584) $ -- $198,184,534 $2,426,332 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $ 27,336,279 $290,566,923 $(269,348,452) $ -- $ 48,554,750 $ 7,888 $ --
===================================================================================================================================
Total $193,454,265 $791,064,055 $(737,779,036) $ -- $246,739,284 $2,434,220 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $23,943,012 and sales of $8,615,715,
which resulted in net realized gain (loss) of $(5,982).
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement, which resulted in a reduction
of the Fund's total expenses of $33,667.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$6,892 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.
FS-279
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $47,654,302 were on
loan to brokers. The loans were secured by cash collateral of $48,554,750
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2005, the Fund received dividends on
cash collateral of $7,888 for securities lending transactions, which are net of
rebates.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
October 31, 2009 $488,443,372
- ---------------------------------------------------------------------------
October 31, 2011 $132,068,900
===========================================================================
Total capital loss carryforward $620,512,272
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
FS-280
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $722,356,914 and $1,084,721,610, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp., which is in default with respect to the
principal payments on $60,700,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 285,511,965
- ----------------------------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (79,006,777)
================================================================================================================
Net unrealized appreciation of investment securities $ 206,505,188
________________________________________________________________________________________________________________
================================================================================================================
Cost of investments for tax purposes is $2,462,723,174.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,028,590 $ 38,274,928 7,951,437 $ 94,832,462
- --------------------------------------------------------------------------------------------------------------------------
Class B 1,649,847 19,959,859 3,877,677 44,222,154
- --------------------------------------------------------------------------------------------------------------------------
Class C 459,742 5,576,546 1,217,568 13,934,813
- --------------------------------------------------------------------------------------------------------------------------
Class R 52,966 666,019 95,004 1,120,376
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 125,562 1,627,068 515,765 6,344,104
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,116,893 14,139,862 345,517 3,966,625
- --------------------------------------------------------------------------------------------------------------------------
Class B 48,619 591,693 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 7,040 85,899 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class R 1,361 17,157 234 2,681
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,820 49,552 714 8,400
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 5,558,543 70,151,827 12,968,092 155,893,419
- --------------------------------------------------------------------------------------------------------------------------
Class B (5,800,147) (70,151,827) (13,548,346) (155,893,419)
==========================================================================================================================
Reacquired:
Class A (22,452,411) (284,297,842) (50,261,476) (597,718,327)
- --------------------------------------------------------------------------------------------------------------------------
Class B (10,349,655) (125,367,583) (21,841,949) (249,262,451)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,147,970) (26,113,956) (4,652,957) (53,290,206)
- --------------------------------------------------------------------------------------------------------------------------
Class R (50,942) (642,874) (40,399) (480,699)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (58,123) (755,157) (434,182) (5,277,653)
==========================================================================================================================
(28,806,265) $(356,188,829) (63,807,301) $(741,597,721)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 13% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell the Fund Shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to the
Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third part record keeping and account servicing. The Trust has
no knowledge as to whether all or any portion of the shares owned of record
by these shareholders are also owned beneficially.
FS-281
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07 $ 17.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.10(a) 0.06(b) 0.04(b) 0.01(c) (0.03) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized and
unrealized) 0.30 1.00 1.51 (0.90) (6.70) 2.30
=================================================================================================================================
Total from investment
operations 0.40 1.06 1.55 (0.89) (6.73) 2.26
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.11) (0.02) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.11) (0.02) -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 12.45 $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 3.27% 9.58% 16.20% (8.51)% (38.75)% 13.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,728,245 $1,843,623 $2,008,702 $2,096,866 $3,159,304 $5,801,869
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.25%(e) 1.26% 1.30% 1.22% 1.16% 1.06%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.27%(e) 1.27% 1.30% 1.22% 1.17% 1.08%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 1.59%(e) 0.54% 0.39% 0.09%(c) (0.24)% (0.20)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 28% 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.05 and 0.88%, respectively.
(b) Calculated using average shares outstanding.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(e) Ratios are annualized and based on average daily net assets of
$1,834,345,939.
(f) Not annualized for periods less than one year.
FS-282
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72 $ 16.97
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) (0.02)(b) (0.03)(b) (0.08)(c) (0.13) (0.17)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.27 0.96 1.46 (0.86) (6.53) 2.27
=================================================================================================================================
Total from investment
operations 0.33 0.94 1.43 (0.94) (6.66) 2.10
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.01) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.01) -- -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 11.93 $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 2.83% 8.81% 15.48% (9.23)% (39.14)% 12.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $737,902 $885,500 $1,149,943 $1,204,617 $1,719,470 $3,088,611
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.95%(e) 1.96% 2.00% 1.92% 1.86% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.97%(e) 1.97% 2.00% 1.92% 1.87% 1.82%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.89%(e) (0.16)% (0.31)% (0.61)%(c) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 28% 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.01 and 0.18%, respectively.
(b) Calculated using average shares outstanding.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(e) Ratios are annualized and based on average daily net assets of
$841,181,541.
(f) Not annualized for periods less than one year.
FS-283
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77 $ 17.01
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) (0.02)(b) (0.03)(b) (0.08)(c) (0.13) (0.17)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.27 0.96 1.46 (0.86) (6.55) 2.28
=================================================================================================================================
Total from investment operations 0.33 0.94 1.43 (0.94) (6.68) 2.11
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.01) -- -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $ 11.96 $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 2.82% 8.79% 15.43% (9.21)% (39.14)% 12.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,064 $138,305 $163,859 $170,444 $248,533 $412,872
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.95%(e) 1.96% 2.00% 1.92% 1.86% 1.80%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.97%(e) 1.97% 2.00% 1.92% 1.87% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.89%(e) (0.16)% (0.31)% (0.61)%(b) (0.94)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 28% 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.01 and 0.18%, respectively.
(b) Calculated using average shares outstanding.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios for periods prior to November
1, 2001 have not been restated to reflect this change in presentation.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(e) Ratios are annualized and based on average daily net assets of
$133,452,530.
(f) Not annualized for periods less than one year.
FS-284
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------------------
JUNE 3,
2002
(DATE SALES
SIX MONTHS YEAR ENDED COMMENCED)
ENDED OCTOBER 31, TO
APRIL 30, ------------------- OCTOBER 31,
2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.10 $11.08 $ 9.56 $ 10.94
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.04(b) 0.02(b) (0.00)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 1.00 1.50 (1.38)
=================================================================================================================
Total from investment operations 0.37 1.04 1.52 (1.38)
=================================================================================================================
Less distributions from net investment income (0.08) (0.02) -- --
=================================================================================================================
Net asset value, end of period $12.39 $12.10 $11.08 $ 9.56
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(c) 3.06% 9.35% 15.90% (12.61)%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,638 $2,534 $1,714 $ 16
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%(d) 1.46% 1.50% 1.42%(e)
- -----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.47%(d) 1.47% 1.50% 1.42%(e)
=================================================================================================================
Ratio of net investment income (loss) to average net assets 1.39%(d) 0.34% 0.19% (0.11)%(e)
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate(f) 28% 36% 28% 103%
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.04 and 0.68%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$2,722,410.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-285
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL
------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.53 $11.45 $ 9.80 $10.67 $18.33 $17.33
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.13(b) 0.09(b) 0.06(c) 0.04 0.52
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.29 1.03 1.56 (0.93) (6.82) 1.83
=================================================================================================================================
Total from investment operations 0.43 1.16 1.65 (0.87) (6.78) 2.35
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.08) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88) (1.35)
=================================================================================================================================
Total distributions (0.18) (0.08) -- -- (0.88) (1.35)
=================================================================================================================================
Net asset value, end of period $12.78 $12.53 $11.45 $ 9.80 $10.67 $18.33
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 3.42% 10.21% 16.84% (8.15)% (38.46)% 14.02%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,263 $3,285 $2,061 $1,457 $1,648 $3,234
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.78%(e) 0.74% 0.79% 0.79% 0.68% 0.66%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.80%(e) 0.75% 0.79% 0.83% 0.69% 0.68%
=================================================================================================================================
Ratio of net investment income to average net assets 2.06%(e) 1.06% 0.90% 0.52%(c) 0.25% 0.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 28% 36% 28% 103% 78% 80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.10 and 1.35%, respectively.
(b) Calculated using average shares outstanding.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share and the
ratio of net investment income to average net assets would have remained
the same. In accordance with the AICPA Audit and Accounting Guide for
Investment Companies, per share and ratios prior to November 1, 2001
have not been restated to reflect this change in presentation.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(e) Ratios are annualized and based on average daily net assets of
$3,787,313.
(f) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
FS-286
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-287
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.09%
ADVERTISING-0.73%
Lamar Advertising Co.-Class A(a) 1,117,100 $ 41,757,198
========================================================================
AEROSPACE & DEFENSE-0.79%
Honeywell International Inc. 1,250,000 44,700,000
========================================================================
AIR FREIGHT & LOGISTICS-0.75%
FedEx Corp. 500,000 42,475,000
========================================================================
ALUMINUM-0.62%
Alcoa Inc. 1,208,500 35,070,670
========================================================================
APPAREL RETAIL-0.81%
Abercrombie & Fitch Co.-Class A 500,000 26,975,000
- ------------------------------------------------------------------------
Ross Stores, Inc. 711,200 19,003,264
========================================================================
45,978,264
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.94%
Coach, Inc.(a) 2,000,000 53,600,000
========================================================================
APPLICATION SOFTWARE-2.13%
Amdocs Ltd. (United Kingdom)(a) 800,000 21,368,000
- ------------------------------------------------------------------------
Autodesk, Inc. 1,200,000 38,196,000
- ------------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 500,000 18,920,000
- ------------------------------------------------------------------------
Mercury Interactive Corp.(a) 600,000 24,798,000
- ------------------------------------------------------------------------
NAVTEQ Corp.(a) 500,000 18,210,000
========================================================================
121,492,000
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.64%
Franklin Resources, Inc. 300,000 20,604,000
- ------------------------------------------------------------------------
Investors Financial Services Corp. 380,000 15,941,000
========================================================================
36,545,000
========================================================================
BIOTECHNOLOGY-2.12%
Amgen Inc.(a) 744,700 43,348,987
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 1,527,600 56,673,960
- ------------------------------------------------------------------------
Protein Design Labs, Inc.(a) 1,142,800 20,433,264
========================================================================
120,456,211
========================================================================
BROADCASTING & CABLE TV-1.18%
Univision Communications Inc.-Class A(a) 1,500,000 39,435,000
- ------------------------------------------------------------------------
XM Satellite Radio Holdings Inc.-Class
A(a)(b) 1,000,000 27,740,000
========================================================================
67,175,000
========================================================================
CASINOS & GAMING-0.08%
Las Vegas Sands Corp.(a) 120,800 4,523,960
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-2.55%
Cisco Systems, Inc.(a) 4,000,000 $ 69,120,000
- ------------------------------------------------------------------------
Comverse Technology, Inc.(a) 1,000,000 22,790,000
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 1,074,764 24,278,919
- ------------------------------------------------------------------------
QUALCOMM Inc. 826,600 28,840,074
========================================================================
145,028,993
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.53%
Best Buy Co., Inc. 600,000 30,204,000
========================================================================
COMPUTER HARDWARE-3.63%
Apple Computer, Inc.(a) 2,100,000 75,726,000
- ------------------------------------------------------------------------
Dell Inc.(a) 3,750,000 130,612,500
========================================================================
206,338,500
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.69%
EMC Corp.(a) 3,000,000 39,360,000
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.48%
Caterpillar Inc. 600,000 52,830,000
- ------------------------------------------------------------------------
Deere & Co. 500,000 31,270,000
========================================================================
84,100,000
========================================================================
CONSUMER ELECTRONICS-1.23%
Garmin Ltd. (Cayman Islands)(b) 400,000 15,800,000
- ------------------------------------------------------------------------
Harman International Industries, Inc. 693,200 54,471,656
========================================================================
70,271,656
========================================================================
CONSUMER FINANCE-1.53%
American Express Co. 750,000 39,525,000
- ------------------------------------------------------------------------
SLM Corp. 1,000,000 47,640,000
========================================================================
87,165,000
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.40%
Automatic Data Processing, Inc. 1,000,000 43,440,000
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 1,500,000 63,450,000
- ------------------------------------------------------------------------
Iron Mountain Inc.(a) 1,000,000 29,700,000
========================================================================
136,590,000
========================================================================
DEPARTMENT STORES-0.79%
Kohl's Corp.(a) 500,000 23,800,000
- ------------------------------------------------------------------------
Sears Holdings Corp.(a) 157,372 21,282,989
========================================================================
45,082,989
========================================================================
DIVERSIFIED BANKS-0.79%
Bank of America Corp. 1,000,000 45,040,000
========================================================================
</Table>
FS-288
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-1.92%
Dow Chemical Co. (The) 650,000 $ 29,854,500
- ------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 1,000,000 47,110,000
- ------------------------------------------------------------------------
Eastman Chemical Co. 600,000 32,400,000
========================================================================
109,364,500
========================================================================
DIVERSIFIED METALS & MINING-0.90%
Peabody Energy Corp. 390,300 17,083,431
- ------------------------------------------------------------------------
Phelps Dodge Corp. 400,000 34,340,000
========================================================================
51,423,431
========================================================================
DRUG RETAIL-0.76%
Walgreen Co. 1,000,000 43,060,000
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.13%
Emerson Electric Co. 510,500 31,993,035
- ------------------------------------------------------------------------
Rockwell Automation, Inc. 700,000 32,361,000
========================================================================
64,354,035
========================================================================
EMPLOYMENT SERVICES-0.98%
Robert Half International Inc. 2,250,000 55,845,000
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.11%
Dolby Laboratories Inc.-Class A(a)(c) 300,800 6,151,360
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.72%
Monsanto Co. 700,000 41,034,000
========================================================================
FOOD DISTRIBUTORS-0.33%
Sysco Corp. 550,000 19,030,000
========================================================================
FOOD RETAIL-0.38%
Whole Foods Market, Inc. 214,700 21,409,884
========================================================================
FOOTWEAR-0.67%
NIKE, Inc.-Class B 500,000 38,405,000
========================================================================
GOLD-0.62%
Newmont Mining Corp. 545,500 20,712,635
- ------------------------------------------------------------------------
Placer Dome Inc. (Canada) 1,076,000 14,375,360
========================================================================
35,087,995
========================================================================
HEALTH CARE EQUIPMENT-6.85%
Bard (C.R.), Inc. 520,600 37,051,102
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 1,034,200 60,521,384
- ------------------------------------------------------------------------
Biomet, Inc. 2,253,175 87,175,341
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 665,300 39,505,514
- ------------------------------------------------------------------------
Medtronic, Inc. 815,700 42,987,390
- ------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 1,254,500 48,963,135
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 1,040,900 35,119,966
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HEALTH CARE EQUIPMENT -- (CONTINUED)
Zimmer Holdings, Inc.(a) 475,600 38,723,352
========================================================================
390,047,184
========================================================================
HEALTH CARE FACILITIES-0.93%
HCA Inc. 500,000 $ 27,920,000
- ------------------------------------------------------------------------
Health Management Associates, Inc.-Class A 1,000,000 24,730,000
========================================================================
52,650,000
========================================================================
HEALTH CARE SERVICES-1.71%
Caremark Rx, Inc.(a) 2,427,881 97,236,634
========================================================================
HEALTH CARE SUPPLIES-1.15%
Alcon, Inc. (Switzerland)(a) 677,400 65,707,800
========================================================================
HOME ENTERTAINMENT SOFTWARE-0.52%
Electronic Arts Inc.(a) 550,000 29,364,500
========================================================================
HOTELS, RESORTS & CRUISE LINES-1.49%
Carnival Corp. (Panama)(d) 900,000 43,992,000
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(e) 750,000 40,755,000
========================================================================
84,747,000
========================================================================
HOUSEHOLD PRODUCTS-0.57%
Procter & Gamble Co. (The) 600,000 32,490,000
========================================================================
HYPERMARKETS & SUPER CENTERS-0.51%
Wal-Mart Stores, Inc. 613,400 28,915,676
========================================================================
INDUSTRIAL CONGLOMERATES-1.64%
General Electric Co. 1,500,000 54,300,000
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 1,250,000 39,137,500
========================================================================
93,437,500
========================================================================
INDUSTRIAL GASES-1.31%
Air Products & Chemicals, Inc. 600,000 35,238,000
- ------------------------------------------------------------------------
Praxair, Inc. 841,400 39,402,762
========================================================================
74,640,762
========================================================================
INDUSTRIAL MACHINERY-4.06%
Danaher Corp. 1,000,000 50,630,000
- ------------------------------------------------------------------------
Eaton Corp. 500,000 29,325,000
- ------------------------------------------------------------------------
Illinois Tool Works Inc. 363,300 30,451,806
- ------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd-Class A (Bermuda) 1,100,000 84,557,000
- ------------------------------------------------------------------------
Parker Hannifin Corp. 600,000 35,964,000
========================================================================
230,927,806
========================================================================
INTEGRATED OIL & GAS-3.37%
Chevron Corp. 488,000 25,376,000
- ------------------------------------------------------------------------
ConocoPhillips 500,000 52,425,000
- ------------------------------------------------------------------------
Exxon Mobil Corp. 1,500,000 85,545,000
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 414,400 28,593,600
========================================================================
191,939,600
========================================================================
</Table>
FS-289
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-3.40%
Google Inc.-Class A(a) 250,413 $ 55,090,860
- ------------------------------------------------------------------------
VeriSign, Inc.(a) 1,000,000 26,460,000
- ------------------------------------------------------------------------
Yahoo! Inc.(a) 3,250,000 112,157,500
========================================================================
193,708,360
========================================================================
INVESTMENT BANKING & BROKERAGE-0.72%
Goldman Sachs Group, Inc. (The)(b) 250,000 26,697,500
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 267,400 14,420,882
========================================================================
41,118,382
========================================================================
LIFE & HEALTH INSURANCE-0.52%
AFLAC Inc. 725,450 29,489,542
========================================================================
MANAGED HEALTH CARE-2.62%
Aetna Inc. 826,800 60,662,316
- ------------------------------------------------------------------------
PacifiCare Health Systems, Inc.(a) 479,300 28,642,968
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 463,100 43,767,581
- ------------------------------------------------------------------------
WellPoint, Inc.(a) 126,600 16,173,150
========================================================================
149,246,015
========================================================================
MOVIES & ENTERTAINMENT-0.63%
DreamWorks Animation SKG, Inc.-Class A(a) 187,900 7,046,250
- ------------------------------------------------------------------------
Viacom Inc.-Class B 838,064 29,013,776
========================================================================
36,060,026
========================================================================
OIL & GAS DRILLING-1.66%
ENSCO International Inc. 1,062,000 34,621,200
- ------------------------------------------------------------------------
GlobalSantaFe Corp. (Cayman Islands) 850,000 28,560,000
- ------------------------------------------------------------------------
Patterson-UTI Energy, Inc. 1,300,000 31,161,000
========================================================================
94,342,200
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.22%
Baker Hughes Inc. 840,000 37,060,800
- ------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 625,000 32,593,750
========================================================================
69,654,550
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.72%
Apache Corp. 400,000 22,516,000
- ------------------------------------------------------------------------
Burlington Resources Inc. 565,500 27,488,955
- ------------------------------------------------------------------------
Devon Energy Corp. 1,130,000 51,042,100
- ------------------------------------------------------------------------
Newfield Exploration Co.(a) 300,000 21,309,000
- ------------------------------------------------------------------------
XTO Energy, Inc. 1,066,666 32,181,313
========================================================================
154,537,368
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.02%
Valero Energy Corp. 850,000 58,250,500
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
OTHER DIVERSIFIED FINANCIAL SERVICES-0.92%
Citigroup Inc. 1,116,000 $ 52,407,360
========================================================================
PACKAGED FOODS & MEATS-0.92%
Hershey Co. (The) 500,000 31,950,000
- ------------------------------------------------------------------------
Kellogg Co. 451,700 20,303,915
========================================================================
52,253,915
========================================================================
PERSONAL PRODUCTS-0.95%
Gillette Co. (The) 1,042,000 53,808,880
========================================================================
PHARMACEUTICALS-4.09%
Johnson & Johnson 1,696,100 116,403,343
- ------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 1,323,600 37,193,160
- ------------------------------------------------------------------------
Pfizer Inc. 1,293,200 35,136,244
- ------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,410,700 44,070,268
========================================================================
232,803,015
========================================================================
RESTAURANTS-1.45%
Brinker International, Inc.(a) 554,200 18,731,960
- ------------------------------------------------------------------------
McDonald's Corp. 1,000,000 29,310,000
- ------------------------------------------------------------------------
Starbucks Corp.(a) 700,000 34,664,000
========================================================================
82,705,960
========================================================================
SEMICONDUCTOR EQUIPMENT-0.76%
Applied Materials, Inc.(a) 1,583,600 23,548,132
- ------------------------------------------------------------------------
KLA-Tencor Corp. 500,000 19,510,000
========================================================================
43,058,132
========================================================================
SEMICONDUCTORS-4.43%
Analog Devices, Inc. 1,750,000 59,692,500
- ------------------------------------------------------------------------
Linear Technology Corp. 1,450,000 51,823,000
- ------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 750,000 25,110,000
- ------------------------------------------------------------------------
Maxim Integrated Products, Inc. 806,985 30,181,239
- ------------------------------------------------------------------------
Microchip Technology Inc. 3,000,052 85,441,481
========================================================================
252,248,220
========================================================================
SOFT DRINKS-0.59%
PepsiCo, Inc. 600,000 33,384,000
========================================================================
SPECIALIZED FINANCE-0.14%
Chicago Mercantile Exchange Holdings Inc. 41,200 8,055,424
========================================================================
SPECIALTY CHEMICALS-1.23%
Ecolab Inc. 800,000 26,168,000
- ------------------------------------------------------------------------
Rohm & Haas Co. 1,000,000 43,660,000
========================================================================
69,828,000
========================================================================
</Table>
FS-290
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SPECIALTY STORES-2.15%
Bed Bath & Beyond Inc.(a) 1,200,000 $ 44,652,000
- ------------------------------------------------------------------------
Office Depot, Inc.(a) 1,163,800 22,787,204
- ------------------------------------------------------------------------
Staples, Inc. 2,895,000 55,207,650
========================================================================
122,646,854
========================================================================
STEEL-1.14%
Nucor Corp. 600,000 30,660,000
- ------------------------------------------------------------------------
United States Steel Corp. 796,900 34,075,444
========================================================================
64,735,444
========================================================================
SYSTEMS SOFTWARE-3.99%
Adobe Systems Inc. 474,400 28,212,568
- ------------------------------------------------------------------------
McAfee Inc.(a) 1,000,000 20,910,000
- ------------------------------------------------------------------------
Microsoft Corp. 5,000,000 126,500,000
- ------------------------------------------------------------------------
Oracle Corp.(a) 4,438,800 51,312,528
========================================================================
226,935,096
========================================================================
TECHNOLOGY DISTRIBUTORS-0.77%
CDW Corp. 800,000 43,752,000
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.26%
UAP Holding Corp.(a) 1,021,100 14,693,629
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.75%
Nextel Communications, Inc.-Class A(a) 987,200 27,631,728
- ------------------------------------------------------------------------
Syniverse Holdings Inc.(a) 1,266,600 15,325,860
========================================================================
42,957,588
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $4,397,459,758) 5,582,904,568
========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
- -------------------------------------------------------------------------
PUT OPTIONS
PURCHASED-0.00%
INTERNET SOFTWARE &
SERVICES-0.00%
Google Inc.-Class A 2,504 $180 May-05 $ 37,560
- -------------------------------------------------------------------------
Yahoo! Inc. 16,250 30 May-05 121,875
=========================================================================
Total Put Options
Purchased (Cost
$2,939,040) 159,435
=========================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.54%
Liquid Assets Portfolio-Institutional
Class(f) 43,885,756 43,885,756
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 43,885,756 43,885,756
==========================================================================
Total Money Market Funds (Cost
$87,771,512) 87,771,512
==========================================================================
TOTAL INVESTMENTS-99.63% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$4,488,170,310) 5,670,835,515
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.69%
Liquid Assets Portfolio-Institutional
Class(f)(g) 2 2
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 38,996,778 38,996,778
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $38,996,780) 38,996,780
==========================================================================
TOTAL INVESTMENTS-100.32% (Cost
$4,527,167,090) 5,709,832,295
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.32%) (18,379,168)
==========================================================================
NET ASSETS-100.00% $5,691,453,127
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to
have control (as defined in the Investment Company Act of 1940) of that
issuer. The market value of this security at April 30, 2005 represented
0.11% of the Fund's Net Assets.
(d) Each unit represents one common share with paired trust share.
(e) Each unit represents one common share and one Class B share.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-291
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$4,394,419,464)* $ 5,576,912,643
- ------------------------------------------------------------
Investments in affiliates (cost
$132,747,626) 132,919,652
============================================================
Total investments (cost
$4,527,167,090) 5,709,832,295
============================================================
Receivables for:
Investments sold 101,291,425
- ------------------------------------------------------------
Fund shares sold 1,449,469
- ------------------------------------------------------------
Dividends 2,539,653
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 381,376
- ------------------------------------------------------------
Other assets 120,475
============================================================
Total assets 5,815,614,693
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 62,326,885
- ------------------------------------------------------------
Fund shares reacquired 15,717,121
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 999,652
- ------------------------------------------------------------
Collateral upon return of securities
loaned 38,996,780
- ------------------------------------------------------------
Accrued distribution fees 1,682,958
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 8,930
- ------------------------------------------------------------
Accrued transfer agent fees 3,747,717
- ------------------------------------------------------------
Accrued operating expenses 681,523
============================================================
Total liabilities 124,161,566
============================================================
Net assets applicable to shares outstanding $ 5,691,453,127
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 6,382,754,251
- ------------------------------------------------------------
Undistributed net investment income 1,640,148
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (1,875,606,477)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,182,665,205
============================================================
$ 5,691,453,127
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 4,875,650,421
____________________________________________________________
============================================================
Class B $ 542,849,216
____________________________________________________________
============================================================
Class C $ 135,737,907
____________________________________________________________
============================================================
Class R $ 7,273,813
____________________________________________________________
============================================================
Institutional Class $ 129,941,770
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 229,513,312
____________________________________________________________
============================================================
Class B 27,345,549
____________________________________________________________
============================================================
Class C 6,839,787
____________________________________________________________
============================================================
Class R 343,228
____________________________________________________________
============================================================
Institutional Class 5,639,934
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 21.24
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $21.24 divided by
94.50%) $ 22.48
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 19.85
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 19.85
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 21.19
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 23.04
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $38,055,509
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-292
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $67,357) $ 45,172,916
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $142,364 after rebates of
$4,903,339) 1,393,186
- ---------------------------------------------------------------------------
Interest 10,823
===========================================================================
Total investment income 46,576,925
===========================================================================
EXPENSES:
Advisory fees 19,936,223
- ---------------------------------------------------------------------------
Administrative services fees 338,055
- ---------------------------------------------------------------------------
Custodian fees 232,154
- ---------------------------------------------------------------------------
Distribution fees:
Class A 8,145,938
- ---------------------------------------------------------------------------
Class B 3,012,810
- ---------------------------------------------------------------------------
Class C 770,271
- ---------------------------------------------------------------------------
Class R 17,717
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 11,451,505
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 71,826
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 125,927
- ---------------------------------------------------------------------------
Other 624,384
===========================================================================
Total expenses 44,726,810
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (697,411)
===========================================================================
Net expenses 44,029,399
===========================================================================
Net investment income 2,547,526
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes gains from securities sold
to affiliates of $14,506,408) 293,774,554
- ---------------------------------------------------------------------------
Foreign currencies 538,963
===========================================================================
294,313,517
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (266,545,569)
- ---------------------------------------------------------------------------
Foreign currencies (38)
===========================================================================
(266,545,607)
===========================================================================
Net gain from investment securities and foreign currencies 27,767,910
===========================================================================
Net increase in net assets resulting from operations $ 30,315,436
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-293
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
===============================================================================================
OPERATIONS:
Net investment income (loss) $ 2,547,526 $ (49,011,984)
- -----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 294,313,517 750,199,227
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (266,545,607) (467,700,236)
===============================================================================================
Net increase in net assets resulting from operations 30,315,436 233,487,007
===============================================================================================
Share transactions-net:
Class A (768,061,208) (1,414,942,300)
- -----------------------------------------------------------------------------------------------
Class B (74,499,696) (88,166,720)
- -----------------------------------------------------------------------------------------------
Class C (27,428,925) (35,344,446)
- -----------------------------------------------------------------------------------------------
Class R 1,136,036 3,284,897
- -----------------------------------------------------------------------------------------------
Institutional Class (36,658,102) 4,128,631
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (905,511,895) (1,531,039,938)
===============================================================================================
Net increase (decrease) in net assets (875,196,459) (1,297,552,931)
===============================================================================================
NET ASSETS:
Beginning of period 6,566,649,586 7,864,202,517
===============================================================================================
End of period (including undistributed net investment
income (loss) of $1,640,148 and $(907,378),
respectively) $5,691,453,127 $ 6,566,649,586
_______________________________________________________________________________________________
===============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-294
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-295
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit
FS-296
from an increase in the value of the securities hedged. A risk in buying an
option is that the Fund pays a premium whether or not the option is
exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $30 million 1.00%
- ----------------------------------------------------------------------
Next $120 million 0.75%
- ----------------------------------------------------------------------
Over $150 million 0.625%
______________________________________________________________________
======================================================================
</Table>
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund based on the Fund's average daily net assets do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $150 million 0.75%
- ----------------------------------------------------------------------
Next $4.85 billion 0.615%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
______________________________________________________________________
======================================================================
</Table>
Under the terms of a master sub-advisory agreement between AIM and A I M
Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount
paid by the Fund to AIM.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $496,001.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $120,475 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $338,055.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $11,451,505 for Class A, Class B, Class C and Class R share
classes and $71,826 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R and Institutional Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.30% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to selected dealers and financial institutions who furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules impose a cap on the total sales charges,
including asset-based sales charges that may be paid by any class of shares of
the Fund. Pursuant to the Plans, for the six months ended April 30, 2005, the
Class A, Class B, Class C and Class R shares paid $8,145,938, $3,012,810,
$770,271 and $17,717, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During six months
ended April 30, 2005, ADI advised the Fund that it retained $296,082 in
front-end sales commissions from the sale of Class A shares and $3,902,
$119,082, $7,708 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or ADI.
FS-297
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 21,040,807 $ 586,477,578 $ (563,632,629) $ -- $ 43,885,756 $ 618,555 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 21,040,807 586,477,578 (563,632,629) -- 43,885,756 632,267 --
====================================================================================================================================
SUBTOTAL $ 42,081,614 $1,172,955,156 $(1,127,265,258) $ -- $ 87,771,512 $1,250,822 $ --
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 969,136,004 $ 898,782,312 $(1,867,918,314) $ -- $ 2 $ 112,977 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,938,485 762,611,137 (728,552,844) -- 38,996,778 29,387 --
====================================================================================================================================
SUBTOTAL $ 974,074,489 $1,661,393,449 $(2,596,471,158) $ -- $ 38,996,780 $ 142,364 $ --
====================================================================================================================================
</Table>
* Net of rebates.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund has
not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the six months
ended April 30, 2005.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Dolby
Laboratories
Inc.- Class A $ -- $ 5,979,335 $ -- $172,025 $ 6,151,360 $ -- $ --
====================================================================================================================================
TOTAL $1,016,156,103 $2,840,327,940 $(3,723,736,416) $172,025 $132,919,652 $1,393,186 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $28,568,696 and sales of $52,459,430,
which resulted in net realized gains of $14,506,408.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended April 30, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $80,935.
FS-298
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$13,342 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as
counsel to the Independent Trustees. A member of that firm is a Trustee of the
Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $38,055,509 were on
loan to brokers. The loans were secured by cash collateral of $38,996,780
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2005, the Fund received dividends on cash
collateral of $142,364 for securities lending transactions, which are net of
rebates.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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.
FS-299
The Fund had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $ 478,530,901
- ------------------------------------------------------------------------------
October 31, 2010 1,223,985,487
- ------------------------------------------------------------------------------
October 31, 2011 461,767,558
==============================================================================
Total capital loss carryforward $2,164,283,946
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $1,593,183,924 and $2,572,446,999, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,353,183,814
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (170,602,114)
==============================================================================
Net unrealized appreciation of investment securities $1,182,581,700
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $4,527,250,595.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,423,747 $ 164,532,085 21,730,966 $ 462,412,977
- ----------------------------------------------------------------------------------------------------------------------------
Class B 919,817 19,093,505 2,742,938 54,987,929
- ----------------------------------------------------------------------------------------------------------------------------
Class C 380,953 7,899,072 1,295,928 26,018,679
- ----------------------------------------------------------------------------------------------------------------------------
Class R 87,649 1,945,667 215,406 4,599,852
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 173,102 4,183,720 1,641,747 36,786,966
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 202,798 4,494,364 403,007 8,647,784
- ----------------------------------------------------------------------------------------------------------------------------
Class B (216,717) (4,494,364) (428,243) (8,647,784)
============================================================================================================================
Reacquired:
Class A (42,114,293) (937,087,657) (89,250,664) (1,886,003,061)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (4,288,080) (89,098,837) (6,761,489) (134,506,865)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (1,700,000) (35,327,997) (3,085,701) (61,363,125)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (36,395) (809,631) (61,955) (1,314,955)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (1,690,242) (40,841,822) (1,437,940) (32,658,335)
============================================================================================================================
(40,857,661) $(905,511,895) (72,996,000) $(1,531,039,938)
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 14% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund. AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these entities
are also owned beneficially.
FS-300
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50 $ 34.65
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.13)(b) (0.12)(b) (0.15)(b) (0.12) (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) (0.05) 0.79 3.53 (2.37) (16.24) 12.39
=================================================================================================================================
Total from investment operations (0.03) 0.66 3.41 (2.52) (16.36) 12.13
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 21.24 $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.14)% 3.20% 19.83% (12.78)% (43.10)% 36.56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,875,650 $5,616,072 $6,825,023 $6,780,055 $9,703,277 $19,268,977
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.32%(d) 1.27% 1.29% 1.26% 1.14% 1.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.34%(d) 1.29% 1.30% 1.27% 1.17% 1.11%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.15%(a)(d) (0.59)% (0.67)% (0.74)% (0.46)% (0.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 25% 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) 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 $(0.05) and (0.42)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$5,475,630,201.
(e) Not annualized for periods less than one year.
FS-301
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28 $ 34.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.26)(b) (0.23)(b) (0.27)(b) (0.28) (0.58)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.04) 0.75 3.33 (2.26) (15.69) 12.14
=================================================================================================================================
Total from investment operations (0.10) 0.49 3.10 (2.53) (15.97) 11.56
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 19.85 $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.50)% 2.52% 18.95% (13.39)% (43.49)% 35.51%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $542,849 $617,005 $688,587 $625,294 $818,343 $1,315,524
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.02%(d) 1.97% 1.99% 1.96% 1.86% 1.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.04%(d) 1.99% 2.00% 1.97% 1.89% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.55)%(a)(d) (1.29)% (1.37)% (1.44)% (1.17)% (1.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 25% 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.13) and (1.12)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$607,555,611.
(e) Not annualized for periods less than one year.
FS-302
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27 $ 33.99
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.26)(b) (0.23)(b) (0.27)(b) (0.29) (0.59)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) (0.03) 0.74 3.33 (2.25) (15.68) 12.15
=================================================================================================================================
Total from investment operations (0.09) 0.48 3.10 (2.52) (15.97) 11.56
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 19.85 $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) (0.45)% 2.47% 18.95% (13.35)% (43.51)% 35.52%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $135,738 $162,707 $193,585 $184,393 $258,786 $ 434,544
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.02%(d) 1.97% 1.99% 1.96% 1.86% 1.85%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.04%(d) 1.99% 2.00% 1.97% 1.89% 1.88%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.55)%(a)(d) (1.29)% (1.37)% (1.44)% (1.17)% (1.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 25% 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.13) and (1.12)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$155,330,883.
(e) Not annualized for periods less than one year.
FS-303
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ---------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $21.24 $20.63 $17.26 $ 19.82
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) (0.17)(b) (0.16)(b) (0.07)(b)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.05) 0.78 3.53 (2.49)
================================================================================================================
Total from investment operations (0.05) 0.61 3.37 (2.56)
================================================================================================================
Net asset value, end of period $21.19 $21.24 $20.63 $ 17.26
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) (0.24)% 2.96% 19.52% (12.92)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,274 $6,202 $2,857 $ 226
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.52%(d) 1.47% 1.49% 1.53%(e)
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.54%(d) 1.49% 1.50% 1.54%(e)
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.05)%(a)(d) (0.79)% (0.87)% (1.01)%(e)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(f) 25% 50% 47% 57%
________________________________________________________________________________________________________________
================================================================================================================
</Table>
(a) 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 $(0.07) and (0.62)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$7,145,464.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-304
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.01 $ 22.17 $ 18.40 $ 21.00 $ 45.55 $ 36.01
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(a) (0.01)(b) (0.03)(b) (0.06) 0.01 (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.06) 0.85 3.80 (2.54) (17.14) 12.91
=================================================================================================================================
Total from investment operations 0.03 0.84 3.77 (2.60) (17.13) 12.82
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42) (3.28)
=================================================================================================================================
Net asset value, end of period $ 23.04 $ 23.01 $ 22.17 $ 18.40 $ 21.00 $ 45.55
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.13% 3.79% 20.49% (12.38)% (42.80)% 37.14%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $129,942 $164,664 $154,150 $122,746 $150,609 $288,097
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.75%(d) 0.72% 0.75% 0.80% 0.65% 0.65%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.77%(d) 0.74% 0.76% 0.81% 0.68% 0.68%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.72%(a)(d) (0.04)% (0.13)% (0.28)% 0.03% (0.18)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 25% 50% 47% 57% 75% 88%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) 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 $0.02 and 0.15% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$144,798,872.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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
FS-305
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
Section 529 college savings plans and procedures for locating lost
securityholders. IFG, AIM and ADI are providing full cooperation with respect to
these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-306
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-89.08%
ADVERTISING-0.51%
Omnicom Group Inc. 14,000 $ 1,160,600
=========================================================================
AEROSPACE & DEFENSE-1.97%
Raytheon Co. 95,900 3,606,799
- -------------------------------------------------------------------------
United Technologies Corp. 8,400 854,448
=========================================================================
4,461,247
=========================================================================
APPAREL RETAIL-2.55%
Limited Brands, Inc. 141,000 3,058,290
- -------------------------------------------------------------------------
TJX Cos., Inc. (The) 119,300 2,702,145
=========================================================================
5,760,435
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.19%
V. F. Corp. 47,500 2,688,025
=========================================================================
APPLICATION SOFTWARE-0.74%
SAP A.G.-ADR (Germany) 42,500 1,675,804
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.47%
Federated Investors, Inc.-Class B 94,600 2,691,370
- -------------------------------------------------------------------------
State Street Corp. 62,600 2,893,998
=========================================================================
5,585,368
=========================================================================
AUTO PARTS & EQUIPMENT-1.35%
Johnson Controls, Inc. 55,500 3,045,285
=========================================================================
BREWERS-1.05%
Anheuser-Busch Cos., Inc. 50,800 2,380,996
=========================================================================
BUILDING PRODUCTS-0.79%
Masco Corp. 56,700 1,785,483
=========================================================================
COMPUTER HARDWARE-2.46%
Hewlett-Packard Co. 132,200 2,706,134
- -------------------------------------------------------------------------
International Business Machines Corp. 37,400 2,856,612
=========================================================================
5,562,746
=========================================================================
CONSTRUCTION & ENGINEERING-0.69%
Fluor Corp. 30,400 1,567,424
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.93%
Automatic Data Processing, Inc. 47,300 2,054,712
- -------------------------------------------------------------------------
First Data Corp. 60,400 2,297,012
=========================================================================
4,351,724
=========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
DISTRIBUTORS-1.07%
Genuine Parts Co. 56,600 $ 2,428,140
=========================================================================
DIVERSIFIED BANKS-2.67%
Bank of America Corp. 42,200 1,900,688
- -------------------------------------------------------------------------
U.S. Bancorp 101,400 2,829,060
- -------------------------------------------------------------------------
Wachovia Corp. 25,500 1,305,090
=========================================================================
6,034,838
=========================================================================
DIVERSIFIED CHEMICALS-1.36%
Dow Chemical Co. (The) 21,700 996,681
- -------------------------------------------------------------------------
PPG Industries, Inc. 30,600 2,067,030
=========================================================================
3,063,711
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.45%
H&R Block, Inc. 41,500 2,067,115
- -------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 66,100 1,217,562
=========================================================================
3,284,677
=========================================================================
ELECTRIC UTILITIES-1.56%
Entergy Corp. 20,500 1,502,650
- -------------------------------------------------------------------------
Exelon Corp. 40,900 2,024,550
=========================================================================
3,527,200
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.21%
Cooper Industries, Ltd.-Class A (Bermuda) 21,900 1,394,154
- -------------------------------------------------------------------------
Emerson Electric Co. 57,500 3,603,525
=========================================================================
4,997,679
=========================================================================
FOOTWEAR-0.50%
NIKE, Inc.-Class B 14,700 1,129,107
=========================================================================
HEALTH CARE EQUIPMENT-3.55%
Baxter International Inc. 90,700 3,364,970
- -------------------------------------------------------------------------
Becton, Dickinson & Co. 14,500 848,540
- -------------------------------------------------------------------------
Medtronic, Inc. 72,200 3,804,940
=========================================================================
8,018,450
=========================================================================
HOME IMPROVEMENT RETAIL-1.45%
Home Depot, Inc. (The) 92,400 3,268,188
=========================================================================
HOUSEHOLD APPLIANCES-1.38%
Snap-on Inc. 94,100 3,121,297
=========================================================================
HOUSEHOLD PRODUCTS-2.02%
Colgate-Palmolive Co. 51,100 2,544,269
- -------------------------------------------------------------------------
</Table>
FS-307
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-(CONTINUED)
Kimberly-Clark Corp. 32,400 $ 2,023,380
=========================================================================
4,567,649
=========================================================================
INDUSTRIAL MACHINERY-1.96%
Ingersoll-Rand Co. Ltd.-Class A (Bermuda) 23,400 1,798,758
- -------------------------------------------------------------------------
Pentair, Inc. 66,300 2,637,414
=========================================================================
4,436,172
=========================================================================
INSURANCE BROKERS-0.63%
Marsh & McLennan Cos., Inc. 51,200 1,435,136
=========================================================================
INTEGRATED OIL & GAS-4.73%
ConocoPhillips 21,400 2,243,790
- -------------------------------------------------------------------------
Eni S.p.A. (Italy)(a) 54,800 1,377,971
- -------------------------------------------------------------------------
Exxon Mobil Corp. 31,600 1,802,148
- -------------------------------------------------------------------------
Occidental Petroleum Corp. 46,700 3,222,300
- -------------------------------------------------------------------------
TOTAL S.A. (France)(a) 9,150 2,034,682
=========================================================================
10,680,891
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.33%
BellSouth Corp. 100,700 2,667,543
- -------------------------------------------------------------------------
SBC Communications Inc. 109,000 2,594,200
=========================================================================
5,261,743
=========================================================================
INVESTMENT BANKING & BROKERAGE-1.38%
Morgan Stanley 59,300 3,120,366
=========================================================================
LIFE & HEALTH INSURANCE-0.35%
Prudential Financial, Inc. 13,700 782,955
=========================================================================
MULTI-LINE INSURANCE-1.17%
Hartford Financial Services Group, Inc. (The) 36,400 2,634,268
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-3.12%
Dominion Resources, Inc. 45,600 3,438,240
- -------------------------------------------------------------------------
Public Service Enterprise Group Inc. 42,200 2,451,820
- -------------------------------------------------------------------------
Wisconsin Energy Corp. 33,100 1,167,106
=========================================================================
7,057,166
=========================================================================
OFFICE SERVICES & SUPPLIES-1.36%
Pitney Bowes Inc. 68,500 3,063,320
=========================================================================
OIL & GAS DRILLING-1.28%
GlobalSantaFe Corp. (Cayman Islands) 86,100 2,892,960
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.72%
Citigroup Inc. 82,800 3,888,288
=========================================================================
PACKAGED FOODS & MEATS-2.24%
General Mills, Inc. 72,800 3,596,320
- -------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
PACKAGED FOODS & MEATS-(CONTINUED)
Sara Lee Corp. 69,000 $ 1,475,910
=========================================================================
5,072,230
=========================================================================
PAPER PACKAGING-1.70%
Bemis Co., Inc. 95,300 2,626,468
- -------------------------------------------------------------------------
Sonoco Products Co. 44,800 1,213,632
=========================================================================
3,840,100
=========================================================================
PHARMACEUTICALS-9.76%
Abbott Laboratories 86,300 4,242,508
- -------------------------------------------------------------------------
Bristol-Myers Squibb Co. 70,700 1,838,200
- -------------------------------------------------------------------------
Johnson & Johnson 55,300 3,795,239
- -------------------------------------------------------------------------
Lilly (Eli) & Co. 64,800 3,788,856
- -------------------------------------------------------------------------
Merck & Co. Inc. 54,600 1,850,940
- -------------------------------------------------------------------------
Pfizer Inc. 109,900 2,985,983
- -------------------------------------------------------------------------
Wyeth 79,200 3,559,248
=========================================================================
22,060,974
=========================================================================
PROPERTY & CASUALTY INSURANCE-3.23%
Chubb Corp. (The) 14,200 1,161,276
- -------------------------------------------------------------------------
MBIA Inc. 44,300 2,320,434
- -------------------------------------------------------------------------
SAFECO Corp. 29,100 1,532,697
- -------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 63,700 2,280,460
=========================================================================
7,294,867
=========================================================================
PUBLISHING-1.65%
Gannett Co., Inc. 48,300 3,719,100
=========================================================================
REGIONAL BANKS-4.16%
Cullen/Frost Bankers, Inc. 50,400 2,183,328
- -------------------------------------------------------------------------
Fifth Third Bancorp 79,800 3,471,300
- -------------------------------------------------------------------------
KeyCorp 27,700 918,532
- -------------------------------------------------------------------------
North Fork Bancorp., Inc. 100,300 2,823,445
=========================================================================
9,396,605
=========================================================================
RESTAURANTS-1.16%
Outback Steakhouse, Inc. 64,700 2,613,880
=========================================================================
SEMICONDUCTORS-1.85%
Linear Technology Corp. 76,100 2,719,814
- -------------------------------------------------------------------------
Texas Instruments Inc. 58,800 1,467,648
=========================================================================
4,187,462
=========================================================================
SOFT DRINKS-0.84%
PepsiCo, Inc. 34,200 1,902,888
=========================================================================
SPECIALTY CHEMICALS-0.89%
Ecolab Inc. 61,200 2,001,852
=========================================================================
SYSTEMS SOFTWARE-1.73%
Microsoft Corp. 154,300 3,903,790
=========================================================================
</Table>
FS-308
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-1.28%
Fannie Mae 53,700 $ 2,897,115
=========================================================================
TOBACCO-1.64%
Altria Group, Inc. 56,900 3,697,931
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $188,882,699) 201,308,132
=========================================================================
<Caption>
PRINCIPAL
AMOUNT
NOTES-0.15%
AEROSPACE & DEFENSE-0.04%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(b) $ 75,000 80,255
=========================================================================
ELECTRIC UTILITIES-0.07%
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05(b) 160,000 163,231
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.04%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(b) 100,000 99,507
=========================================================================
Total Notes (Cost $345,297) 342,993
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY SECURITIES-2.64%
U.S. TREASURY BONDS-1.32%
U.S. Treasury Bonds 3.38%, 02/28/07(b) $ 3,000,000 $ 2,986,890
=========================================================================
U.S. TREASURY NOTES-1.32%
U.S. Treasury Notes 3.38%, 02/15/08(b) 3,000,000 2,973,750
=========================================================================
Total U.S. Treasury Securities (Cost
$5,946,516) 5,960,640
=========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-9.40%
Liquid Assets Portfolio-Institutional
Class(c) 10,617,292 10,617,292
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 10,617,292 10,617,292
=========================================================================
Total Money Market Funds (Cost
$21,234,584) 21,234,584
=========================================================================
TOTAL INVESTMENTS-101.27% (Cost $216,409,096) 228,846,349
=========================================================================
OTHER ASSETS LESS LIABILITIES-(1.27%) (2,867,332)
=========================================================================
NET ASSETS-100.00% $225,979,017
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market
prices. The aggregate market value of these securities at April 30, 2005
was $3,412,653, which represented 1.49% of the Fund's Total Investments.
See Note 1A.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an
independent pricing service. The aggregate market value of these
securities at April 30, 2005 was $6,303,633, which represented 2.75% of
the Fund's Total Investments. See Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-309
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$195,174,512) $207,611,765
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $21,234,584) 21,234,584
===========================================================
Total Investments (Cost $216,409,096) 228,846,349
===========================================================
Receivables for:
Fund shares sold 1,210,353
- -----------------------------------------------------------
Dividends and interest 345,364
- -----------------------------------------------------------
Amount due from advisor 11,600
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 9,468
- -----------------------------------------------------------
Other assets 43,738
===========================================================
Total assets 230,466,872
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 3,723,382
- -----------------------------------------------------------
Fund shares reacquired 539,581
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 11,342
- -----------------------------------------------------------
Accrued distribution fees 113,661
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,348
- -----------------------------------------------------------
Accrued transfer agent fees 62,910
- -----------------------------------------------------------
Accrued operating expenses 35,631
===========================================================
Total liabilities 4,487,855
===========================================================
Net assets applicable to shares outstanding $225,979,017
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $211,394,141
- -----------------------------------------------------------
Undistributed net investment income (11,634)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
futures contracts and option contracts 2,159,257
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 12,437,253
===========================================================
$225,979,017
___________________________________________________________
===========================================================
NET ASSETS:
Class A $122,983,450
___________________________________________________________
===========================================================
Class B $ 72,925,778
___________________________________________________________
===========================================================
Class C $ 30,069,789
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,367,511
___________________________________________________________
===========================================================
Class B 6,201,486
___________________________________________________________
===========================================================
Class C 2,560,358
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.86
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.86 divided by
94.50%) $ 12.55
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.76
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.74
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-310
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $2,260) $2,069,949
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 173,605
- ------------------------------------------------------------------------
Interest 37,547
========================================================================
Total investment income 2,281,101
========================================================================
EXPENSES:
Advisory fees 642,106
- ------------------------------------------------------------------------
Administrative services fees 24,795
- ------------------------------------------------------------------------
Custodian fees 15,176
- ------------------------------------------------------------------------
Distribution fees:
Class A 156,752
- ------------------------------------------------------------------------
Class B 294,641
- ------------------------------------------------------------------------
Class C 113,637
- ------------------------------------------------------------------------
Transfer agent fees 153,444
- ------------------------------------------------------------------------
Trustees' and officer's fees and benefits 9,588
- ------------------------------------------------------------------------
Other 92,468
========================================================================
Total expenses 1,502,607
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (379,181)
========================================================================
Net expenses 1,123,426
========================================================================
Net investment income 1,157,675
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 2,180,972
- ------------------------------------------------------------------------
Foreign currencies 3,267
- ------------------------------------------------------------------------
Futures contracts 75,143
- ------------------------------------------------------------------------
Option contracts written 78,340
========================================================================
2,337,722
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 3,187,353
- ------------------------------------------------------------------------
Futures contracts (9,390)
========================================================================
3,177,963
========================================================================
Net gain from investment securities, foreign currencies,
futures contracts and option contracts 5,515,685
========================================================================
Net increase in net assets resulting from operations $6,673,360
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-311
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,157,675 $ 742,750
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 2,337,722 3,210,309
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 3,177,963 4,353,104
==========================================================================================
Net increase in net assets resulting from operations 6,673,360 8,306,163
==========================================================================================
Distributions to shareholders from net investment income:
Class A (744,578) (500,393)
- ------------------------------------------------------------------------------------------
Class B (301,612) (204,810)
- ------------------------------------------------------------------------------------------
Class C (114,216) (63,792)
==========================================================================================
Total distributions from net investment income (1,160,406) (768,995)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (1,261,432) --
- ------------------------------------------------------------------------------------------
Class B (887,849) --
- ------------------------------------------------------------------------------------------
Class C (318,378) --
==========================================================================================
Total distributions from net realized gains (2,467,659) --
==========================================================================================
Decrease in net assets resulting from distributions (3,628,065) (768,995)
==========================================================================================
Share transactions-net:
Class A 57,986,046 37,536,817
- ------------------------------------------------------------------------------------------
Class B 26,003,571 21,106,883
- ------------------------------------------------------------------------------------------
Class C 14,414,920 8,543,492
==========================================================================================
Net increase in net assets resulting from share
transactions 98,404,537 67,187,192
==========================================================================================
Net increase in net assets 101,449,832 74,724,360
==========================================================================================
NET ASSETS:
Beginning of period 124,529,185 49,804,825
==========================================================================================
End of period (including undistributed net investment
income of $(11,634) and $(8,903), respectively) $225,979,017 $124,529,185
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-312
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary investment objective of current income. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-313
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are received or
made depending upon whether unrealized gains or losses are incurred. When
the contracts
FS-314
are closed, the Fund recognizes a realized gain or loss equal to the
difference between the proceeds from, or cost of, the closing transaction
and the Fund's basis in the contract. If the Fund were unable to liquidate
a futures contract and/or enter into an offsetting closing transaction, the
Fund would continue to be subject to market risk with respect to the value
of the contracts and continue to be required to maintain the margin
deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.75%
- --------------------------------------------------------------------
Next $1 billion 0.70%
- --------------------------------------------------------------------
Over $2 billion 0.625%
____________________________________________________________________
====================================================================
</Table>
Effective January 1, 2005 through June 30, 2006, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund based on the Fund's average daily net assets do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.695%
- --------------------------------------------------------------------
Next $250 million 0.67%
- --------------------------------------------------------------------
Next $500 million 0.645%
- --------------------------------------------------------------------
Next $1.5 billion 0.62%
- --------------------------------------------------------------------
Next $2.5 billion 0.595%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Over $10 billion 0.52%
____________________________________________________________________
====================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B and Class C shares to 1.00%,
1.65% and 1.65% of average daily net assets, respectively. AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of Class A, Class B and Class C shares to 1.50%, 2.15% and 2.15% of
average daily net assets, respectively, through October 31, 2005. In determining
the advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the total annual
fund operating expenses to exceed the limits stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the only expense offset arrangements from which the Fund may
benefit are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market. AIM is
also voluntarily waiving a portion of the advisory fee payable by the Fund equal
to the difference between the income earned from investing in the affiliated
money market fund and the hypothetical income earned from investing in an
appropriate comparative benchmark. Voluntary fee waivers or reimbursements may
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $375,928.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP agreed to reimburse $1,433 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $24,795.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $153,444.
FS-315
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B
and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Of these amounts, up to 0.25% of the average daily net assets of the
Class A, Class B or Class C shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules impose a cap on the total sales charges,
including asset-based sales charges that may be paid by any class of shares of
the Fund. Pursuant to the Plans, for the six months ended April 30, 2005, the
Class A, Class B and Class C shares paid $156,752, $294,641 and $113,637
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $77,637 in
front-end sales commissions from the sale of Class A shares and $3,249, $20,253
and $1,339 from Class A, Class B and Class C shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees, to
invest daily available cash balances in affiliated money market funds. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the six months
ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 8,365,886 $22,196,490 $(19,945,084) $ -- $10,617,292 $ 86,034 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 8,365,886 22,196,490 (19,945,084) -- 10,617,292 87,571 --
==================================================================================================================================
Total $16,731,772 $44,392,980 $(39,890,168) $ -- $21,234,584 $173,605 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $393,147 and sales of $0, which resulted
in net realized gain (loss) of $0.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $1,820.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
FS-316
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$2,089 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of period -- $ --
- -----------------------------------------------------------------------------------
Written 1,319 116,594
- -----------------------------------------------------------------------------------
Closed (1,083) (93,157)
- -----------------------------------------------------------------------------------
Exercised (236) (23,437)
===================================================================================
End of period -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund did not have a capital loss carryforward as of October 31, 2004.
FS-317
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $99,739,755 and $10,367,635, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $16,304,992
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,018,218)
===============================================================================
Net unrealized appreciation of investment securities $12,286,774
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $216,559,575.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain circumstances, Class A shares are subject to CDSC. Generally, Class B
shares will automatically convert to Class A shares eight years after the end of
the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,604,962 $ 67,184,534 4,322,865 $ 48,449,001
- ----------------------------------------------------------------------------------------------------------------------
Class B 2,909,016 34,579,161 2,496,183 27,796,432
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,395,359 16,564,227 891,143 9,870,802
======================================================================================================================
Issued as reinvestment of dividends:
Class A 156,144 1,861,646 41,472 465,571
- ----------------------------------------------------------------------------------------------------------------------
Class B 91,265 1,078,872 16,701 185,244
- ----------------------------------------------------------------------------------------------------------------------
Class C 34,015 401,510 5,270 58,491
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 196,320 2,348,312 186,137 2,093,587
- ----------------------------------------------------------------------------------------------------------------------
Class B (197,993) (2,348,312) (187,728) (2,093,587)
======================================================================================================================
Reacquired:
Class A (1,121,645) (13,408,446) (1,198,931) (13,471,342)
- ----------------------------------------------------------------------------------------------------------------------
Class B (615,674) (7,306,150) (432,094) (4,781,206)
- ----------------------------------------------------------------------------------------------------------------------
Class C (216,169) (2,550,817) (125,008) (1,385,801)
======================================================================================================================
8,235,600 $ 98,404,537 6,016,010 $ 67,187,192
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 12--SIGNIFICANT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on March 22,
2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Buying Fund") a series of Buyer, would acquire all of the
assets of AIM Core Stock Fund ("Selling Fund"), a series of AIM Combination
Stock & Bond Funds ("the Reorganization"). Upon closing of the transaction,
shareholders of Selling Fund will receive a corresponding class of shares of
Buying Fund in exchange for their shares of Selling Fund, and Selling Fund will
cease operations.
The Agreement requires approval of Selling Fund shareholders. The Fund
currently intends to submit the Agreement to the shareholders for their
consideration at a meeting to be held on or around June 28, 2005. Additional
information regarding the Agreement will be included in proxy materials to be
mailed to shareholders for consideration. If the Agreement is approved by the
shareholders of Selling Fund and certain conditions required by the Agreement
are satisfied, the transaction is expected to become effective shortly
thereafter.
FS-318
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-----------------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------ OCTOBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.48 $ 10.26 $ 8.70 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(a) 0.14 0.06(b) (0.03)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.59 1.23 1.54 (1.27)
=========================================================================================================================
Total from investment operations 0.69 1.37 1.60 (1.30)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.15) (0.04) --
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
=========================================================================================================================
Total distributions (0.31) (0.15) (0.04) --
=========================================================================================================================
Net asset value, end of period $ 11.86 $ 11.48 $ 10.26 $ 8.70
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 5.98% 13.36% 18.39% (13.00)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,983 $63,513 $22,375 $ 7,834
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.00%(d) 1.00% 1.51% 1.75%(e)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.45%(d) 1.70% 2.12% 4.26%(e)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets 1.66%(a)(d) 1.27% 0.65% (0.34)%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(f) 7% 30% 72% 42%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.09 and 1.38%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$90,314,821.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-319
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------ OCTOBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.38 $ 10.17 $ 8.65 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.07 0.00(b) (0.08)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.59 1.21 1.53 (1.27)
=========================================================================================================================
Total from investment operations 0.65 1.28 1.53 (1.35)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.06) (0.07) (0.01) --
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
=========================================================================================================================
Total distributions (0.27) (0.07) (0.01) --
=========================================================================================================================
Net asset value, end of period $ 11.76 $ 11.38 $ 10.17 $ 8.65
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 5.67% 12.63% 17.67% (13.50)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,926 $45,700 $21,582 $ 7,100
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(d) 1.65% 2.16% 2.40%(e)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(d) 2.35% 2.77% 4.91%(e)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets 1.01%(a)(d) 0.62% 0.00% (0.99)%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(f) 7% 30% 72% 42%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.05 and 0.73%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$59,416,500.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-320
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------
DECEMBER 31, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ----------------- OCTOBER 31,
2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.37 $ 10.16 $ 8.65 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.07 0.00(b) (0.08)(b)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.58 1.21 1.52 (1.27)
========================================================================================================================
Total from investment operations 0.64 1.28 1.52 (1.35)
========================================================================================================================
Less distributions:
Dividends from net investment income (0.06) (0.07) (0.01) --
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
========================================================================================================================
Total distributions (0.27) (0.07) (0.01) --
========================================================================================================================
Net asset value, end of period $ 11.74 $ 11.37 $10.16 $ 8.65
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) 5.59% 12.64% 17.55% (13.50)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $30,070 $15,316 $5,848 $ 1,116
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(d) 1.65% 2.16% 2.40%(e)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.10%(d) 2.35% 2.77% 4.91%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets 1.01%(a)(d) 0.62% 0.00% (0.99)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 7% 30% 72% 42%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.05 and 0.73%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$22,915,866.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
FS-321
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-322
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.87%
ADVERTISING-4.96%
Interpublic Group of Cos., Inc. (The)(a) 562,200 $ 7,229,892
- -----------------------------------------------------------------------
Omnicom Group Inc. 137,600 11,407,040
=======================================================================
18,636,932
=======================================================================
AEROSPACE & DEFENSE-1.53%
Honeywell International Inc. 160,300 5,732,328
=======================================================================
ALUMINUM-1.33%
Alcoa Inc. 171,500 4,976,930
=======================================================================
APPAREL RETAIL-1.68%
Gap, Inc. (The) 295,700 6,313,195
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.95%
Bank of New York Co., Inc. (The) 262,600 7,337,044
=======================================================================
BUILDING PRODUCTS-1.97%
Masco Corp. 235,200 7,406,448
=======================================================================
COMMUNICATIONS EQUIPMENT-0.87%
Motorola, Inc. 213,200 3,270,488
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.81%
Deere & Co. 48,800 3,051,952
=======================================================================
CONSUMER ELECTRONICS-3.07%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 191,970 4,758,936
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 184,700 6,780,337
=======================================================================
11,539,273
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.04%
Ceridian Corp.(a) 291,700 4,920,979
- -----------------------------------------------------------------------
First Data Corp. 269,700 10,256,691
=======================================================================
15,177,670
=======================================================================
DIVERSIFIED CHEMICALS-0.67%
Dow Chemical Co. (The) 54,600 2,507,778
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.31%
Cendant Corp. 435,600 8,672,796
=======================================================================
ENVIRONMENTAL SERVICES-2.86%
Waste Management, Inc. 376,550 10,727,910
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
FOOD RETAIL-3.07%
Kroger Co. (The)(a) 404,600 $ 6,380,542
- -----------------------------------------------------------------------
Safeway Inc.(a) 240,800 5,126,632
=======================================================================
11,507,174
=======================================================================
GENERAL MERCHANDISE STORES-2.07%
Target Corp. 167,600 7,776,640
=======================================================================
HEALTH CARE DISTRIBUTORS-6.18%
Cardinal Health, Inc. 264,600 14,703,822
- -----------------------------------------------------------------------
McKesson Corp. 230,100 8,513,700
=======================================================================
23,217,522
=======================================================================
HEALTH CARE EQUIPMENT-1.64%
Baxter International Inc. 165,800 6,151,180
=======================================================================
HEALTH CARE FACILITIES-2.51%
HCA Inc. 168,400 9,403,456
=======================================================================
INDUSTRIAL CONGLOMERATES-5.89%
General Electric Co. 225,500 8,163,100
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 445,800 13,957,998
=======================================================================
22,121,098
=======================================================================
INDUSTRIAL MACHINERY-2.07%
Illinois Tool Works Inc. 92,515 7,754,607
=======================================================================
INVESTMENT BANKING & BROKERAGE-3.98%
Merrill Lynch & Co., Inc. 123,800 6,676,534
- -----------------------------------------------------------------------
Morgan Stanley 157,000 8,261,340
=======================================================================
14,937,874
=======================================================================
MANAGED HEALTH CARE-3.23%
WellPoint, Inc.(a) 95,000 12,136,250
=======================================================================
MOVIES & ENTERTAINMENT-2.50%
Walt Disney Co. (The) 356,100 9,401,040
=======================================================================
MULTI-LINE INSURANCE-2.19%
Hartford Financial Services Group, Inc. (The) 113,600 8,221,232
=======================================================================
OIL & GAS DRILLING-2.54%
Transocean Inc. (Cayman Islands)(a) 205,377 9,523,332
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-4.84%
Halliburton Co. 257,100 10,692,789
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 109,100 7,463,531
=======================================================================
18,156,320
=======================================================================
</Table>
FS-323
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.41%
Citigroup Inc. 275,619 $ 12,943,068
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 313,356 11,121,004
=======================================================================
24,064,072
=======================================================================
PACKAGED FOODS & MEATS-3.02%
Kraft Foods Inc.-Class A 170,300 5,519,423
- -----------------------------------------------------------------------
Unilever N.V. (Netherlands)(b) 90,300 5,811,540
=======================================================================
11,330,963
=======================================================================
PHARMACEUTICALS-8.14%
Pfizer Inc. 320,700 8,713,419
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 159,452 14,119,923
- -----------------------------------------------------------------------
Wyeth 172,300 7,743,162
=======================================================================
30,576,504
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.31%
ACE Ltd. (Cayman Islands) 201,800 8,669,328
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-2.93%
Computer Associates International, Inc. 408,499 $ 10,988,623
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.30%
Fannie Mae 168,300 9,079,785
- -----------------------------------------------------------------------
Freddie Mac 54,000 3,322,080
=======================================================================
12,401,865
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $302,771,714) 363,689,824
=======================================================================
MONEY MARKET FUNDS-3.06%
Liquid Assets Portfolio-Institutional
Class(c) 5,736,779 5,736,779
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 5,736,779 5,736,779
=======================================================================
Total Money Market Funds (Cost
$11,473,558) 11,473,558
=======================================================================
TOTAL INVESTMENTS-99.93% (Cost $314,245,272) 375,163,382
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.07% 275,719
=======================================================================
NET ASSETS-100.00% $375,439,101
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at April 30, 2005 was
$19,931,463, which represented 5.31% of the Fund's Total Investments. See
Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
FS-324
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$302,771,714) $363,689,824
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $11,473,558) 11,473,558
===========================================================
Total Investments (Cost $314,245,272) 375,163,382
===========================================================
Receivables for:
Fund shares sold 745,253
- -----------------------------------------------------------
Dividends 500,618
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 51,360
- -----------------------------------------------------------
Other assets 89,417
===========================================================
Total assets 376,550,030
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 704,724
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 68,018
- -----------------------------------------------------------
Accrued distribution fees 150,246
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,524
- -----------------------------------------------------------
Accrued transfer agent fees 147,023
- -----------------------------------------------------------
Accrued operating expenses 39,394
===========================================================
Total liabilities 1,110,929
===========================================================
Net assets applicable to shares outstanding $375,439,101
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $333,357,486
- -----------------------------------------------------------
Undistributed net investment income (loss) (89,162)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (18,747,333)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 60,918,110
===========================================================
$375,439,101
___________________________________________________________
===========================================================
NET ASSETS:
Class A $140,880,232
___________________________________________________________
===========================================================
Class B $ 77,068,743
___________________________________________________________
===========================================================
Class C $ 30,095,298
___________________________________________________________
===========================================================
Class R $ 1,194,675
___________________________________________________________
===========================================================
Investor Class $ 65,423,626
___________________________________________________________
===========================================================
Institutional Class $ 60,776,527
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,773,984
___________________________________________________________
===========================================================
Class B 6,079,460
___________________________________________________________
===========================================================
Class C 2,374,129
___________________________________________________________
===========================================================
Class R 91,810
___________________________________________________________
===========================================================
Investor Class 4,995,913
___________________________________________________________
===========================================================
Institutional Class 4,622,747
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.08
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.08 divided by
94.50%) $ 13.84
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.68
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.68
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 13.01
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 13.10
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 13.15
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-325
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $26,330) $ 2,699,471
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $8,916 after rebates of
$35,363) 128,259
=========================================================================
Total investment income 2,827,730
=========================================================================
EXPENSES:
Advisory fees 1,138,942
- -------------------------------------------------------------------------
Administrative services fees 68,454
- -------------------------------------------------------------------------
Custodian fees 18,994
- -------------------------------------------------------------------------
Distribution fees:
Class A 261,313
- -------------------------------------------------------------------------
Class B 419,614
- -------------------------------------------------------------------------
Class C 156,005
- -------------------------------------------------------------------------
Class R 2,922
- -------------------------------------------------------------------------
Investor Class 87,870
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R and Investor 524,634
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,667
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 13,448
- -------------------------------------------------------------------------
Other 174,643
=========================================================================
Total expenses 2,868,506
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (8,667)
=========================================================================
Net expenses 2,859,839
=========================================================================
Net investment income (loss) (32,109)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 1,821,318
- -------------------------------------------------------------------------
Foreign currencies (19,436)
=========================================================================
1,801,882
=========================================================================
Change in net unrealized appreciation of Investment
securities 19,319,428
=========================================================================
Net gain from investment securities and foreign currencies 21,121,310
=========================================================================
Net increase in net assets resulting from operations $21,089,201
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-326
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (32,109) $ (318,275)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 1,801,882 12,500,527
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 19,319,428 13,417,119
==========================================================================================
Net increase in net assets resulting from operations 21,089,201 25,599,371
==========================================================================================
Share transactions-net:
Class A (18,270,630) 18,535,871
- ------------------------------------------------------------------------------------------
Class B (12,647,890) (1,304,921)
- ------------------------------------------------------------------------------------------
Class C (2,437,776) 2,160,392
- ------------------------------------------------------------------------------------------
Class R 147,432 365,393
- ------------------------------------------------------------------------------------------
Investor Class (9,401,985) 62,887,146
- ------------------------------------------------------------------------------------------
Institutional Class 40,755,289 18,632,135
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,855,560) 101,276,016
==========================================================================================
Net increase in net assets 19,233,641 126,875,387
==========================================================================================
NET ASSETS:
Beginning of period 356,205,460 229,330,073
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(89,162) and $(57,053), respectively) $375,439,101 $356,205,460
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-327
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-328
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $1 billion 0.60%
- ----------------------------------------------------------------------
Next $1 billion 0.575%
- ----------------------------------------------------------------------
Over $2 billion 0.55%
______________________________________________________________________
======================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate
FS-329
comparative benchmark. Voluntary fee waivers or reimbursements may be modified
or discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $1,251.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $2,910 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $68,454.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $524,634 for Class A, Class B, Class C, Class R and Investor
Class share classes and $1,667 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R, Investor Class and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect
to the Fund's Class A, Class B, Class C, Class R and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% 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 these amounts, up to 0.25%
of the average daily net assets of the Class A, Class B, Class C, Class R or
Investor Class shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the six months ended April 30, 2005, the Class A,
Class B, Class C, Class R and Investor Class shares paid $261,313, $419,614,
$156,005, $2,922, $87,870, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $28,704 in
front-end sales commissions from the sale of Class A shares and $30, $16,357,
$2,041 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
FS-330
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 3,790,466 $21,764,963 $(19,818,650) $ -- $ 5,736,779 $ 59,148 $ --
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,790,466 21,764,963 (19,818,650) -- 5,736,779 60,195 --
==========================================================================================================================
SUBTOTAL $ 7,580,932 $43,529,926 $(39,637,300) $ -- $11,473,558 $119,343 $ --
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $ 7,196,450 $31,235,303 $(38,431,753) $ -- $ -- $ 8,916 $ --
==========================================================================================================================
TOTAL $14,777,382 $74,765,229 $(78,069,053) $ -- $11,473,558 $128,259 $ --
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Net of rebates
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $4,506.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$2,501 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
FS-331
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, there were no securities on loan to brokers. For the six
months ended April 30, 2005, the Fund received dividends on cash collateral of
$8,916 for securities lending transactions, which are net of rebates.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2010 $ 9,120,472
- -----------------------------------------------------------------------------
October 31, 2011 9,531,242
=============================================================================
Total capital loss carryforward $18,651,714
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $16,952,459 and $24,305,793, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 72,261,886
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,199,749)
==============================================================================
Net unrealized appreciation of investment securities $ 59,062,137
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $316,101,245.
</Table>
FS-332
NOTE 10--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING (A)(B)
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,329,019 $ 17,541,983 4,797,896 $ 59,721,792
- ----------------------------------------------------------------------------------------------------------------------
Class B 445,547 5,713,018 1,918,978 23,316,127
- ----------------------------------------------------------------------------------------------------------------------
Class C 278,358 3,587,900 753,705 9,128,932
- ----------------------------------------------------------------------------------------------------------------------
Class R 27,239 358,135 54,757 677,970
- ----------------------------------------------------------------------------------------------------------------------
Investor Class 392,698 5,210,814 1,838,069 22,849,380
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) 3,283,721 43,083,544 1,526,455 18,788,116
======================================================================================================================
Issued in connection with acquisitions(d)
Class A -- -- 23,582 268,604
- ----------------------------------------------------------------------------------------------------------------------
Class B -- -- 31,404 350,200
- ----------------------------------------------------------------------------------------------------------------------
Class C -- -- 100,704 1,122,781
- ----------------------------------------------------------------------------------------------------------------------
Investor Class -- -- 7,662,600 87,273,020
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 221,997 2,936,727 467,293 5,834,860
- ----------------------------------------------------------------------------------------------------------------------
Class B (228,630) (2,936,727) (478,951) (5,834,860)
======================================================================================================================
Reacquired:
Class A (2,932,777) (38,749,340) (3,841,386) (47,289,385)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,201,954) (15,424,181) (1,581,802) (19,136,388)
- ----------------------------------------------------------------------------------------------------------------------
Class C (470,284) (6,025,676) (671,051) (8,091,321)
- ----------------------------------------------------------------------------------------------------------------------
Class R (15,964) (210,703) (25,935) (312,577)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (1,100,927) (14,612,799) (3,812,184) (47,235,254)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(c) (174,789) (2,328,255) (12,640) (155,981)
======================================================================================================================
(146,746) $ (1,855,560) 8,751,494 $101,276,016
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) 13% of the outstanding shares of the Fund are owned by affiliated mutual
funds. Affiliated mutual funds are mutual funds that are also advised by
AIM.
(b) There are two entities that are record owners of more than 5% of the
outstanding shares of the fund and they own 15% of the outstanding
shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund. AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these entities are also owned beneficially.
(c) Institutional Class shares commenced sales on April 30, 2004.
(d) As of the opening of business on November 3, 2003, the Fund acquired all
of the net assets of INVESCO Value Equity Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Value Equity Fund shareholders on October 21, 2003. The
acquisition was accomplished by a tax-free exchange of 7,818,290 shares
of the Fund for 4,958,149 shares of INVESCO Value Equity Fund
outstanding as of the close of business on October 31, 2003. INVESCO
Value Equity Fund's net assets at that date of $89,014,605, including
$14,973,392 of unrealized appreciation, were combined with those of the
Fund. The aggregate net assets of the Fund immediately before the
acquisition were $229,149,218.
FS-333
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.36 $ 11.39 $ 9.20 $ 10.94 $ 12.05 $ 9.40
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01(a) (0.00)(a) 0.01(a) 0.02(a) 0.07(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.71 0.96 2.19 (1.75) (1.07) 2.88
=================================================================================================================================
Total from investment operations 0.72 0.97 2.19 (1.74) (1.05) 2.95
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.04) (0.18)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.02) (0.12)
=================================================================================================================================
Total distributions -- -- -- -- (0.06) (0.30)
=================================================================================================================================
Net asset value, end of period $ 13.08 $ 12.36 $ 11.39 $ 9.20 $ 10.94 $12.05
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.83% 8.52% 23.80% (15.90)% (8.74)% 32.21%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $140,880 $150,190 $121,980 $94,387 $68,676 $5,888
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.41%(c) 1.33% 1.42% 1.38% 1.27% 1.25%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.41%(c) 1.35% 1.42% 1.38% 1.36% 8.21%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets 0.09%(c) 0.11% (0.01)% 0.11% 0.17% 0.62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(d) 5% 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$150,588,976.
(d) Not annualized for periods less than one year.
FS-334
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.02 $ 11.15 $ 9.07 $ 10.86 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (0.04)(a) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.70 0.94 2.15 (1.73) (1.05) 1.17
=================================================================================================================================
Total from investment
operations 0.66 0.87 2.08 (1.79) (1.11) 1.17
=================================================================================================================================
Less distributions:
Dividends from net
investment income -- -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of
period $ 12.68 $ 12.02 $ 11.15 $ 9.07 $ 10.86 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.49% 7.80% 22.93% (16.48)% (9.25)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $77,069 $84,896 $80,018 $63,977 $58,681 $2,815
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 2.06%(c) 1.98% 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.06%(c) 2.00% 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment
income (loss) to average
net assets (0.56)%(c) (0.54)% (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 5% 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$84,618,368.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-335
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------------------------------
AUGUST 1, 2000
SIX MONTHS (DATE SALES
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.02 $ 11.15 $ 9.07 $ 10.85 $ 12.02 $10.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (0.04)(a) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.70 0.94 2.15 (1.72) (1.06) 1.17
=================================================================================================================================
Total from investment
operations 0.66 0.87 2.08 (1.78) (1.12) 1.17
=================================================================================================================================
Less distributions:
Dividends from net
investment income -- -- -- -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- (0.02) --
=================================================================================================================================
Total distributions -- -- -- -- (0.05) --
=================================================================================================================================
Net asset value, end of
period $ 12.68 $ 12.02 $ 11.15 $ 9.07 $ 10.85 $12.02
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.49% 7.80% 22.93% (16.41)% (9.33)% 10.78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $30,095 $30,835 $26,566 $21,775 $20,680 $1,248
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 2.06%(c) 1.98% 2.07% 2.02% 1.95% 1.93%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.06%(c) 2.00% 2.07% 2.02% 2.04% 8.89%(d)
=================================================================================================================================
Ratio of net investment
income (loss) to average
net assets (0.56)%(c) (0.54)% (0.66)% (0.53)% (0.51)% (0.06)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 5% 32% 41% 37% 18% 57%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$31,459,631.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-336
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, --------------------- OCTOBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.31 $11.36 $ 9.20 $ 11.60
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) (0.01)(a) (0.02)(a) (0.00)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.70 0.96 2.18 (2.40)
===============================================================================================================================
Total from investment operations 0.70 0.95 2.16 (2.40)
===============================================================================================================================
Net asset value, end of period $13.01 $12.31 $11.36 $ 9.20
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 5.69% 8.36% 23.48% (20.69)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,195 $ 991 $ 588 $ 8
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.56%(c) 1.48%(d) 1.57% 1.54%(e)
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.06)%(c) (0.04)% (0.16)% (0.05)%(e)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 5% 32% 41% 37%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,178,440.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.50% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-337
NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
-------------------------------------------------------
SEPTEMBER 30, 2003
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
APRIL 30, OCTOBER 31, OCTOBER 31,
2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.37 $ 11.39 $10.98
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.03(a) (0.00)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.72 0.95 0.41
=====================================================================================================================
Total from investment operations 0.73 0.98 0.41
=====================================================================================================================
Net asset value, end of period $ 13.10 $ 12.37 $11.39
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 5.90% 8.60% 3.73%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,424 $70,548 $ 178
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 1.31%(c) 1.24%(d) 1.25%(e)
=====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.19%(c) 0.20% 0.16%(e)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate(f) 5% 32% 41%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$70,878,492.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.25% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.38 $ 12.62
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05(a) 0.04(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.72 (0.28)
===============================================================================================
Total from investment operations 0.77 (0.24)
===============================================================================================
Net asset value, end of period $ 13.15 $ 12.38
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 6.22% (1.90)%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $60,777 $18,745
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets 0.75%(c) 0.80%(d)(e)
===============================================================================================
Ratio of net investment income to average net assets 0.75%(c) 0.64%(e)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(f) 5% 32%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$44,099,689.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.81% for the year ended October 31, 2004.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-338
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 October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
FS-339
NOTE 12--LEGAL PROCEEDINGS--(CONTINUED)
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-340
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.35%
AEROSPACE & DEFENSE-4.72%
Boeing Co. (The) 142,000 $ 8,451,840
- ------------------------------------------------------------------------
General Dynamics Corp. 55,000 5,777,750
- ------------------------------------------------------------------------
Precision Castparts Corp. 105,000 7,734,300
- ------------------------------------------------------------------------
Rockwell Collins, Inc. 170,000 7,799,600
- ------------------------------------------------------------------------
United Technologies Corp. 56,200 5,716,664
========================================================================
35,480,154
========================================================================
AIR FREIGHT & LOGISTICS-0.62%
FedEx Corp. 55,000 4,672,250
========================================================================
APPAREL RETAIL-1.94%
Abercrombie & Fitch Co.-Class A 170,000 9,171,500
- ------------------------------------------------------------------------
Chico's FAS, Inc.(a)(b) 210,000 5,382,300
========================================================================
14,553,800
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.70%
Coach, Inc.(a) 196,000 5,252,800
========================================================================
APPLICATION SOFTWARE-1.12%
Autodesk, Inc. 264,000 8,403,120
========================================================================
COMMUNICATIONS EQUIPMENT-1.67%
Cisco Systems, Inc.(a) 493,440 8,526,643
- ------------------------------------------------------------------------
Motorola, Inc. 260,000 3,988,400
========================================================================
12,515,043
========================================================================
COMPUTER HARDWARE-5.86%
Apple Computer, Inc.(a) 208,000 7,500,480
- ------------------------------------------------------------------------
Dell Inc.(a) 896,600 31,228,578
- ------------------------------------------------------------------------
NCR Corp.(a) 162,000 5,346,000
========================================================================
44,075,058
========================================================================
COMPUTER STORAGE & PERIPHERALS-0.73%
Seagate Technology (Cayman Islands)(a) 310,000 5,449,800
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.72%
PACCAR Inc. 80,000 5,432,000
========================================================================
CONSUMER FINANCE-2.54%
SLM Corp. 401,000 19,103,640
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DEPARTMENT STORES-2.29%
J.C. Penney Co., Inc. 124,000 $ 5,878,840
- ------------------------------------------------------------------------
Nordstrom, Inc. 223,000 11,335,090
========================================================================
17,213,930
========================================================================
DIVERSIFIED METALS & MINING-0.65%
Southern Peru Copper Corp.(b) 95,000 4,858,300
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.17%
Rockwell Automation, Inc. 191,000 8,829,930
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.59%
Monsanto Co. 204,000 11,958,480
========================================================================
FOOTWEAR-2.03%
NIKE, Inc.-Class B 199,000 15,285,190
========================================================================
HEALTH CARE EQUIPMENT-3.18%
Bard (C.R.), Inc.(b) 100,000 7,117,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 287,000 16,795,240
========================================================================
23,912,240
========================================================================
HEALTH CARE FACILITIES-2.08%
HCA Inc.(b) 280,000 15,635,200
========================================================================
HEALTH CARE SERVICES-2.19%
Medco Health Solutions, Inc.(a) 125,000 6,371,250
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 95,000 10,051,000
========================================================================
16,422,250
========================================================================
HEALTH CARE SUPPLIES-2.76%
Alcon, Inc. (Switzerland)(a) 213,700 20,728,900
========================================================================
HOME IMPROVEMENT RETAIL-1.06%
Home Depot, Inc. (The) 225,000 7,958,250
========================================================================
HOMEBUILDING-1.83%
D.R. Horton, Inc.(b) 240,000 7,320,000
- ------------------------------------------------------------------------
NVR, Inc.(a)(b) 9,000 6,465,150
========================================================================
13,785,150
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.68%
Marriott International, Inc.-Class A 81,000 5,082,750
========================================================================
HOUSEHOLD PRODUCTS-2.62%
Clorox Co. (The)(b) 130,000 8,229,000
- ------------------------------------------------------------------------
</Table>
FS-341
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-(CONTINUED)
Procter & Gamble Co. (The) 212,000 $ 11,479,800
========================================================================
19,708,800
========================================================================
HOUSEWARES & SPECIALTIES-1.16%
Fortune Brands, Inc. 103,000 8,711,740
========================================================================
HYPERMARKETS & SUPER CENTERS-0.76%
Costco Wholesale Corp.(b) 140,000 5,681,200
========================================================================
INDUSTRIAL CONGLOMERATES-0.86%
Tyco International Ltd. (Bermuda) 207,000 6,481,170
========================================================================
INTEGRATED OIL & GAS-4.77%
BP PLC-ADR (United Kingdom) 143,000 8,708,700
- ------------------------------------------------------------------------
Chevron Corp. 221,000 11,492,000
- ------------------------------------------------------------------------
ConocoPhillips 149,000 15,622,650
========================================================================
35,823,350
========================================================================
INTERNET SOFTWARE & SERVICES-0.70%
VeriSign, Inc.(a) 200,000 5,292,000
========================================================================
INVESTMENT BANKING & BROKERAGE-3.99%
Bear Stearns Cos. Inc. (The) 71,000 6,720,860
- ------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 106,000 11,319,740
- ------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 130,000 11,923,600
========================================================================
29,964,200
========================================================================
IT CONSULTING & OTHER SERVICES-1.18%
Accenture Ltd.-Class A (Bermuda)(a) 409,000 8,875,300
========================================================================
MANAGED HEALTH CARE-7.05%
Aetna Inc. 248,000 18,195,760
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 267,000 25,234,170
- ------------------------------------------------------------------------
WellPoint, Inc.(a) 75,000 9,581,250
========================================================================
53,011,180
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.80%
Apache Corp. 100,000 5,629,000
- ------------------------------------------------------------------------
Devon Energy Corp. 175,000 7,904,750
========================================================================
13,533,750
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-2.09%
Valero Energy Corp. 229,000 15,693,370
========================================================================
PACKAGED FOODS & MEATS-1.11%
Hershey Co. (The) 130,000 8,307,000
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PERSONAL PRODUCTS-3.48%
Gillette Co. (The) 506,000 $ 26,129,840
========================================================================
PHARMACEUTICALS-6.95%
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(b) 203,000 6,309,240
- ------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 128,000 6,470,400
- ------------------------------------------------------------------------
Johnson & Johnson 491,000 33,697,330
- ------------------------------------------------------------------------
Sanofi-Aventis-ADR (France) 130,000 5,768,100
========================================================================
52,245,070
========================================================================
PROPERTY & CASUALTY INSURANCE-0.94%
Allstate Corp. (The) 126,000 7,076,160
========================================================================
RAILROADS-0.71%
Norfolk Southern Corp. 170,000 5,338,000
========================================================================
RESTAURANTS-4.14%
Darden Restaurants, Inc. 265,000 7,950,000
- ------------------------------------------------------------------------
McDonald's Corp. 250,000 7,327,500
- ------------------------------------------------------------------------
Yum! Brands, Inc. 337,000 15,825,520
========================================================================
31,103,020
========================================================================
SEMICONDUCTORS-1.18%
Intel Corp. 149,000 3,504,480
- ------------------------------------------------------------------------
National Semiconductor Corp. 283,000 5,399,640
========================================================================
8,904,120
========================================================================
SOFT DRINKS-1.08%
PepsiCo, Inc. 146,000 8,123,440
========================================================================
SPECIALTY STORES-2.02%
Staples, Inc. 796,000 15,179,720
========================================================================
STEEL-1.83%
Nucor Corp.(b) 184,000 9,402,400
- ------------------------------------------------------------------------
United States Steel Corp. 102,000 4,361,520
========================================================================
13,763,920
========================================================================
SYSTEMS SOFTWARE-3.93%
Adobe Systems Inc. 239,000 14,213,330
- ------------------------------------------------------------------------
Microsoft Corp. 429,280 10,860,784
- ------------------------------------------------------------------------
Oracle Corp.(a) 389,000 4,496,840
========================================================================
29,570,954
========================================================================
THRIFTS & MORTGAGE FINANCE-1.87%
Countrywide Financial Corp. 389,000 14,077,910
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $669,535,613) 739,203,449
========================================================================
</Table>
FS-342
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-2.38%
Liquid Assets Portfolio-Institutional
Class(c) 8,940,682 $ 8,940,682
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 8,940,682 8,940,682
========================================================================
Total Money Market Funds (Cost
$17,881,364) 17,881,364
========================================================================
TOTAL INVESTMENTS-100.73% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $687,416,977) 757,084,813
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.43%
STIC Prime Portfolio-Institutional
Class(c)(d) 33,327,138 $ 33,327,138
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $33,327,138) 33,327,138
========================================================================
TOTAL INVESTMENTS-105.16% (Cost $720,744,115) 790,411,951
========================================================================
OTHER ASSETS LESS LIABILITIES-(5.16%) (38,818,675)
========================================================================
NET ASSETS-100.00% $751,593,276
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-343
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$669,535,613)* $ 739,203,449
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $51,208,502) 51,208,502
============================================================
Total investments (cost $720,744,115) 790,411,951
============================================================
Receivables for:
Fund shares sold 1,098,975
- ------------------------------------------------------------
Dividends 708,237
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 157,296
- ------------------------------------------------------------
Other assets 103,576
============================================================
Total assets 792,480,035
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 5,587,618
- ------------------------------------------------------------
Fund shares reacquired 999,519
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 201,036
- ------------------------------------------------------------
Collateral upon return of securities
loaned 33,327,138
- ------------------------------------------------------------
Accrued distribution fees 247,691
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,315
- ------------------------------------------------------------
Accrued transfer agent fees 486,221
- ------------------------------------------------------------
Accrued operating expenses 35,221
============================================================
Total liabilities 40,886,759
============================================================
Net assets applicable to shares outstanding $ 751,593,276
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,297,925,258
- ------------------------------------------------------------
Undistributed net investment income (88,320)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (1,615,911,498)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 69,667,836
============================================================
$ 751,593,276
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 186,431,217
____________________________________________________________
============================================================
Class B $ 105,857,250
____________________________________________________________
============================================================
Class C $ 47,817,195
____________________________________________________________
============================================================
Class R $ 2,131,582
____________________________________________________________
============================================================
Investor Class $ 350,468,858
____________________________________________________________
============================================================
Institutional Class $ 58,887,174
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 20,166,877
____________________________________________________________
============================================================
Class B 11,921,117
____________________________________________________________
============================================================
Class C 5,382,267
____________________________________________________________
============================================================
Class R 231,509
____________________________________________________________
============================================================
Investor Class 37,721,028
____________________________________________________________
============================================================
Institutional Class 6,332,814
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.24
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.24 divided by
94.50%) $ 9.78
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.88
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.88
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.21
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 9.29
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.30
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $32,769,431
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-344
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $2,646) $ 5,990,107
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $14,847 after rebates of
$161,510) 140,372
==========================================================================
Total investment income 6,130,479
==========================================================================
EXPENSES:
Advisory fees 2,914,287
- --------------------------------------------------------------------------
Administrative services fees 114,166
- --------------------------------------------------------------------------
Custodian fees 38,813
- --------------------------------------------------------------------------
Distribution fees:
Class A 331,943
- --------------------------------------------------------------------------
Class B 571,187
- --------------------------------------------------------------------------
Class C 253,087
- --------------------------------------------------------------------------
Class R 7,121
- --------------------------------------------------------------------------
Investor Class 365,984
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, R & Investor 1,408,294
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 6,130
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 20,696
- --------------------------------------------------------------------------
Other 300,139
==========================================================================
Total expenses 6,331,847
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (244,157)
==========================================================================
Net expenses 6,087,690
==========================================================================
Net investment income 42,789
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities (includes gains
from securities sold to affiliates of $2,126,225) 25,807,818
==========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (19,161,150)
==========================================================================
Net gain from investment securities 6,646,668
==========================================================================
Net increase in net assets resulting from operations $ 6,689,457
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-345
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 42,789 $ (6,606,212)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 25,807,818 98,213,764
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (19,161,150) (67,692,338)
==========================================================================================
Net increase in net assets resulting from operations 6,689,457 23,915,214
==========================================================================================
Share transactions-net:
Class A 7,685,475 18,678,547
- ------------------------------------------------------------------------------------------
Class B (8,148,920) (12,082,083)
- ------------------------------------------------------------------------------------------
Class C (907,138) 3,097,603
- ------------------------------------------------------------------------------------------
Class R (679,048) 574,491
- ------------------------------------------------------------------------------------------
Investor Class (31,720,180) 361,821,129
- ------------------------------------------------------------------------------------------
Institutional Class 37,968,651 22,063,157
==========================================================================================
Net increase in net assets resulting from share
transactions 4,198,840 394,152,844
==========================================================================================
Net increase in net assets 10,888,297 418,068,058
==========================================================================================
NET ASSETS:
Beginning of period 740,704,979 322,636,921
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(88,320) and $(131,109), respectively) $751,593,276 $740,704,979
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-346
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-347
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
FS-348
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund paid an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $1 billion 0.75%
- ----------------------------------------------------------------------
Next $1 billion 0.70%
- ----------------------------------------------------------------------
Over $2 billion 0.625%
______________________________________________________________________
======================================================================
</Table>
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund (based on the Fund's average daily net assets) do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.695%
- ----------------------------------------------------------------------
Next $250 million 0.67%
- ----------------------------------------------------------------------
Next $500 million 0.645%
- ----------------------------------------------------------------------
Next $1.5 billion 0.62%
- ----------------------------------------------------------------------
Next $2.5 billion 0.595%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
______________________________________________________________________
======================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $209,967.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $20,806 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $114,166.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $1,408,294 for Class A, Class B, Class C, Class R and
Investor Class share classes and $6,130 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R, Investor Class and Institutional Class shares of the Fund. The
Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect
to the Fund's Class A, Class B, Class C, Class R and Investor Class shares
(collectively the "Plans"). The Fund, pursuant to the Class A, Class B, Class C
and Class R Plans, pays ADI compensation at the annual rate of 0.35% 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, pays
ADI for its allocated share of expenses incurred pursuant to the Investor Class
Plan for the period, up to a maximum annual rate of 0.25% of the average daily
net assets of the Investor Class shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B, Class C, Class R or Investor
Class shares may be paid to furnish continuing personal shareholder services to
customers who purchase and own shares of such classes. Any amounts not paid as a
service fee under the Plans would constitute an asset-based sales charge. NASD
Rules impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the six months ended April 30, 2005, the Class A, Class B, Class C,
Class R and Investor Class shares paid $331,943, $571,187, $253,087, $7,121 and
$365,984, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $38,261 in
front-end sales commissions from the sale of Class A shares and $1,506, $16,492,
$3,258 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
FS-349
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $14,259,968 $ 43,067,825 $ (48,387,111) $ -- $ 8,940,682 $ 62,236 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 14,259,968 43,067,825 (48,387,111) -- 8,940,682 63,289 --
==================================================================================================================================
Subtotal $28,519,936 $ 86,135,650 $ (96,774,222) $ -- $17,881,364 $125,525 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 4,905,700 $ 77,755,697 $ (82,661,397) $ -- $ -- $ 5,223 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 130,131,667 (96,804,529) -- 33,327,138 9,624 --
==================================================================================================================================
Subtotal $ 4,905,700 $207,887,364 $(179,465,926) $ -- $33,327,138 $ 14,847 $ --
==================================================================================================================================
Total $33,425,636 $294,023,014 $(276,240,148) $ -- $51,208,502 $140,372 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $0 and sales of $7,735,000, which
resulted in net realized gains of $2,126,225.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended April 30, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $13,384.
FS-350
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$3,189 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel
to the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $32,769,431 were on
loan to brokers. The loans were secured by cash collateral of $33,327,138
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2005, the Fund received dividends on
cash collateral of $14,847 for securities lending transactions, which are net of
rebates.
FS-351
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these Limitation rules, the Fund is limited as of October
31, 2004 to utilizing $1,546,948,307 of capital loss carryforward in the fiscal
year ended October 31, 2005.
The Fund had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $1,067,080,173
- ------------------------------------------------------------------------------
October 31, 2010 532,535,321
- ------------------------------------------------------------------------------
October 31, 2011 35,095,604
==============================================================================
Total capital loss carryforward $1,634,711,098
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 3, 2003, the date of the
reorganization of INVESCO Growth Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $387,343,053 and $365,180,262, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 80,318,882
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (17,164,639)
==============================================================================
Net unrealized appreciation of investment securities $ 63,154,243
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $727,257,708.
</Table>
FS-352
NOTE 11--SHARE INFORMATION
The Fund currently offers six different classes of shares: Class A shares, Class
B shares, Class C shares, Class R shares, Investor Class shares and
Institutional Class shares. Class A shares are sold with a front-end sales
charge. Class B shares and Class C shares are sold with CDSC. Class R shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class R shares are
subject to CDSC. Generally, Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(A)
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,456,295 $ 33,478,961 6,225,450 $ 57,170,463
- ------------------------------------------------------------------------------------------------------------------------
Class B 1,158,312 10,764,191 2,516,228 22,341,073
- ------------------------------------------------------------------------------------------------------------------------
Class C 1,034,121 9,651,420 2,041,593 18,173,950
- ------------------------------------------------------------------------------------------------------------------------
Class R 41,704 402,574 111,709 1,022,930
- ------------------------------------------------------------------------------------------------------------------------
Investor Class 1,494,394 14,520,052 4,268,368 39,323,955
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 3,989,941 38,701,639 2,436,212 22,232,973
========================================================================================================================
Issued in connection with acquisitions:(c)
Class A -- -- 445,760 3,960,921
- ------------------------------------------------------------------------------------------------------------------------
Class B -- -- 24,464 210,855
- ------------------------------------------------------------------------------------------------------------------------
Class C -- -- 426,258 3,668,554
- ------------------------------------------------------------------------------------------------------------------------
Investor Class -- -- 50,546,207 449,143,077
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 203,261 1,964,867 472,810 4,373,299
- ------------------------------------------------------------------------------------------------------------------------
Class B (211,295) (1,964,867) (489,052) (4,373,299)
========================================================================================================================
Reacquired:
Class A (2,877,653) (27,758,353) (5,108,536) (46,826,136)
- ------------------------------------------------------------------------------------------------------------------------
Class B (1,823,491) (16,948,244) (3,420,244) (30,260,712)
- ------------------------------------------------------------------------------------------------------------------------
Class C (1,136,316) (10,558,558) (2,120,502) (18,744,901)
- ------------------------------------------------------------------------------------------------------------------------
Class R (112,698) (1,081,622) (48,964) (448,439)
- ------------------------------------------------------------------------------------------------------------------------
Investor Class (4,759,426) (46,240,232) (13,848,145) (126,645,903)
- ------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (74,710) (732,988) (18,629) (169,816)
========================================================================================================================
382,439 $ 4,198,840 44,460,987 $ 394,152,844
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 10% of the outstanding shares
of the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. 7% of the outstanding
shares of the fund are owned by affiliated mutual funds. Affiliated
mutual funds are mutual funds that are advised by AIM. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
(c) As of the opening of business on November 3, 2003, the Fund acquired all
of the net assets of INVESCO Growth Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on June 11, 2003 and
INVESCO Growth Fund shareholders on October 21, 2003. The acquisition
was accomplished by a tax-free exchange of 51,442,689 shares of the Fund
for 234,385,533 shares of INVESCO Growth Fund outstanding as of the
close of business on October 31, 2003. INVESCO Growth Fund's net assets
at that date of $456,983,407, including $93,333,500 of unrealized
appreciation, were combined with those of the Fund. The aggregate net
assets of the Fund immediately before the acquisition were $322,706,968.
FS-353
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74 $ 11.29
- ------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.00(a)(b) (0.08)(a) (0.08)(a) (0.09)(a) (0.08)(a) (0.15)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.08 0.36 1.59 (1.36) (8.84) 6.60
========================================================================================================================
Total from investment
operations 0.08 0.28 1.51 (1.45) (8.92) 6.45
========================================================================================================================
Net asset value, end of period $ 9.24 $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) 0.87% 3.15% 20.49% (16.44)% (50.28)% 57.13%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $186,431 $177,498 $154,052 $105,320 $138,269 $225,255
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.55%(d) 1.54% 1.82% 1.70% 1.57% 1.58%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.61%(d) 1.55% 1.82% 1.70% 1.57% 1.58%
========================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.03%(b)(d) (0.92)% (1.01)% (1.01)% (0.72)% (0.82)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 48% 111% 123% 111% 124% 113%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.01) and
$(0.30)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$191,253,560.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54 $ 11.25
- -------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.03)(a)(b) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.09 0.35 1.53 (1.33) (8.71) 6.56
=========================================================================================================================
Total from investment
operations 0.06 0.21 1.41 (1.47) (8.87) 6.29
=========================================================================================================================
Net asset value, end of period $ 8.88 $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 0.68% 2.44% 19.58% (16.96)% (50.57)% 55.91%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $105,857 $112,931 $122,011 $104,040 $144,747 $210,224
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 2.20%(d) 2.19% 2.47% 2.35% 2.23% 2.24%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.26%(d) 2.20% 2.47% 2.35% 2.23% 2.24%
=========================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.62)%(b)(d) (1.57)% (1.66)% (1.66)% (1.39)% (1.48)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 48% 111% 123% 111% 124% 113%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and $(0.95)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$115,184,129.
(e) Not annualized for periods less than one year.
FS-354
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ---------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55 $ 11.25
- ------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.03)(a)(b) (0.14)(a) (0.12)(a) (0.14)(a) (0.16)(a) (0.27)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.08 0.35 1.53 (1.32) (8.72) 6.57
==================================================================================================================
Total from investment
operations 0.05 0.21 1.41 (1.46) (8.88) 6.30
==================================================================================================================
Net asset value, end of period $ 8.88 $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(c) 0.57% 2.44% 19.56% (16.84)% (50.60)% 56.00%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $47,817 $48,420 $44,272 $36,575 $57,865 $79,392
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 2.20%(d) 2.19% 2.47% 2.35% 2.23% 2.24%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.26%(d) 2.20% 2.47% 2.35% 2.23% 2.24%
==================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.62)%(b)(d) (1.57)% (1.66)% (1.66)% (1.39)% (1.48)%
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(e) 48% 111% 123% 111% 124% 113%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.04) and $(0.95)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$51,036,875.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.13 $ 8.87 $ 7.37 $ 8.40
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)(b) (0.10)(a) (0.09)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.09 0.36 1.59 (0.99)
======================================================================================================================
Total from investment operations 0.08 0.26 1.50 (1.03)
======================================================================================================================
Net asset value, end of period $ 9.21 $ 9.13 $ 8.87 $ 7.37
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) 0.88% 2.93% 20.35% (12.26)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,132 $2,761 $2,127 $ 9
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.70%(d) 1.69% 1.97% 1.85%(e)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.76%(d) 1.70% 1.97% 1.85%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.12)%(b)(d) (1.07)% (1.16)% (1.16)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 48% 111% 123% 111%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.02) and $(0.45)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$2,871,902.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-355
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
---------------------------------------------------------
SEPTEMBER 30, 2003
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
APRIL 30, OCTOBER 31, OCTOBER 31,
2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.20 $ 8.88 $ 8.24
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a)(b) (0.05)(a)(c) (0.01)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.08 0.37 0.65
=======================================================================================================================
Total from investment operations 0.09 0.32 0.64
=======================================================================================================================
Net asset value, end of period $ 9.29 $ 9.20 $ 8.88
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(d) 0.98% 3.60%(c) 7.77%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $350,469 $376,905 $ 174
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.39%(e) 1.19% 1.56%(f)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.45%(e) 1.42% 1.56%(f)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets 0.19%(b)(e) (0.57)% (0.75)%(f)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(g) 48% 111% 123%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $0.00 and
$(0.14)%, respectively.
(c) The advisor reimbursed Investor Class expenses related to an overpayment
of Rule 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 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.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(e) Ratios are annualized and based on average daily net assets of
$381,925,018.
(f) Annualized.
(g) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.18 $ 9.13
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a)(b) (0.01)(a)
- ---------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.08 0.06
=============================================================================================
Total from investment operations 0.12 0.05
=============================================================================================
Net asset value, end of period $ 9.30 $ 9.18
_____________________________________________________________________________________________
=============================================================================================
Total return(c) 1.31% 0.55%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,887 $22,190
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.84%(d) 0.92%(e)
- ---------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.90%(d) 0.93%(e)
=============================================================================================
Ratio of net investment income to average net assets 0.74%(b)(d) (0.30)%(e)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(f) 48% 111%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.03 and $0.41%,
respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and the returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$41,312,037.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-356
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
FS-357
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-358
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.94%
ADVERTISING-0.86%
Omnicom Group Inc. 18,000 $ 1,492,200
=======================================================================
AEROSPACE & DEFENSE-1.08%
L-3 Communications Holdings, Inc. 26,500 1,880,705
=======================================================================
AIR FREIGHT & LOGISTICS-0.80%
Robinson (C.H.) Worldwide, Inc. 27,000 1,393,200
=======================================================================
APPAREL RETAIL-2.31%
Abercrombie & Fitch Co.-Class A 22,000 1,186,900
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 53,000 1,358,390
- -----------------------------------------------------------------------
Urban Outfitters, Inc.(a) 33,000 1,461,900
=======================================================================
4,007,190
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.19%
Coach, Inc.(a) 83,000 2,224,400
- -----------------------------------------------------------------------
Polo Ralph Lauren Corp. 45,000 1,579,500
=======================================================================
3,803,900
=======================================================================
APPLICATION SOFTWARE-3.35%
Amdocs Ltd. (United Kingdom)(a) 60,000 1,602,600
- -----------------------------------------------------------------------
Autodesk, Inc.(a) 35,100 1,117,233
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 36,000 1,487,880
- -----------------------------------------------------------------------
MicroStrategy Inc.-Class A(a) 18,000 783,540
- -----------------------------------------------------------------------
NAVTEQ Corp.(a) 22,700 826,734
=======================================================================
5,817,987
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.07%
Investors Financial Services Corp.(b) 50,000 2,097,500
- -----------------------------------------------------------------------
Legg Mason, Inc. 21,000 1,488,060
=======================================================================
3,585,560
=======================================================================
AUTO PARTS & EQUIPMENT-0.87%
Autoliv, Inc. 34,000 1,504,500
=======================================================================
BIOTECHNOLOGY-3.85%
Charles River Laboratories International,
Inc.(a) 40,400 1,913,748
- -----------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 30,000 689,700
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 45,000 1,669,500
- -----------------------------------------------------------------------
Invitrogen Corp.(a) 14,000 1,025,780
- -----------------------------------------------------------------------
Martek Biosciences Corp.(a)(b) 36,000 1,377,720
=======================================================================
6,676,448
=======================================================================
CASINOS & GAMING-0.93%
Station Casinos, Inc. 25,000 1,613,250
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMMODITY CHEMICALS-1.03%
Celanese Corp.-Series A(a) 122,400 $ 1,780,920
=======================================================================
COMMUNICATIONS EQUIPMENT-4.23%
Avaya Inc.(a) 140,000 1,215,200
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 58,000 1,321,820
- -----------------------------------------------------------------------
Corning Inc.(a) 100,000 1,375,000
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 88,200 1,992,438
- -----------------------------------------------------------------------
Scientific-Atlanta, Inc. 47,000 1,437,260
=======================================================================
7,341,718
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.27%
QLogic Corp.(a) 40,000 1,329,600
- -----------------------------------------------------------------------
Storage Technology Corp.(a) 31,700 881,260
=======================================================================
2,210,860
=======================================================================
CONSUMER FINANCE-0.67%
First Marblehead Corp. (The)(a)(b) 30,000 1,155,900
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.02%
Alliance Data Systems Corp.(a) 58,000 2,343,200
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 39,000 1,158,300
=======================================================================
3,501,500
=======================================================================
DEPARTMENT STORES-2.27%
Kohl's Corp.(a) 40,000 1,904,000
- -----------------------------------------------------------------------
Nordstrom, Inc. 40,000 2,033,200
=======================================================================
3,937,200
=======================================================================
DIVERSIFIED BANKS-0.98%
Centennial Bank Holdings, Inc. (Acquired
12/27/04; Cost $1,653,750)(a)(c) 157,500 1,701,000
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.71%
Career Education Corp.(a) 33,800 1,062,672
- -----------------------------------------------------------------------
ChoicePoint Inc.(a) 36,400 1,436,708
- -----------------------------------------------------------------------
Corporate Executive Board Co. (The) 34,000 2,234,820
- -----------------------------------------------------------------------
Corrections Corp. of America(a) 45,000 1,703,250
=======================================================================
6,437,450
=======================================================================
DRUG RETAIL-1.08%
Shoppers Drug Mart Corp. (Canada)(a) 60,000 1,871,498
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.98%
Cooper Industries, Ltd.-Class A (Bermuda) 26,700 1,699,722
=======================================================================
</Table>
FS-359
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.61%
Amphenol Corp.-Class A 27,000 $ 1,064,880
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.78%
Benchmark Electronics, Inc.(a) 50,000 1,352,000
=======================================================================
GENERAL MERCHANDISE STORES-1.49%
Dollar General Corp. 80,700 1,642,245
- -----------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 38,300 937,967
=======================================================================
2,580,212
=======================================================================
HEALTH CARE DISTRIBUTORS-0.86%
Schein (Henry), Inc.(a) 40,000 1,500,400
=======================================================================
HEALTH CARE EQUIPMENT-6.66%
Biomet, Inc. 42,000 1,624,980
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 24,000 1,425,120
- -----------------------------------------------------------------------
INAMED Corp.(a) 15,000 912,600
- -----------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 45,000 2,765,250
- -----------------------------------------------------------------------
PerkinElmer, Inc. 99,000 1,831,500
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 41,900 1,413,706
- -----------------------------------------------------------------------
Waters Corp.(a) 40,000 1,585,200
=======================================================================
11,558,356
=======================================================================
HEALTH CARE FACILITIES-1.05%
Community Health Systems Inc.(a) 50,000 1,822,500
=======================================================================
HEALTH CARE SERVICES-3.52%
Caremark Rx, Inc.(a) 45,000 1,802,250
- -----------------------------------------------------------------------
Cerner Corp.(a)(b) 20,000 1,161,200
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 18,000 1,613,520
- -----------------------------------------------------------------------
Renal Care Group, Inc.(a) 40,000 1,526,000
=======================================================================
6,102,970
=======================================================================
HEALTH CARE SUPPLIES-1.01%
Cooper Cos., Inc. (The) 25,900 1,749,545
=======================================================================
HOME FURNISHINGS-0.53%
Tempur-Pedic International Inc.(a) 48,000 916,320
=======================================================================
HOMEBUILDING-1.03%
Pulte Homes, Inc. 25,000 1,786,250
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.26%
Hilton Hotels Corp. 105,000 2,292,150
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(d) 30,000 1,630,200
=======================================================================
3,922,350
=======================================================================
HOUSEWARES & SPECIALTIES-1.53%
Fortune Brands, Inc. 10,200 862,716
- -----------------------------------------------------------------------
Jarden Corp.(a) 40,000 1,786,800
=======================================================================
2,649,516
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
INDUSTRIAL MACHINERY-0.53%
Ingersoll-Rand Co. Ltd.-Class A (Bermuda) 12,000 $ 922,440
=======================================================================
INTEGRATED OIL & GAS-1.23%
Murphy Oil Corp. 24,000 2,138,160
=======================================================================
INTERNET SOFTWARE & SERVICES-1.88%
Digital River, Inc.(a) 45,500 1,210,300
- -----------------------------------------------------------------------
VeriSign, Inc.(a) 77,300 2,045,358
=======================================================================
3,255,658
=======================================================================
IT CONSULTING & OTHER SERVICES-0.99%
Cognizant Technology Solutions Corp.-Class
A(a) 41,000 1,722,410
=======================================================================
LEISURE PRODUCTS-0.48%
Brunswick Corp. 20,000 840,000
=======================================================================
MANAGED HEALTH CARE-0.36%
AMERIGROUP Corp.(a) 18,000 632,160
=======================================================================
MULTI-LINE INSURANCE-0.19%
Quanta Capital Holdings Ltd. (Bermuda)(a) 41,177 329,416
=======================================================================
OFFICE ELECTRONICS-0.56%
Zebra Technologies Corp.-Class A(a) 20,400 974,304
=======================================================================
OIL & GAS DRILLING-2.02%
Nabors Industries, Ltd. (Bermuda)(a) 32,000 1,723,840
- -----------------------------------------------------------------------
Noble Corp. (Cayman Islands) 35,000 1,781,500
=======================================================================
3,505,340
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.51%
National-Oilwell Varco Inc.(a) 37,000 1,470,380
- -----------------------------------------------------------------------
Smith International, Inc. 30,000 1,745,400
- -----------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 22,000 1,147,300
=======================================================================
4,363,080
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.45%
Ultra Petroleum Corp. (Canada)(a) 50,000 2,524,000
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.03%
Williams Cos., Inc. (The) 105,000 1,787,100
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.06%
CapitalSource Inc.(a) 88,000 1,848,000
=======================================================================
PHARMACEUTICALS-2.23%
Medicis Pharmaceutical Corp.-Class A 32,000 899,200
- -----------------------------------------------------------------------
MGI Pharma, Inc.(a) 64,000 1,411,200
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International 75,000 1,556,250
=======================================================================
3,866,650
=======================================================================
</Table>
FS-360
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
PUBLISHING-0.49%
Getty Images, Inc.(a) 12,000 $ 858,600
=======================================================================
RAILROADS-0.49%
CSX Corp. 21,000 842,730
=======================================================================
REAL ESTATE-1.84%
Aames Investment Corp. 152,400 1,287,780
- -----------------------------------------------------------------------
People's Choice Financial Corp. (Acquired
12/21/04; Cost $1,897,000)(a)(c) 189,700 1,897,000
=======================================================================
3,184,780
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.16%
CB Richard Ellis Group, Inc.-Class A(a) 57,900 2,012,025
=======================================================================
REGIONAL BANKS-0.56%
Signature Bank(a) 39,600 975,348
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.98%
Novellus Systems, Inc.(a) 36,000 843,480
- -----------------------------------------------------------------------
Tessera Technologies Inc.(a) 32,400 860,544
=======================================================================
1,704,024
=======================================================================
SEMICONDUCTORS-5.45%
Altera Corp.(a) 100,000 2,073,000
- -----------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 114,700 1,697,560
- -----------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 45,000 1,506,600
- -----------------------------------------------------------------------
Microchip Technology Inc. 80,000 2,278,400
- -----------------------------------------------------------------------
National Semiconductor Corp. 100,000 1,908,000
=======================================================================
9,463,560
=======================================================================
SPECIALIZED FINANCE-0.72%
Chicago Mercantile Exchange Holdings Inc. 6,400 1,251,328
=======================================================================
SPECIALTY STORES-5.01%
Advance Auto Parts, Inc.(a) 37,000 1,973,950
- -----------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 40,000 1,488,400
- -----------------------------------------------------------------------
Office Depot, Inc.(a) 76,000 1,488,080
- -----------------------------------------------------------------------
Staples, Inc. 91,500 1,744,905
- -----------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 59,500 1,992,655
=======================================================================
8,687,990
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
TRADING COMPANIES & DISTRIBUTORS-1.40%
MSC Industrial Direct Co., Inc.-Class A 57,000 $ 1,531,590
- -----------------------------------------------------------------------
W.W. Grainger, Inc. 16,300 901,227
=======================================================================
2,432,817
=======================================================================
TRUCKING-0.53%
Swift Transportation Co., Inc.(a) 43,000 917,190
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.91%
American Tower Corp.-Class A(a) 82,600 1,423,198
- -----------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 90,000 2,116,800
- -----------------------------------------------------------------------
NII Holdings Inc.(a) 28,000 1,401,960
- -----------------------------------------------------------------------
SpectraSite, Inc.(a) 33,000 1,852,290
=======================================================================
6,794,248
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $154,999,096) 168,251,365
=======================================================================
MONEY MARKET FUNDS-2.75%
Liquid Assets Portfolio-Institutional
Class(e) 2,385,692 2,385,692
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 2,385,692 2,385,692
=======================================================================
Total Money Market Funds (Cost
$4,771,384) 4,771,384
=======================================================================
TOTAL INVESTMENTS-99.69% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $159,770,480) 173,022,749
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.72%
STIC Prime Portfolio-Institutional
Class(e)(f) 4,723,100 4,723,100
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,723,100) 4,723,100
=======================================================================
TOTAL INVESTMENTS-102.41% (Cost $164,493,580) 177,745,849
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.41%) (4,190,098)
=======================================================================
NET ASSETS-100.00% $173,555,751
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at April 30, 2005 was
$3,598,000, which represented 2.07% of the Fund's Net Assets. These
securities are considered to be illiquid; the portfolio is limited to
investing 15% of net assets in illiquid securities.
(d) Each unit represents one common share and one Class B share.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-361
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$154,999,096)* $ 168,251,365
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $9,494,484) 9,494,484
============================================================
Total investments (cost $164,493,580) 177,745,849
============================================================
Receivables for:
Investments sold 2,369,701
- ------------------------------------------------------------
Fund shares sold 79,121
- ------------------------------------------------------------
Dividends 61,133
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,529
- ------------------------------------------------------------
Other assets 27,946
============================================================
Total assets 180,308,279
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,300,277
- ------------------------------------------------------------
Fund shares reacquired 407,921
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 32,061
- ------------------------------------------------------------
Collateral upon return of securities loaned 4,723,100
- ------------------------------------------------------------
Accrued distribution fees 95,667
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,383
- ------------------------------------------------------------
Accrued transfer agent fees 140,290
- ------------------------------------------------------------
Accrued operating expenses 51,829
============================================================
Total liabilities 6,752,528
============================================================
Net assets applicable to shares outstanding $ 173,555,751
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 282,014,629
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,592,487)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (120,118,527)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 13,252,136
============================================================
$ 173,555,751
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 88,060,287
____________________________________________________________
============================================================
Class B $ 62,328,884
____________________________________________________________
============================================================
Class C $ 22,078,567
____________________________________________________________
============================================================
Class R $ 1,077,949
____________________________________________________________
============================================================
Institutional Class $ 10,064
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 9,560,702
____________________________________________________________
============================================================
Class B 7,029,958
____________________________________________________________
============================================================
Class C 2,489,778
____________________________________________________________
============================================================
Class R 117,727
____________________________________________________________
============================================================
Institutional Class 1,085
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.21
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.21 divided by
94.50%) $ 9.75
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.87
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.87
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.16
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.28
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $3,721,463
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-362
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $2,182) $ 462,289
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $7,003 after rebates of
$57,773) 59,761
==========================================================================
Total investment income 522,050
==========================================================================
EXPENSES:
Advisory fees 807,397
- --------------------------------------------------------------------------
Administrative services fees 24,795
- --------------------------------------------------------------------------
Custodian fees 7,582
- --------------------------------------------------------------------------
Distribution fees:
Class A 181,426
- --------------------------------------------------------------------------
Class B 359,708
- --------------------------------------------------------------------------
Class C 125,661
- --------------------------------------------------------------------------
Class R 2,733
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 507,388
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 5
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 11,111
- --------------------------------------------------------------------------
Other 106,055
==========================================================================
Total expenses 2,133,861
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (48,695)
==========================================================================
Net expenses 2,085,166
==========================================================================
Net investment income (loss) (1,563,116)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(318,507)) 19,028,063
- --------------------------------------------------------------------------
Foreign currencies (1,671)
==========================================================================
19,026,392
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (13,408,650)
- --------------------------------------------------------------------------
Foreign currencies 6,416
==========================================================================
(13,402,234)
==========================================================================
Net gain from investment securities and foreign currencies 5,624,158
==========================================================================
Net increase in net assets resulting from operations $ 4,061,042
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-363
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,563,116) $ (3,749,647)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 19,026,392 9,151,671
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (13,402,234) (2,982,396)
==========================================================================================
Net increase in net assets resulting from operations 4,061,042 2,419,628
==========================================================================================
Share transactions-net:
Class A (13,470,372) (10,422,993)
- ------------------------------------------------------------------------------------------
Class B (9,440,141) (11,811,705)
- ------------------------------------------------------------------------------------------
Class C (2,871,385) (4,684,464)
- ------------------------------------------------------------------------------------------
Class R 204,721 676,095
- ------------------------------------------------------------------------------------------
Institutional Class -- 10,000
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (25,577,177) (26,233,067)
==========================================================================================
Net increase (decrease) in net assets (21,516,135) (23,813,439)
==========================================================================================
NET ASSETS:
Beginning of period 195,071,886 218,885,325
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(1,592,487) and $(29,371),
respectively) $173,555,751 $195,071,886
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-364
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid 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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-365
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
FS-366
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.80%
- --------------------------------------------------------------------
Over $1 billion 0.75%
____________________________________________________________________
====================================================================
</Table>
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund based on the Fund's average daily net assets do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
____________________________________________________________________
====================================================================
</Table>
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $36,886.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP agreed to reimburse $9,355 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $24,795.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $507,388 for Class A, Class B, Class C and Class R share
classes and $5 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R and Institutional Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules impose a cap on
the total sales charges, including asset-based sales charges that may be paid by
any class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2005, the Class A, Class B, Class C and Class R shares paid $181,426,
$359,708, $125,661 and $2,733, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $18,491 in
front-end sales commissions from the sale of Class A shares and $25, $18,942,
$1,745 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
FS-367
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,818,420 $29,453,914 $(28,886,642) $ -- $2,385,692 $26,132 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,818,420 29,453,914 (28,886,642) -- 2,385,692 26,626 --
==================================================================================================================================
Subtotal $ 3,636,840 $58,907,828 $(57,773,284) $ -- $4,771,384 $52,758 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $ 6,790,375 $27,408,013 $(29,475,288) $ -- $4,723,100 $ 7,003 $ --
==================================================================================================================================
Total $10,427,215 $86,315,841 $(87,248,572) $ -- $9,494,484 $59,761 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $1,609,832 and sales of $2,346,010,
which resulted in net realized gain (loss) of $(318,507).
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement, which resulted in the reduction
of the Fund's total expenses of $2,454.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$2,200 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.
FS-368
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan. During the six months ended
April 30, 2005, the average interfund borrowings for the one day the borrowings
were outstanding was $5,340,100 with a weighted average interest rate of 2.94%
and interest expense of $430.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. The Fund did not borrow under the facility
during the six months ended April 30, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $3,721,463 were on
loan to brokers. The loans were secured by cash collateral of $4,723,100
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2005, the Fund received dividends on
cash collateral of $7,003 for securities lending transactions, which are net of
rebates.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
October 31, 2008 $ 407,338
- ---------------------------------------------------------------------------
October 31, 2009 86,724,292
- ---------------------------------------------------------------------------
October 31, 2010 50,812,218
===========================================================================
Total capital loss carryforward $137,943,848
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
FS-369
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $124,041,823 and $152,710,015, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $20,666,997
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,002,162)
===============================================================================
Net unrealized appreciation of investment securities $12,664,835
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $165,081,014.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,606,859 $ 15,552,162 3,366,280 $ 31,467,821
- ----------------------------------------------------------------------------------------------------------------------
Class B 662,305 6,186,393 1,689,471 15,326,444
- ----------------------------------------------------------------------------------------------------------------------
Class C 320,993 3,010,529 1,055,967 9,613,286
- ----------------------------------------------------------------------------------------------------------------------
Class R 46,364 447,790 79,652 742,690
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) -- -- 1,085 10,000
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 103,592 1,007,200 287,382 2,711,609
- ----------------------------------------------------------------------------------------------------------------------
Class B (107,470) (1,007,200) (296,604) (2,711,609)
======================================================================================================================
Reacquired:
Class A (3,084,661) (30,029,734) (4,869,016) (44,602,423)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,558,332) (14,619,334) (2,730,826) (24,426,540)
- ----------------------------------------------------------------------------------------------------------------------
Class C (625,745) (5,881,914) (1,595,627) (14,297,750)
- ----------------------------------------------------------------------------------------------------------------------
Class R (25,701) (243,069) (7,765) (66,595)
======================================================================================================================
(2,661,796) $(25,577,177) (3,020,001) $(26,233,067)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Institutional Class shares commenced sales on April 30, 2004.
FS-370
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.29 2.49 (1.91) (5.69) 4.50
=================================================================================================================================
Total from investment operations 0.13 0.16 2.38 (2.04) (5.80) 4.38
=================================================================================================================================
Net asset value, end of period $ 9.21 $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.43% 1.79% 36.39% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $88,060 $99,262 $108,436 $63,463 $94,457 $114,913
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.76%(c) 1.74% 1.90% 1.83% 1.65% 1.63%(d)
=================================================================================================================================
Without fee waivers and/or expense
reimbursements 1.80%(c) 1.76% 1.90% 1.83% 1.65% 1.63%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.24)%(c) (1.36)% (1.42)% (1.49)% (1.06)% (0.76)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$104,530,799.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-371
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.27 2.43 (1.87) (5.62) 4.47
=================================================================================================================================
Total from investment operations 0.10 0.09 2.28 (2.05) (5.80) 4.25
=================================================================================================================================
Net asset value, end of period $ 8.87 $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.14% 1.04% 35.63% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $62,329 $70,421 $81,298 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.41%(c) 2.39% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Without fee waivers and/or expense
reimbursements 2.45%(c) 2.41% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.89)%(c) (2.01)% (2.07)% (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$72,537,839.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-372
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.27 2.43 (1.87) (5.63) 4.48
=================================================================================================================================
Total from investment operations 0.10 0.09 2.28 (2.05) (5.81) 4.26
=================================================================================================================================
Net asset value, end of period $ 8.87 $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.14% 1.04% 35.63% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $22,079 $24,503 $28,928 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.41%(c) 2.39% 2.55% 2.48% 2.32% 2.32%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.45%(c) 2.41% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.89)%(c) (2.01)% (2.07)% (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$25,340,541.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.03 $8.89 $6.54 $ 8.73
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.14)(a) (0.13)(a) (0.05)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 0.28 2.48 (2.14)
======================================================================================================================
Total from investment operations 0.13 0.14 2.35 (2.19)
======================================================================================================================
Net asset value, end of period $ 9.16 $9.03 $8.89 $ 6.54
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 1.44% 1.57% 35.93% (25.09)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,078 $ 877 $ 224 $ 7
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.91%(c) 1.89% 2.05% 1.98%(d)
======================================================================================================================
Without fee waivers and/or expense reimbursements 1.95%(c) 1.91% 2.05% 1.98%(d)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.39)%(c) (1.51)% (1.57)% (1.64)%(d)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,102,309.
(d) Annualized.
(e) Not annualized for periods less than one year.
FS-373
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.11 $ 9.22
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.04)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (0.07)
=============================================================================================
Total from investment operations 0.17 (0.11)
=============================================================================================
Net asset value, end of period $ 9.28 $ 9.11
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 1.87% (1.19)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10 $ 10
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.01%(c) 1.20%(d)
- ---------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.05%(c) 1.28%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(c) (0.82)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 63% 167%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $10,612.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these
FS-374
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals are defendants in numerous civil lawsuits
related to one or more of these issues. Regulatory actions and/or additional
civil lawsuits related to these or other issues may be filed against the AIM
Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-375
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS--99.35%
ADVERTISING--5.51%
Interpublic Group of Cos., Inc. (The) (a) 2,500 $ 32,150
- ------------------------------------------------------------------------------------------------------------------
Omnicom Group Inc. 500 41,450
==================================================================================================================
73,600
==================================================================================================================
AEROSPACE & DEFENSE--1.34%
Honeywell International Inc. 500 17,880
==================================================================================================================
APPAREL RETAIL--2.56%
Gap, Inc. (The) 1,600 34,160
==================================================================================================================
BREWERS--0.81%
Molson Coors Brewing Co.-Class B 175 10,806
==================================================================================================================
BUILDING PRODUCTS--2.51%
American Standard Cos. Inc. 750 33,532
==================================================================================================================
DATA PROCESSING & OUTSOURCED SERVICES--5.16%
Ceridian Corp. (a) 1,600 26,992
- ------------------------------------------------------------------------------------------------------------------
First Data Corp. 1,100 41,833
==================================================================================================================
68,825
==================================================================================================================
DIVERSIFIED COMMERCIAL SERVICES--5.60%
Cendant Corp. 2,000 39,820
- ------------------------------------------------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 1,900 34,998
==================================================================================================================
74,818
==================================================================================================================
ENVIRONMENTAL SERVICES--2.99%
Waste Management, Inc. 1,400 39,886
==================================================================================================================
FOOD RETAIL--3.22%
Kroger Co. (The) (a) 1,650 26,020
- ------------------------------------------------------------------------------------------------------------------
Safeway Inc. (a) 800 17,032
==================================================================================================================
43,052
==================================================================================================================
GENERAL MERCHANDISE STORES--2.09%
Target Corp. 600 27,840
==================================================================================================================
</Table>
FS-376
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS--8.32%
Cardinal Health, Inc. 1,400 $ 77,798
- ------------------------------------------------------------------------------------------------------------------
McKesson Corp. 900 33,300
==================================================================================================================
111,098
==================================================================================================================
HEALTH CARE EQUIPMENT--2.55%
Waters Corp. (a) 860 34,082
==================================================================================================================
HEALTH CARE SERVICES--0.54%
IMS Health Inc. 300 7,194
==================================================================================================================
HOTELS, RESORTS & CRUISE LINES--1.71%
Starwood Hotels & Resorts Worldwide, Inc. (b) 420 22,823
==================================================================================================================
INDUSTRIAL CONGLOMERATES--4.46%
Tyco International Ltd. (Bermuda) 1,900 59,489
==================================================================================================================
INVESTMENT BANKING & BROKERAGE--3.23%
Merrill Lynch & Co., Inc. 800 43,144
==================================================================================================================
LEISURE PRODUCTS--2.20%
Brunswick Corp. 700 29,400
==================================================================================================================
MANAGED HEALTH CARE--4.50%
WellPoint, Inc. (a) 470 60,042
==================================================================================================================
OIL & GAS DRILLING--5.90%
Pride International, Inc. (a) 1,450 32,335
- ------------------------------------------------------------------------------------------------------------------
Transocean Inc. (Cayman Islands) (a) 1,000 46,370
==================================================================================================================
78,705
==================================================================================================================
OIL & GAS EQUIPMENT & SERVICES--1.76%
Weatherford International Ltd. (Bermuda) (a) 450 23,468
==================================================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--7.79%
Citigroup Inc. 1,100 51,656
- ------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,475 52,348
==================================================================================================================
104,004
==================================================================================================================
PHARMACEUTICALS--9.29%
Pfizer Inc. 1,300 35,321
- ------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis (France) (c) 687 60,836
- ------------------------------------------------------------------------------------------------------------------
Wyeth 620 27,863
==================================================================================================================
124,020
==================================================================================================================
</Table>
FS-377
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE--2.74%
ACE Ltd. (Cayman Islands) 850 $ 36,516
==================================================================================================================
SEMICONDUCTOR EQUIPMENT--1.40%
Novellus Systems, Inc. (a) 800 18,744
==================================================================================================================
SYSTEMS SOFTWARE--4.13%
Computer Associates International, Inc. 2,050 55,145
==================================================================================================================
THRIFTS & MORTGAGE FINANCE--7.04%
Fannie Mae 1,000 53,950
- ------------------------------------------------------------------------------------------------------------------
Freddie Mac 650 39,988
==================================================================================================================
93,938
==================================================================================================================
Total Common Stocks & Other Equity Interests (Cost $1,061,843) 1,326,211
==================================================================================================================
TOTAL INVESTMENTS--99.35% (Cost $1,061,843) 1,326,211
==================================================================================================================
OTHER ASSETS LESS LIABILITIES--0.65% 8,641
==================================================================================================================
NET ASSETS--100.00% $1,334,852
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Each unit represents one common share and one Class B share.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at April 30, 2005 represented 4.59% of the
Fund's Total Investments. See Note 1A.
See accompanying notes which are an integral part of the financial statements.
FS-378
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost $1,061,843) $ 1,326,211
- -------------------------------------------------------------------------------------------------------
Cash 12,331
- -------------------------------------------------------------------------------------------------------
Receivables for:
Dividends 1,441
- -------------------------------------------------------------------------------------------------------
Amount due from advisor 14,841
- -------------------------------------------------------------------------------------------------------
Other assets 138
=======================================================================================================
Total assets 1,354,962
_______________________________________________________________________________________________________
=======================================================================================================
LIABILITIES:
Accrued trustees' fees 10,727
- -------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 10
- -------------------------------------------------------------------------------------------------------
Accrued operating expenses 9,373
=======================================================================================================
Total liabilities 20,110
=======================================================================================================
Net assets applicable to shares outstanding $ 1,334,852
=======================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 1,044,533
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income (loss) (4,191)
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and foreign currencies 30,142
- -------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 264,368
=======================================================================================================
$ 1,334,852
_______________________________________________________________________________________________________
=======================================================================================================
NET ASSETS:
Class A $ 533,937
_______________________________________________________________________________________________________
=======================================================================================================
Class B $ 400,457
_______________________________________________________________________________________________________
=======================================================================================================
Class C $ 400,458
_______________________________________________________________________________________________________
=======================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 42,364
_______________________________________________________________________________________________________
=======================================================================================================
Class B 31,774
_______________________________________________________________________________________________________
=======================================================================================================
Class C 31,774
_______________________________________________________________________________________________________
=======================================================================================================
Class A:
Net asset value per share $ 12.60
- -------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $12.60 / 94.50%) $ 13.33
_______________________________________________________________________________________________________
=======================================================================================================
Class B:
Net asset value and offering price per share $ 12.60
_______________________________________________________________________________________________________
=======================================================================================================
Class C:
Net asset value and offering price per share $ 12.60
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-379
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends $ 7,714
=======================================================================================================
EXPENSES:
Advisory fees 5,107
- -------------------------------------------------------------------------------------------------------
Administrative services fees 24,795
- -------------------------------------------------------------------------------------------------------
Custodian fees 823
- -------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 953
- -------------------------------------------------------------------------------------------------------
Class B 2,043
- -------------------------------------------------------------------------------------------------------
Class C 2,043
- -------------------------------------------------------------------------------------------------------
Transfer agent fees 47
- -------------------------------------------------------------------------------------------------------
Trustees' and officers fees and benefits 8,259
- -------------------------------------------------------------------------------------------------------
Professional services fees 16,003
- -------------------------------------------------------------------------------------------------------
Other 1,576
=======================================================================================================
Total expenses 61,649
=======================================================================================================
Less: Fees waived, expenses reimbursed and expense offset arrangements (49,744)
=======================================================================================================
Net expenses 11,905
=======================================================================================================
Net investment income (loss) (4,191)
=======================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment securities 30,140
- -------------------------------------------------------------------------------------------------------
Foreign currencies 14
=======================================================================================================
30,154
=======================================================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 32,374
- -------------------------------------------------------------------------------------------------------
Foreign currencies (7)
=======================================================================================================
32,367
=======================================================================================================
Net gain from investment securities
and foreign currencies 62,521
=======================================================================================================
Net increase in net assets resulting from operations $ 58,330
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-380
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,191) $ (8,938)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities
and foreign currencies 30,154 89,846
- ------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities
and foreign currencies 32,367 16,789
==============================================================================================================================
Net increase in net assets resulting from operations 58,330 97,697
==============================================================================================================================
Distributions to shareholders from net realized gains:
Class A (24,703) --
- ------------------------------------------------------------------------------------------------------------------------------
Class B (18,527) --
- ------------------------------------------------------------------------------------------------------------------------------
Class C (18,527) --
==============================================================================================================================
Decrease in net assets resulting from distributions (61,757) --
==============================================================================================================================
Share reinvested:
Class A 24,703 --
- ------------------------------------------------------------------------------------------------------------------------------
Class B 18,527 --
- ------------------------------------------------------------------------------------------------------------------------------
Class C 18,527 --
==============================================================================================================================
Net increase (decrease) in net assets resulting from share transactions 61,757 --
==============================================================================================================================
Net increase in net assets 58,330 97,697
==============================================================================================================================
NET ASSETS:
Beginning of period 1,276,522 1,178,825
==============================================================================================================================
End of period (including undistributed net investment $ 1,334,852 $ 1,276,522
income (loss) of $(4,191) and $0, respectively)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-381
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
AIM Select 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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund is currently not open to investors.
The Fund's investment objective is to provide long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds)
is valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services, which may be
considered fair valued, or market makers. Each security reported on the
NASDAQ National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
FS-382
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs and domestic
and foreign index futures.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. 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
FS-383
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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2 -- ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
---------------------------------------------------------------------------------
First $1 billion 0.75%
Next $1 billion 0.70%
Over $2 billion 0.65%
---------------------------------------------------------------------------------
</Table>
Effective January 1, 2005 through June 30, 2006, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund based on the Fund's average daily net assets do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
---------------------------------------------------------------------------------
First $250 million 0.695%
Next $250 million 0.67%
Next $500 million 0.645%
Next $1.5 billion 0.62%
Next $2.5 billion 0.595%
Next $2.5 billion 0.57%
Next $2.5 billion 0.545%
Over $10 billion 0.52%
---------------------------------------------------------------------------------
</Table>
AIM has voluntarily agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Class A, Class B and Class C shares
to 1.75% of average daily net assets. In determining the advisor's obligation to
waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the total annual fund operating expenses to
exceed the limits stated above: (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP PLC
FS-384
("AMVESCAP") described more fully below, the only expense offset arrangements
from which the Fund may benefit are in the form of credits that the Fund
receives from banks where the Fund or its transfer agent has deposit accounts in
which it holds uninvested cash. Those credits are used to pay certain expenses
incurred by the Fund. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors. To the extent that the annualized expense ratio
does not exceed the expense limitation, AIM will retain its ability to be
reimbursed for such fee waivers or reimbursements prior to the end of each
fiscal year.
For the six months ended April 30, 2005, AIM waived fees of $5,107 and
reimbursed expenses of $38,602.
For the six months ended April 30, 2005, at the request of the Trustees
of the Trust, AMVESCAP agreed to reimburse $804 of 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.
The Fund, pursuant to a master administrative services agreement with
AIM, has agreed to pay AIM for certain administrative costs incurred in
providing accounting services to the Fund. Pursuant to such agreement, for the
six months ended April 30, 2005, AIM was paid $24,795.
The Fund, pursuant to a transfer agency and service agreement, has
agreed to pay AIM Investment Services, Inc. ("AISI") a fee for providing
transfer agency and shareholder services to the Fund and reimburse AISI for
certain expenses incurred by AISI in the course of providing such services. AISI
may make payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the six months ended
April 30, 2005, the Fund paid AISI $47.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B
and Class C shares of the Fund. The Trust has adopted plans pursuant to Rule
12b-1 under the 1940 Act with respect to the Fund's Class A, Class B and Class C
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.35% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Of these amounts, up to 0.25% of the average daily net assets of the
Class A, Class B or Class C shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules impose a cap on the total amount of sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. ADI has voluntarily agreed to waive all fees during the time
the shares are not available for sale. Waivers may be modified or discontinued
at any time. ADI waived all plan fees of $953, $2,043, and $2,043 for the Class
A, Class B and Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors
of AIM, AISI and/or ADI.
NOTE 3 -- 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 six
months ended April 30, 2005, the Fund received credits from these arrangements
which resulted in the reduction of the Fund's total expenses of $192.
NOTE 4 -- TRUSTEES' FEES
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
FS-385
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$1,847 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 5 -- BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended April 30, 2005, the Fund did not borrow or
lend under the interfund lending facility or borrow under the uncommitted
unsecured revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6 -- TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had no capital loss carryforward as of October 31, 2004.
NOTE 7 -- INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $119,224 and $115,835, respectively. For interim
reporting periods, the cost of investments for tax purposes includes reversals
of certain tax items, such as, wash sales that have occurred since the prior
fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
-----------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 314,880
-----------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (50,512)
=========================================================================================
Net unrealized appreciation of investment securities $ 264,368
_________________________________________________________________________________________
=========================================================================================
Investments have the same cost for tax and financial statement purposes.
</Table>
FS-386
NOTE 8 -- SHARE INFORMATION
The Fund currently consists of three different classes of shares that are not
available for sale: Class A shares, Class B shares and Class C shares. Class A
shares are sold with a front-end sales charge. Class B shares and Class C shares
are sold with CDSC. Under certain circumstances, Class A shares are subject to
CDSC. Generally, Class B shares will automatically convert to Class A shares
eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING (a)
- --------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
2005 2004
-------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Issued as reinvestment of dividends:
Class A 1,887 24,703 -- --
----------------------------------------------------------------------------------------------------
Class B 1,417 18,527 -- --
----------------------------------------------------------------------------------------------------
Class C 1,417 18,527 -- --
====================================================================================================
4,721 $ 61,757 -- $ --
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
FS-387
NOTE 9 -- FINANCIAL HIGHLIGHTS
<Table>
<Caption>
CLASS A
------------------------------------------------------------------
AUGUST 30, 2002
SIX MONTHS YEAR ENDED OCTOBER 31, (DATE OPERATIONS
ENDED -------------------------- COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004 2003 2002
---------- ---------- ---------- ---------------
Net asset value, beginning of period $ 12.61 $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.04) (0.09) (0.07) (0.01)
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 0.64 1.05 2.70 (0.86)
============================================================ ========== ========== ========== ==========
Total from investment operations 0.60 0.96 2.63 (0.87)
============================================================ ========== ========== ========== ==========
Less distributions:
Dividends from net investment income -- -- (0.11) --
============================================================ ========== ========== ========== ==========
Distributions from net realized gains (0.61) -- -- --
============================================================ ========== ========== ========== ==========
Total distributions (0.61) -- (0.11) --
============================================================ ========== ========== ========== ==========
Net asset value, end of period $ 12.60 $ 12.61 $ 11.65 $ 9.13
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Total return (a) 4.58% 8.24% 29.12% (8.70)%
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 534 $ 511 $ 472 $ 365
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.78%(b) 1.77% 1.83% 1.75%(c)
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Without fee waivers and/or expense reimbursements 8.66%(b) 9.96% 10.27% 23.74%(c)
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratio of net investment income (loss) to average net assets (0.62)%(b) (0.70)% (0.75)% (0.49)%(c)
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Portfolio turnover rate (d) 9% 19% 20% 4%
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $549,282.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-388
NOTE 9 -- FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
AUGUST 30, 2002
SIX MONTHS YEAR ENDED OCTOBER 31, (DATE OPERATIONS
ENDED -------------------------- COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004 2003 2002
---------- ---------- ---------- ---------------
Net asset value, beginning of period $ 12.62 $ 11.65 $ 9.13 $ 10.00
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.04) (0.09) (0.07) (0.01)
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 0.63 1.06 2.70 (0.86)
============================================================ ========== ========== ========== ==========
Total from investment operations 0.59 0.97 2.63 (0.87)
============================================================ ========== ========== ========== ==========
Less distributions:
Dividends from net investment income -- -- (0.11) --
============================================================ ========== ========== ========== ==========
Distributions from net realized gains (0.61) -- -- --
============================================================ ========== ========== ========== ==========
Total distributions (0.61) -- (0.11) --
============================================================ ========== ========== ========== ==========
Net asset value, end of period $ 12.60 $ 12.62 $ 11.65 $ 9.13
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Total return (a) 4.50% 8.33% 29.12% (8.70)%
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 400 $ 383 $ 354 $ 274
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.78%(b) 1.77% 1.83% 1.75%(c)
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Without fee waivers and/or expense reimbursements 9.31%(b) 10.61% 10.92% 24.39%(c)
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Ratio of net investment income (loss) to average net assets (0.62)%(b) (0.70)% (0.75)% (0.49)%(c)
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
Portfolio turnover rate (d) 9% 19% 20% 4%
____________________________________________________________ __________ __________ __________ __________
============================================================ ========== ========== ========== ==========
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $411,967.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-389
NOTE 9 -- FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------
AUGUST 30, 2002
SIX MONTHS YEAR ENDED OCTOBER 31, (DATE OPERATIONS
ENDED -------------------------- COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004 2003 2002
---------- ---------- ---------- ----------------
Net asset value, beginning of period $ 12.62 $ 11.65 $ 9.13 $ 10.00
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.04) (0.09) (0.07) (0.01)
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
Net gains (losses) on securities (both realized and
unrealized) 0.63 1.06 2.70 (0.86)
=========================================================== ========== ========== ========== ==========
Total from investment operations 0.59 0.97 2.63 (0.87)
=========================================================== ========== ========== ========== ==========
Less distributions:
Dividends from net investment income -- -- (0.11) --
=========================================================== ========== ========== ========== ==========
Distributions from net realized gains (0.61) -- -- --
=========================================================== ========== ========== ========== ==========
Total distributions (0.61) -- (0.11) --
=========================================================== ========== ========== ========== ==========
Net asset value, end of period $ 12.60 $ 12.62 $ 11.65 $ 9.13
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
Total return (a) 4.50% 8.33% 29.12% (8.70)%
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 400 $ 383 $ 354 $ 274
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.78%(b) 1.77% 1.83% 1.75%(c)
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
Without fee waivers and/or expense reimbursements 9.31%(b) 10.61% 10.92% 24.39%(c)
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
Ratio of net investment income (loss) to average net assets (0.62)%(b) (0.70)% (0.75)% (0.49)%(c)
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
Portfolio turnover rate (d) 9% 19% 20% 4%
___________________________________________________________ __________ __________ __________ __________
=========================================================== ========== ========== ========== ==========
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Does not include sales charges and is not annualized for
periods less than one year.
(b) Ratios are annualized and based on average daily net assets of $411,967.
(c) Annualized.
(d) Not annualized for periods less than one year.
FS-390
NOTE 10 -- LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, some of which concern one or more AIM Funds: market timing
activity, late trading, fair value pricing, excessive or improper advisory
and/or distribution fees, mutual fund sales practices, including revenue sharing
and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders. IFG,
AIM and ADI are providing full cooperation with respect to these inquiries. As
described more fully below, the AIM Funds, IFG, AIM, ADI and/or related entities
and individuals are defendants in numerous civil lawsuits related to one or more
of these issues. Regulatory actions and/or additional civil lawsuits related to
these or other issues may be filed against the AIM Funds, IFG, AIM and/or
related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed civil proceedings against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in these proceedings. The WVAG complaint,
filed in the Circuit Court of Marshall County, West Virginia [Civil Action No.
05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose in
the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
Section 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG proceedings, it could be barred
from serving as an investment
FS-391
NOTE 10 -- LEGAL PROCEEDINGS (CONTINUED)
advisor for any investment company registered under the Investment Company Act
of 1940, as amended (a "registered investment company"). Such results could
affect the ability of AIM or any other investment advisor directly or indirectly
owned by AMVESCAP, from serving as an investment advisor to any registered
investment company, including the Fund. The Fund has been informed by AIM that,
if these results occur, AIM will seek exemptive relief from the SEC to permit it
to continue to serve as the Fund's investment advisor. There is no assurance
that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
o that the defendants permitted improper market timing and related issues in
the AIM Funds;
o that certain AIM Funds inadequately employed fair value pricing;
o that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
o that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same
fund were not charged the same distribution fees;
o that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
o that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
********************************************************************************
As a result of the matters discussed above, investors in the AIM Funds
might react by redeeming their investments. This might require the AIM Funds to
sell investments to provide for sufficient liquidity and could also have an
adverse effect on the investment performance of the AIM Funds.
FS-392
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.15%
AEROSPACE & DEFENSE-0.80%
Boeing Co. (The) 275,000 $ 16,368,000
==========================================================================
AIR FREIGHT & LOGISTICS-1.14%
FedEx Corp. 275,000 23,361,250
==========================================================================
APPAREL RETAIL-1.00%
Chico's FAS, Inc.(a) 800,000 20,504,000
==========================================================================
APPLICATION SOFTWARE-1.88%
Amdocs Ltd. (United Kingdom)(a) 1,450,000 38,729,500
==========================================================================
BIOTECHNOLOGY-1.62%
Gilead Sciences, Inc.(a) 900,000 33,390,000
==========================================================================
CASINOS & GAMING-1.00%
Las Vegas Sands Corp.(a)(b) 550,000 20,597,500
==========================================================================
COMMUNICATIONS EQUIPMENT-4.91%
Cisco Systems, Inc.(a) 2,100,000 36,288,000
- --------------------------------------------------------------------------
QUALCOMM Inc. 1,300,000 45,357,000
- --------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a)(b) 300,000 19,323,000
==========================================================================
100,968,000
==========================================================================
COMPUTER HARDWARE-5.15%
Apple Computer, Inc.(a) 1,200,000 43,272,000
- --------------------------------------------------------------------------
Dell Inc.(a) 1,800,000 62,694,000
==========================================================================
105,966,000
==========================================================================
COMPUTER STORAGE & PERIPHERALS-2.71%
EMC Corp.(a) 2,650,000 34,768,000
- --------------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 300,000 20,835,000
==========================================================================
55,603,000
==========================================================================
CONSUMER FINANCE-2.90%
American Express Co. 500,000 26,350,000
- --------------------------------------------------------------------------
SLM Corp. 700,000 33,348,000
==========================================================================
59,698,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.97%
Alliance Data Systems Corp.(a) 600,000 24,240,000
- --------------------------------------------------------------------------
Automatic Data Processing, Inc. 375,000 16,290,000
==========================================================================
40,530,000
==========================================================================
DEPARTMENT STORES-3.60%
J.C. Penney Co., Inc. 700,000 33,187,000
- --------------------------------------------------------------------------
Kohl's Corp.(a) 111,400 5,302,640
- --------------------------------------------------------------------------
Nordstrom, Inc. 700,000 35,581,000
==========================================================================
74,070,640
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DISTILLERS & VINTNERS-0.71%
Constellation Brands, Inc.-Class A(a) 275,000 14,495,250
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.04%
Cendant Corp. 1,075,000 $ 21,403,250
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.31%
Cooper Industries, Ltd.-Class A (Bermuda) 275,000 17,506,500
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 646,400 29,883,072
==========================================================================
47,389,572
==========================================================================
FOOTWEAR-1.31%
NIKE, Inc.-Class B 350,000 26,883,500
==========================================================================
GENERAL MERCHANDISE STORES-1.13%
Target Corp. 500,000 23,200,000
==========================================================================
HEALTH CARE EQUIPMENT-3.58%
Bard (C.R.), Inc. 300,000 21,351,000
- --------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 300,000 18,435,000
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 475,000 16,026,500
- --------------------------------------------------------------------------
Waters Corp.(a) 450,000 17,833,500
==========================================================================
73,646,000
==========================================================================
HEALTH CARE FACILITIES-1.56%
HCA Inc. 575,000 32,108,000
==========================================================================
HEALTH CARE SERVICES-1.07%
Caremark Rx, Inc.(a) 550,000 22,027,500
==========================================================================
HEALTH CARE SUPPLIES-1.53%
Alcon, Inc. (Switzerland)(a) 325,000 31,525,000
==========================================================================
HOME IMPROVEMENT RETAIL-0.95%
Home Depot, Inc. (The) 550,000 19,453,500
==========================================================================
HOMEBUILDING-0.82%
D.R. Horton, Inc. 550,000 16,775,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.22%
Hilton Hotels Corp. 1,150,000 25,104,500
==========================================================================
HOUSEHOLD PRODUCTS-1.00%
Clorox Co. (The) 325,000 20,572,500
==========================================================================
HOUSEWARES & SPECIALTIES-1.54%
Fortune Brands, Inc. 375,000 31,717,500
==========================================================================
INDUSTRIAL CONGLOMERATES-5.14%
Textron Inc. 300,000 22,605,000
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 2,650,000 82,971,500
==========================================================================
105,576,500
==========================================================================
INDUSTRIAL MACHINERY-0.86%
Danaher Corp. 350,000 17,720,500
==========================================================================
</Table>
FS-393
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INTEGRATED OIL & GAS-1.02%
ConocoPhillips 200,000 $ 20,970,000
==========================================================================
INTERNET SOFTWARE & SERVICES-5.72%
Google Inc.-Class A(a)(b) 200,000 44,000,000
- --------------------------------------------------------------------------
VeriSign, Inc.(a) 1,150,000 30,429,000
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 1,250,000 43,137,500
==========================================================================
117,566,500
==========================================================================
INVESTMENT BANKING & BROKERAGE-4.76%
Goldman Sachs Group, Inc. (The) 500,000 53,395,000
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 250,000 22,930,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 400,000 21,572,000
==========================================================================
97,897,000
==========================================================================
IT CONSULTING & OTHER SERVICES-0.95%
Accenture Ltd.-Class A (Bermuda)(a) 900,000 19,530,000
==========================================================================
MANAGED HEALTH CARE-5.60%
Aetna Inc. 750,000 55,027,500
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 400,000 37,804,000
- --------------------------------------------------------------------------
WellPoint, Inc.(a) 175,000 22,356,250
==========================================================================
115,187,750
==========================================================================
MOVIES & ENTERTAINMENT-1.48%
Walt Disney Co. (The) 1,150,000 30,360,000
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.63%
BJ Services Co. 700,000 34,125,000
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 500,000 19,870,000
==========================================================================
53,995,000
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.50%
Valero Energy Corp. 450,000 30,838,500
==========================================================================
PERSONAL PRODUCTS-2.26%
Gillette Co. (The) 900,000 46,476,000
==========================================================================
PHARMACEUTICALS-5.06%
Johnson & Johnson 850,000 58,335,500
- --------------------------------------------------------------------------
Sepracor Inc.(a)(b) 400,000 23,968,000
- --------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 700,000 21,756,000
==========================================================================
104,059,500
==========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
RESTAURANTS-1.51%
McDonald's Corp. 500,000 $ 14,655,000
- --------------------------------------------------------------------------
Yum! Brands, Inc. 350,000 16,436,000
==========================================================================
31,091,000
==========================================================================
SEMICONDUCTORS-4.77%
Analog Devices, Inc. 1,100,000 37,521,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 950,000 27,056,000
- --------------------------------------------------------------------------
National Semiconductor Corp. 1,750,000 33,390,000
==========================================================================
97,967,000
==========================================================================
SPECIALIZED FINANCE-1.19%
Chicago Mercantile Exchange Holdings Inc. 125,000 24,440,000
==========================================================================
SPECIALTY CHEMICALS-1.03%
Ecolab Inc. 650,000 21,261,500
==========================================================================
SYSTEMS SOFTWARE-4.22%
McAfee Inc.(a) 248,600 5,198,226
- --------------------------------------------------------------------------
Oracle Corp.(a) 3,500,000 40,460,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 2,000,000 41,180,000
==========================================================================
86,838,226
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,688,052,756) 2,017,861,938
==========================================================================
MONEY MARKET FUNDS-2.05%
Liquid Assets Portfolio-Institutional
Class(c) 21,046,502 21,046,502
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 21,046,502 21,046,502
==========================================================================
Total Money Market Funds (Cost
$42,093,004) 42,093,004
==========================================================================
TOTAL INVESTMENTS-100.20% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,730,145,760) 2,059,954,942
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED MONEY MARKET
FUNDS-2.86%
STIC Prime Portfolio-Institutional
Class(c)(d) 58,849,525 58,849,525
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $58,849,525) 58,849,525
==========================================================================
TOTAL INVESTMENTS-103.06% (Cost
$1,788,995,285) 2,118,804,467
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.06%) (62,915,799)
==========================================================================
NET ASSETS-100.00% $2,055,888,668
__________________________________________________________________________
==========================================================================
Investment Abbreviations:
</Table>
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005 .
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
FS-394
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,688,052,756)* $ 2,017,861,938
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $100,942,529) 100,942,529
============================================================
Total investments (cost $1,788,995,285) 2,118,804,467
============================================================
Receivables for:
Investments sold 21,581,790
- ------------------------------------------------------------
Fund shares sold 584,850
- ------------------------------------------------------------
Dividends 968,339
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 211,894
- ------------------------------------------------------------
Other assets 128,376
============================================================
Total assets 2,142,279,716
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 18,939,872
- ------------------------------------------------------------
Fund shares reacquired 5,562,588
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 497,176
- ------------------------------------------------------------
Collateral upon return of securities
loaned 58,849,525
- ------------------------------------------------------------
Accrued distribution fees 740,478
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,782
- ------------------------------------------------------------
Accrued transfer agent fees 1,462,644
- ------------------------------------------------------------
Accrued operating expenses 333,983
============================================================
Total liabilities 86,391,048
============================================================
Net assets applicable to shares outstanding $ 2,055,888,668
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 4,883,168,381
- ------------------------------------------------------------
Undistributed net investment income (loss) (5,875,139)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option
contracts (3,151,213,756)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 329,809,182
============================================================
$ 2,055,888,668
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 1,618,532,928
____________________________________________________________
============================================================
Class B $ 366,723,117
____________________________________________________________
============================================================
Class C $ 67,313,497
____________________________________________________________
============================================================
Class R $ 1,612,837
____________________________________________________________
============================================================
Institutional Class $ 1,706,289
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 133,066,083
____________________________________________________________
============================================================
Class B 32,959,977
____________________________________________________________
============================================================
Class C 6,044,504
____________________________________________________________
============================================================
Class R 133,457
____________________________________________________________
============================================================
Institutional Class 132,105
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.16
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.16 divided by
94.50%) $ 12.87
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 11.13
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.14
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.09
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.92
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $57,096,353
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
FS-395
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $357) $ 11,963,824
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $55,923 after rebates of
$415,906) 166,381
===========================================================================
Total investment income 12,130,205
===========================================================================
EXPENSES:
Advisory fees 7,408,645
- ---------------------------------------------------------------------------
Administrative services fees 243,033
- ---------------------------------------------------------------------------
Custodian fees 50,666
- ---------------------------------------------------------------------------
Distribution fees:
Class A 2,688,134
- ---------------------------------------------------------------------------
Class B 2,089,262
- ---------------------------------------------------------------------------
Class C 380,433
- ---------------------------------------------------------------------------
Class R 3,967
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 4,308,306
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 913
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 50,778
- ---------------------------------------------------------------------------
Other 462,940
===========================================================================
Total expenses 17,687,077
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (166,118)
===========================================================================
Net expenses 17,520,959
===========================================================================
Net investment income (loss) (5,390,754)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gain (loss) from
securities sold to affiliates of $(750,898)) 186,981,968
- ---------------------------------------------------------------------------
Option contracts written 1,212,461
===========================================================================
188,194,429
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (141,841,247)
- ---------------------------------------------------------------------------
Option contracts written (23,540)
===========================================================================
(141,864,787)
===========================================================================
Net gain from investment securities and option contracts 46,329,642
===========================================================================
Net increase in net assets resulting from operations $ 40,938,888
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-396
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (5,390,754) $ (21,767,576)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 188,194,429 236,255,314
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (141,864,787) (114,821,148)
==============================================================================================
Net increase in net assets resulting from operations 40,938,888 99,666,590
==============================================================================================
Share transactions-net:
Class A (259,345,924) (395,056,301)
- ----------------------------------------------------------------------------------------------
Class B (74,620,782) (138,803,397)
- ----------------------------------------------------------------------------------------------
Class C (12,197,097) (15,793,039)
- ----------------------------------------------------------------------------------------------
Class R 156,669 1,126,374
- ----------------------------------------------------------------------------------------------
Institutional Class (86,603) (547,138)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (346,093,737) (549,073,501)
==============================================================================================
Net increase (decrease) in net assets (305,154,849) (449,406,911)
==============================================================================================
NET ASSETS:
Beginning of period 2,361,043,517 2,810,450,428
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(5,875,139) and $(484,385),
respectively) $2,055,888,668 $2,361,043,517
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
FS-397
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Weingarten 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 thirteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to provide growth of capital. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
FS-398
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund paid an advisory fee based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $30 million 1.00%
- ----------------------------------------------------------------------
Next $320 million 0.75%
- ----------------------------------------------------------------------
Over $350 million 0.625%
______________________________________________________________________
======================================================================
</Table>
Effective January 1, 2005 through December 31, 2009, AIM has contractually
agreed to waive advisory fees to the extent necessary so that the advisory fees
payable by the Fund (based on the Fund's average daily net assets) do not exceed
the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $250 million 0.695%
- ----------------------------------------------------------------------
Next $250 million 0.67%
- ----------------------------------------------------------------------
Next $500 million 0.645%
- ----------------------------------------------------------------------
Next $1.5 billion 0.62%
- ----------------------------------------------------------------------
Next $2.5 billion 0.595%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
______________________________________________________________________
======================================================================
</Table>
FS-399
Under the terms of a master sub-advisory agreement between AIM and A I M
Capital Management, Inc. ("AIM Capital"), AIM pays AIM Capital 50% of the amount
paid by the Fund to AIM.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $62,848.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $75,427 of 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.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended April 30, 2005, AIM was paid $243,033.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $4,308,306 for Class A, Class B, Class C and Class R share
classes and $913 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R and Institutional Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.30% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to selected dealers and financial institutions who furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules impose a cap on the total sales charges,
including asset-based sales charges that may be paid by any class of shares of
the Fund. Pursuant to the Plans, for the six months ended April 30, 2005, the
Class A, Class B, Class C and Class R shares paid $2,688,134, $2,089,262,
$380,433 and $3,967, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $99,040 in
front-end sales commissions from the sale of Class A shares and $1,177, $86,886,
$3,471 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIM Capital, AISI and/or ADI.
FS-400
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,546,085 $182,155,234 $(167,654,817) $ -- $21,046,502 $ 54,859 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,546,085 182,155,234 (167,654,817) -- 21,046,502 55,599 --
===============================================================================================================================
Subtotal $13,092,170 $364,310,468 $(335,309,634) $ -- $42,093,004 $110,458 $ --
===============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $40,952,850 $234,408,345 $(216,511,670) $ -- $ 58,849,525 $ 55,923 $ --
===============================================================================================================================
Total $54,045,020 $598,718,813 $(551,821,304) $ -- $100,942,529 $166,381 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
* Net of rebates.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended April 30, 2005, the
Fund engaged in securities purchases of $33,084,071 and sales of $3,815,066,
which resulted in net realized gain (loss) of $(750,898).
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended April 30, 2005,
the Fund received credits from this arrangement which resulted in the reduction
of the Fund's total expenses of $27,843.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$5,996 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.
FS-401
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
During the six months ended April 30, 2005, the average interfund borrowings
for the 17 days the borrowings were outstanding was $7,503,571 with a weighted
average interest rate of 2.57% and interest expense of $8,980.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan. The Fund did not borrow under the facility
during the six months ended April 30, 2005.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At April 30, 2005, securities with an aggregate value of $57,096,353 were on
loan to brokers. The loans were secured by cash collateral of $58,849,525
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended April 30, 2005, the Fund received dividends on cash
collateral of $55,923 for securities lending transactions, which are net of
rebates.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of period 3,000 $ 421,040
- -------------------------------------------------------------------------------------
Written 1,477 1,110,403
- -------------------------------------------------------------------------------------
Closed (477) (811,191)
- -------------------------------------------------------------------------------------
Exercised (924) (132,776)
- -------------------------------------------------------------------------------------
Expired (3,076) (587,476)
=====================================================================================
End of period -- $ --
_____________________________________________________________________________________
=====================================================================================
</Table>
FS-402
NOTE 10--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $2,358,363,619
- ------------------------------------------------------------------------------
October 31, 2010 763,027,747
- ------------------------------------------------------------------------------
October 31, 2011 196,611,268
==============================================================================
Total capital loss carryforward $3,318,002,634
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $1,085,963,124 and $1,431,732,259, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $363,179,923
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (43,484,014)
==============================================================================
Net unrealized appreciation of investment securities $319,695,909
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,799,108,558.
</Table>
FS-403
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- ------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,118,284 $ 26,832,587 6,161,430 $ 74,474,713
- ------------------------------------------------------------------------------------------------------------------------------
Class B 1,054,165 12,243,873 2,836,554 31,535,843
- ------------------------------------------------------------------------------------------------------------------------------
Class C 349,994 4,055,643 1,109,204 12,390,482
- ------------------------------------------------------------------------------------------------------------------------------
Class R 25,422 321,355 139,257 1,669,192
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class 10,462 140,178 13,498 172,948
==============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,649,811 20,864,289 4,502,782 54,704,748
- ------------------------------------------------------------------------------------------------------------------------------
Class B (1,800,544) (20,864,289) (4,888,349) (54,704,748)
==============================================================================================================================
Reacquired:
Class A (24,188,075) (307,042,800) (43,655,916) (524,235,762)
- ------------------------------------------------------------------------------------------------------------------------------
Class B (5,680,482) (66,000,366) (10,449,964) (115,634,492)
- ------------------------------------------------------------------------------------------------------------------------------
Class C (1,398,272) (16,252,740) (2,535,106) (28,183,521)
- ------------------------------------------------------------------------------------------------------------------------------
Class R (13,100) (164,686) (45,049) (542,818)
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class (16,846) (226,781) (56,324) (720,086)
==============================================================================================================================
(27,889,181) $(346,093,737) (46,867,983) $(549,073,501)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 15% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund share. The Fund, AIM, and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Fund has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on March 22,
2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Buying Fund") a series of Buyer, would acquire all of the
assets of AIM Dent Demographic Trends Fund ("Selling Fund"), a series of AIM
Equity Funds ("the Reorganization"). Upon closing of the transaction,
shareholders of Selling Fund will receive a corresponding class of shares of
Buying Fund in exchange for their shares of Selling Fund, and Selling Fund will
cease operations.
The Agreement requires approval of Selling Fund shareholders. The Fund
currently intends to submit the Agreement to the shareholders for their
consideration at a meeting to be held on or around June 28, 2005. Additional
information regarding the Agreement will be included in proxy materials to be
mailed to shareholders for consideration. If the Agreement is approved by the
shareholders of Selling Fund and certain conditions required by the Agreement
are satisfied, the transaction is expected to become effective shortly
thereafter.
FS-404
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, -------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.02 $ 11.59 $ 9.47 $ 12.65 $ 28.16 $ 28.31
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.08)(b) (0.07) (0.07)(b) (0.10) (0.14)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.16 0.51 2.19 (3.11) (11.87) 3.18
=================================================================================================================================
Total from investment operations 0.14 0.43 2.12 (3.18) (11.97) 3.04
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (3.54) (3.19)
=================================================================================================================================
Net asset value, end of period $ 12.16 $ 12.02 $ 11.59 $ 9.47 $ 12.65 $ 28.16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.17% 3.71% 22.39% (25.14)% (47.38)% 10.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,618,533 $1,844,930 $2,160,823 $2,104,660 $4,001,552 $8,948,781
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.38%(d) 1.39% 1.47% 1.33% 1.21% 1.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.39%(d) 1.40% 1.47% 1.33% 1.22% 1.07%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.32)%(a)(d) (0.67)% (0.68)% (0.64)% (0.56)% (0.45)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 48% 74% 111% 217% 240% 145%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) 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 (0.54)% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,806,941,166.
(e) Not annualized for periods less than one year.
FS-405
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 11.03 $ 10.71 $ 8.82 $ 11.86 $ 26.82 $ 27.29
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.15)(b) (0.14) (0.15)(b) (0.21) (0.36)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.16 0.47 2.03 (2.89) (11.21) 3.08
=================================================================================================================================
Total from investment
operations 0.10 0.32 1.89 (3.04) (11.42) 2.72
=================================================================================================================================
Less distributions from net
realized gains -- -- -- -- (3.54) (3.19)
=================================================================================================================================
Net asset value, end of period $ 11.13 $ 11.03 $ 10.71 $ 8.82 $ 11.86 $ 26.82
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.91% 2.99% 21.43% (25.63)% (47.75)% 9.76%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $366,723 $434,572 $555,779 $533,224 $922,476 $1,927,514
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.08%(d) 2.09% 2.17% 2.04% 1.92% 1.78%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.09%(d) 2.10% 2.17% 2.04% 1.93% 1.82%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets (1.02)%(a)(d) (1.37)% (1.38)% (1.34)% (1.27)% (1.20)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 48% 74% 111% 217% 240% 145%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.08) and (1.24)% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$421,315,256.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
---------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.04 $ 10.72 $ 8.83 $ 11.87 $ 26.85 $ 27.30
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.15)(b) (0.14) (0.15)(b) (0.21) (0.36)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.16 0.47 2.03 (2.89) (11.23) 3.10
=================================================================================================================================
Total from investment operations 0.10 0.32 1.89 (3.04) (11.44) 2.74
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (3.54) (3.19)
=================================================================================================================================
Net asset value, end of period $ 11.14 $ 11.04 $ 10.72 $ 8.83 $ 11.87 $ 26.85
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 0.91% 2.99% 21.40% (25.61)% (47.77)% 9.83%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $67,313 $78,330 $91,325 $86,455 $150,604 $301,590
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 2.08%(d) 2.09% 2.17% 2.04% 1.92% 1.78%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.09%(d) 2.10% 2.17% 2.04% 1.93% 1.82%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.02)%(a)(d) (1.37)% (1.38)% (1.34)% (1.27)% (1.20)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 48% 74% 111% 217% 240% 145%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend are $(0.08) and (1.24)% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$76,717,203.
(e) Not annualized for periods less than one year.
FS-406
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
----------------------------------------------------------
SIX MONTHS YEAR ENDED JUNE 3, 2002
ENDED OCTOBER 31, (DATE SALES
APRIL 30, ------------------- COMMENCED) TO
2005 2004 2003 OCTOBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.95 $11.56 $ 9.47 $ 11.36
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.10)(b) (0.06) (0.03)(b)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.17 0.49 2.15 (1.86)
========================================================================================================================
Total from investment operations 0.14 0.39 2.09 (1.89)
========================================================================================================================
Net asset value, end of period $12.09 $11.95 $11.56 $ 9.47
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) 1.17% 3.37% 22.07% (16.64)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,613 $1,448 $ 311 $ 76
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.58%(d) 1.59% 1.67% 1.53%(e)
========================================================================================================================
Without fee waivers and/or expense reimbursements 1.59%(d) 1.60% 1.67% 1.53%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)%(a)(d) (0.87)% (0.88)% (0.84)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 48% 74% 111% 217%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) 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 $(0.05) and (0.74)% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,600,090.
(e) Annualized.
(f) Not annualized for periods less than one year.
FS-407
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED OCTOBER 31,
APRIL 30, ----------------------------------------------------------
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.73 $12.20 $ 9.91 $ 13.16 $ 29.00 $ 28.96
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) (0.01)(b) 0.00 (0.01)(b) (0.01) (0.06)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.17 0.54 2.29 (3.24) (12.29) 3.29
=================================================================================================================================
Total from investment operations 0.19 0.53 2.29 (3.25) (12.30) 3.23
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.54) (3.19)
=================================================================================================================================
Net asset value, end of period $12.92 $12.73 $12.20 $ 9.91 $ 13.16 $ 29.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.49% 4.34% 23.11% (24.70)% (47.11)% 11.07%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,706 $1,763 $2,213 $ 1,883 $ 7,667 $18,634
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.81%(d) 0.84% 0.78% 0.82% 0.69% 0.64%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.82%(d) 0.85% 0.78% 0.82% 0.70% 0.68%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.25%(a)(d) (0.12)% 0.01% (0.12)% (0.04)% (0.04)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 48% 74% 111% 217% 240% 145%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment income to average net
assets excluding the special dividend are $0.00 and 0.03% respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,839,891.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, 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
FS-408
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
Section 529 college savings plans and procedures for locating lost
securityholders. IFG, AIM and ADI are providing full cooperation with respect to
these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees and
failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging distribution
fees while funds and/or specific share classes were closed generally to new
investors and/or while other share classes of the same fund were not charged
the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other mutual
funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which the AIM
Funds were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-409
APPENDIX II
AIM PREMIER EQUITY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM PREMIER EQUITY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL. INCOME IS A SECONDARY OBJECTIVE.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Large-Cap Core The fund files its complete schedule of
Fund Index represents an average of the portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are performance of the 30 largest and Exchange Commission ("SEC") for the
not available as an investment for large-capitalization core equity funds 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to tracked by Lipper, Inc., an independent on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue mutual fund performance monitor. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o The fund is not managed to track the Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing performance of any particular index, the SEC's Public Reference Room at 450
accounts invested in Class B shares will including the indexes defined here, and Fifth Street, N.W., Washington, D.C.
continue to be allowed to make consequently, the performance of the 20549-0102. You can obtain information on
additional purchases. fund may deviate significantly from the the operation of the Public Reference
performance of the indexes. Room, including information about
o Class R shares are available only to duplicating fee charges, by calling
certain retirement plans. Please see the o A direct investment cannot be made in 1-202-942-8090 or by electronic request
prospectus for more information. an index. Unless otherwise indicated, at the following e-mail address:
index results include reinvested publicinfo@sec.gov. The SEC file numbers
PRINCIPAL RISKS OF INVESTING IN THE dividends, and they do not reflect sales for the fund are 811-1540 and 2-27334.
FUND charges. Performance of an index of The fund's most recent portfolio
funds reflects fund expenses; holdings, as filed on Form N-Q, are also
o The fund may invest up to 25% of its performance of a market index does not. available at AIMinvestments.com.
assets in the securities of non-U.S.
issuers. International investing OTHER INFORMATION A description of the policies and
presents certain risks not associated procedures that the fund uses to
with investing solely in the United o The returns shown in the Management's determine how to vote proxies relating
States. These include risks relating to Discussion of Fund Performance are based to portfolio securities is available
fluctuations in the value of the U.S. on net asset values calculated for without charge, upon request, from our
dollar relative to the values of other shareholder transactions. Generally Client Services department at
currencies, the custody arrangements accepted accounting principles require 800-959-4246 or on the AIM Web site,
made for the fund's foreign holdings, adjustments to be made to the net assets AIMinvestments.com. On the home page,
differences in accounting, political of the fund at period end for financial scroll down and click on AIM Funds Proxy
risks and the lesser degree of public reporting purposes, and as such, the net Policy. The information is also
information required to be provided by asset values for shareholder available on the Securities and Exchange
non-U.S. companies. transactions and the returns based on Commission's Web site, sec.gov.
those net asset values may differ from
o The fund's investments in different, the net asset values and returns Information regarding how the fund voted
independently managed investment reported in the Financial Highlights. proxies related to its portfolio
disciplines may result in increased securities during the 12 months ended
transaction costs and/or adverse tax o Industry classifications used in this 6/30/04 is available at our Web site. Go
consequences resulting from transactions report are generally according to the to AIMinvestments.com, access the About
in the same security at or at about the Global Industry Classification Standard, Us tab, click on Required Notices and
same time. which was developed by and is the then click on Proxy Voting Activity.
exclusive property and a service mark of Next, select your fund from the dropdown
ABOUT INDEXES USED IN THIS REPORT Morgan Stanley Capital International menu.
Inc. and Standard & Poor's.
o The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P
500--Registered Trademark-- Index) is an
index of common stocks frequently used
as a general measure of U.S. stock
market performance.
o The unmanaged Lehman U.S. Aggregate
Bond Index, which represents the U.S.
investment-grade fixed-rate bond market
(including government and corporate
securities, mortgage pass-through
securities and asset-backed securities),
is compiled by Lehman Brothers, a global
investment bank.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
AIM PREMIER EQUITY FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF FUNDS
--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. Accordingly, the AIM Funds' Board recently elected Mr.
WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
on October 4, 2004. Mr. Graham will remain on the funds'
[PHOTO OF Board, as will Mark Williamson, President and Chief
BRUCE L. Executive Officer of AIM. Mr. Graham will also remain
CROCKETT] Chairman of AIM Investments --Registered Trademark--.
BRUCE L. Mr. Crockett has been a member of the AIM Funds' Board
CROCKETT since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' Board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%, above
the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and non-manufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial service
industries, estimated S&P 500 earnings to be up 10.5%
in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
participation in AIM Investments. If you have any questions,
please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
January 28, 2005
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
</Table>
AIM PREMIER EQUITY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND marked disparity between market price
PERFORMANCE and estimated intrinsic value can result
in strong long-term performance.
Since the fund's last annual report, the to the management of the fund which
fund's management and investment initiated a multi-team approach. As a The growth team, through quantitative
approach have changed. Though it has result, the fund is now managed by three and rigorous fundamental analysis,
only been seven months since these distinct teams, each representing one of identifies companies generating
changes were implemented, we believe the the three investment disciplines: core, sustainable, above-average earnings
long-term result will be consistent, value and growth. Each investment team growth and cash flow growth that is not
competitive performance in a variety of manages its respective discipline fully reflected in investor expectations
market environments. independently. These highly experienced or equity valuations.
AIM teams were put together for this
======================================== fund to ensure complete coverage of the MARKET CONDITIONS AND YOUR FUND
entire spectrum of large-cap
FUND VS. INDEXES opportunities and to offer a large-cap For the first 10 months of 2004, the
core fund designed to capture the upside domestic equity broad market was
TOTAL RETURNS, 12/31/03-12/31/04, of the market while offering better relatively flat, as evidenced by the S&P
EXCLUDING APPLICABLE SALES CHARGES. IF capital preservation in more difficult 500 Index's year-to-date return on
SALES CHARGES WERE INCLUDED, RETURNS times. October 31, 2004, of just over 3%.
WOULD BE LOWER. Though gross domestic product (GDP)
The core team identifies growing growth had been steady and corporate
Class A Shares 5.48% companies whose stock prices may be earnings had been strong, rising oil
experiencing some near-term distress. By prices, geopolitical events and the
Class B Shares 4.69 applying rigorous fundamental research uncertainty surrounding the U.S.
that focuses on cash flow analysis, the presidential election had dampened the
Class C Shares 4.68 team identifies companies with effects of generally good economic news
management teams that are capable of during the period. With the election
Class R Shares 5.25 weathering any near-term challenges results determined and oil prices
while successfully generating improving declining, the market rally during the
S&P 500 Index (Broad Market and levels of free cash flow. last two months of 2004 provided impetus
Style-specific Index) 10.87 for the return of the S&P 500 Index to
The value team capitalizes on the increase to 10.87% for the year.
Lipper Large-Cap Core Fund Index fact that stock prices are more volatile
(Peer Group Index) 8.29 than business values, primarily because As stated, our purpose in managing
investors overreact to news. The team this fund is to capture the upside of
Source: Lipper, Inc. seeks to invest when a significant the market while offering better capital
======================================== difference exists between a stock's preservation in more difficult times.
market price and our estimate of the Our strategy for accomplishing this
For the year ended December 31, 2004, company's intrinsic value. We believe purpose is to provide carefully selected
the fund's underperformance can that a diversified portfolio of stocks exposure to the entire spectrum of
generally be attributed to weak purchased during intervals of large-cap opportunities by employing
performance in the fund's holdings in three distinct investment disciplines.
the financials, information technology During the period, the growth discipline
and consumer discretionary sectors outperformed the core
relative to its peer group and the S&P
500 Index.
HOW WE INVEST
As described in our semiannual report to
shareholders, on April 20, 2004, changes
were made
</Table>
<Table>
<Caption>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Tyco International Ltd. 3.1% 1. Pharmaceuticals 9.2%
(Bermuda)
[PIE CHART] 2. Waste Management, Inc. 1.9 2. Industrial Conglomerates 4.9
Information Technology 16.9% 3. Computer Associates 3. Systems Software 4.7
Health Care 16.3% International, Inc. 1.7
Industrials 15.3% 4. Packaged Foods & Meats 4.0
Financials 14.0% 4. General Mills, Inc. 1.6
Consumer Discretionary 12.3% 5. Integrated Oil & Gas 3.8
Consumer Staples 10.3% 5. Kroger Co. (The) 1.6
Energy 8.4% 6. Oil & Gas Equipment & Services 2.9
Materials 1.9% 6. General Electric Co. 1.5
Utilities 0.9% 7. Property & Casualty Insurance 2.8
Telecommunication Services 0.5% 7. Microsoft Corp. 1.5
Money Market Funds Plus Other 8. Semiconductors 2.6
Assets Less Liabilities 3.2% 8. Citigroup Inc. 1.5
9. Investment Banking & Brokerage 2.4
9. Masco Corp. 1.4
10. Other Diversified Financial
10. Ace Ltd. (Cayman Islands) 1.4 Services 2.3
The fund's holdings are subject to change, and there is no assurance that the fund will
continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
<Caption>
and value disciplines, which produced than that of the index, and its holdings AND OPINIONS MAY NOT BE RELIED UPON AS
more muted returns. Conversely, we included more companies that have less INVESTMENT ADVICE OR RECOMMENDATIONS, OR
expect that there will be future periods interest-rate sensitivity, such as AS AN OFFER FOR A PARTICULAR SECURITY.
wherein the value and core disciplines investment services giant Merrill Lynch THE INFORMATION IS NOT A COMPLETE
buffer any weakness in the growth and property and casualty insurer Ace ANALYSIS OF EVERY ASPECT OF ANY MARKET,
discipline. Ltd. COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES
The fund's holdings in energy and Information technology stocks were CONSIDERED RELIABLE, BUT A I M ADVISORS,
industrials were the top contributors to generally flat during the period. Though INC. MAKES NO REPRESENTATION OR WARRANTY
fund performance. Specifically, in the the sector enjoyed a strong fourth AS TO THEIR COMPLETENESS OR ACCURACY.
industrials sector, Tyco and Masco quarter, it was the second ALTHOUGH HISTORICAL PERFORMANCE IS NO
provided excellent returns for the year. worst-performing sector in the index for GUARANTEE OF FUTURE RESULTS, THESE
These companies made specific the year, and the fund's holdings in INSIGHTS MAY HELP YOU UNDERSTAND OUR
improvements in the execution of their this area languished as well. INVESTMENT MANAGEMENT PHILOSOPHY.
businesses, which our research had
identified through our in-depth review The consumer discretionary sector See important fund and index disclosures
of their management practices. As a produced relatively strong performance inside front cover.
result, both companies significantly in the S&P 500 Index in 2004, in line
outperformed the industrials sector of with generally strong growth in consumer
the index. spending. However, despite strong
individual performances from diverse RONALD S. SLOAN,
Oil prices increased throughout the names across the fund's three Chartered Financial
first three quarters of the year, disciplines, including Nike, Starwood [SLOAN Analyst, senior
reaching an all-time high of $55 a Hotels & Resorts, and eBay, consumer PHOTO] portfolio manager, is
barrel in October. Most areas of the discretionary stocks in the fund's lead manager of AIM
energy sector produced strong returns portfolio generally underperformed their Premier Equity Fund.
for the year, including exploration and index counterparts. In particular, Mr. Sloan has 34 years of experience in
production companies, drillers, and oil select media stocks detracted, the investment industry. He joined AIM
services companies. Energy was the coinciding with reports of generally in 1998. Mr. Sloan attended the
best-performing sector in the S&P 500 lower-than-expected advertising revenues University of Missouri, where he
Index, and, as a group, the fund's across the industry. These holdings received both a B.S. in business
holdings in the sector broadly included broadcasting stock Viacom, administration and an M.B.A.
participated in the upswing. which the fund no longer owns,
advertising stock Interpublic and LANNY H. SACHNOWITZ,
The fund's holdings in financials, publishers Gannett, New York Times and senior portfolio
information technology and consumer Tribune Co. At the close of the period, [SACHNOWITZ manager, is a manager
discretionary detracted from its we remained committed to our investments PHOTO] of AIM Premier Equity
performance relative to the index. In in the latter four companies, as we Fund. Mr. Sachnowitz
general, we believe that it is incumbent believe they are guided by strong joined AIM in 1987. He
upon a core fund to avoid clear market management teams with track records of received a B.S. in finance from the
risks. At this time, we believe the growing free cash flow and allocating it University of Southern California, and
financials sector is highly susceptible to the benefit of shareholders he received his M.B.A from the
to risk associated with rising interest irrespective of the advertising University of Houston.
rates, a trend that we expect to environment.
continue. Therefore, the fund's overall BRET W. STANLEY,
exposure to the sector during the year IN CLOSING Chartered Financial
was smaller [STANLEY Analyst, senior
At the end of the period, the fund PHOTO] portfolio manager, is a
======================================== continued to have exposure to most broad manager of AIM Premier
market sectors, and we believe it was Equity Fund. Mr.
TOTAL NET ASSETS $6.9 BILLION appropriately positioned to offer Stanley has 16 years of experience in
shareholders the performance profile the investment industry. He joined AIM
TOTAL NUMBER OF HOLDINGS* 144 they expect in a core fund. in 1998. Mr. Stanley attended the
======================================== Specifically, the fund was relatively University of Texas, where he received
balanced in its exposure to more his B.B.A. in finance, and the
defensive holdings and its exposure to University of Houston, where he earned
more economically sensitive holdings. his M.S. in finance.
This results from our multi-team
approach that is intended to offer both Assisted by the Mid/Large Cap Core Team,
a wider variety of investment Large Cap Growth Team and Basic Value
opportunities and the potential for Team
lower volatility relative to market
benchmarks such as the S&P 500 Index.
THE VIEWS AND OPINIONS EXPRESSED IN [RIGHT ARROW GRAPHIC]
MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS, FOR A PRESENTATION OF YOUR FUND'S
INC. THESE VIEWS AND OPINIONS ARE LONG-TERM PERFORMANCE RECORD, PLEASE
SUBJECT TO CHANGE AT ANY TIME BASED ON TURN TO PAGE 5.
FACTORS SUCH AS MARKET AND ECONOMIC
CONDITIONS. THESE VIEWS
</Table>
3
AIM PREMIER EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE estimate the expenses that you paid over and other funds. To do so, compare this
the period. Simply divide your account 5% hypothetical example with the 5%
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 hypothetical examples that appear in the
two types of costs: (1) transaction account value divided by $1,000 = 8.6), shareholder reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management account during this period. any transactional costs, such as sales
fees; distribution and/or service fees charges (loads) on purchase payments,
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR contingent deferred sales charges on
example is intended to help you COMPARISON PURPOSES redemptions, and redemption fees, if
understand your ongoing costs (in any. Therefore, the hypothetical
dollars) of investing in the fund and to The table below also provides information is useful in comparing
compare these costs with ongoing costs information about hypothetical account ongoing costs only, and will not help
of investing in other mutual funds. The values and hypothetical expenses based you determine the relative total costs
example is based on an investment of on the fund's actual expense ratio and of owning different funds. In addition,
$1,000 invested at the beginning of the an assumed rate of return of 5% per year if these transactional costs were
period and held for the entire period, before expenses, which is not the fund's included, your costs would have been
July 1, 2004--December 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate your actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing costs of investing
expenses. You may use the information in in the fund
this table, together with the amount you
invested, to
===============================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/01/04) (12/31/04)(1) Period(2),(3) (12/31/04) Period(2),(4)
A $1,000.00 $1,043.70 $ 6.58 $1,018.70 $ 6.50
B 1,000.00 1,039.70 10.41 1,014.93 10.28
C 1,000.00 1,039.70 10.41 1,014.93 10.28
R 1,000.00 1,042.40 7.85 1,017.44 7.76
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense
ratio and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period
July 1, 2004, to December 31, 2004, was 4.37%, 3.97%, 3.97% and 4.24% for Class A, B, C and R shares, respectively, including
fund expenses.
(2) Expenses are equal to the fund's annualized expense ratio (1.28%, 2.03%, 2.03% and 1.53% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year
period). Effective on January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized
expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.27%,
2.02%, 2.02% and 1.52% for Class A, B, C and R shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year are $6.52, $10.36, $10.36 and $7.80 for Class A, B, C and R shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most
recent fiscal half year are $6.44, $10.23, $10.23 and $7.71 for Class A, B, C and R shares, respectively.
===============================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
AIM PREMIER EQUITY FUND
<Table>
<Caption>
YOUR FUND'S LONG-TERM PERFORMANCE RESULTS OF A $10,000 INVESTMENT
5/1/84-12/31/04 Index data from 4/30/84
Past performance cannot guarantee
comparable future results. [MOUNTAIN CHART]
AIM PREMIER
Your fund's total return includes DATE EQUITY FUND S&P 500 LIPPER LARGE-CAP
reinvested distributions, applicable CLASS A SHARES INDEX CORE FUND INDEX
sales charges, fund expenses and 4/30/84 $ 9450 $10000 $10000
management fees. Index results include 6/84 9611 9652 9830
reinvested dividends, but they do not 9/84 10413 10587 10649
reflect sales charges. Performance of an 12/84 10384 10786 10960
index of funds reflects fund expenses 3/85 11230 11776 11917
and management fees; performance of a 6/85 11766 12640 12852
market index does not. Performance shown 9/85 11546 12123 12384
in the chart does not reflect deduction 12/85 12741 14208 14204
of taxes a shareholder would pay on fund 3/86 13986 16212 16139
distributions or sale of fund shares. 6/86 14068 17167 16858
Performance of the indexes does not 9/86 13264 15970 15786
reflect the effects of taxes. 12/86 13862 16860 16335
3/87 16375 20460 19211
In evaluating this chart, please note 6/87 16639 21487 19801
that the chart uses a logarithmic scale 9/87 18080 22904 20851
along the vertical axis (the value 12/87 14689 17745 16824
scale). This means that each scale 3/88 15880 18752 17739
increment always represents the same 6/88 17174 19998 18595
percent change in price; in a linear 9/88 16904 20066 18732
chart each scale increment always 12/88 17715 20684 19189
represents the same absolute change in 3/89 18989 22150 20515
price. In this example, the scale 6/89 20666 24101 22254
increment between $5,000 and $10,000 is 9/89 22439 26679 24713
the same as that between $10,000 and 12/89 23303 27227 24665
$20,000. In a linear chart, the latter 3/90 24265 26408 24017
scale increment would be twice as large. 6/90 26638 28065 25670
The benefit of using a logarithmic scale 9/90 21283 24213 22347
is that it better illustrates 12/90 23743 26380 23935
performance during the fund's early 3/91 28961 30206 27450
years before reinvested distributions 6/91 27404 30134 27231
and compounding create the potential for 9/91 31065 31742 28952
the original investment to grow to very 12/91 34058 34400 31427
large numbers. Had the chart used a 3/92 34912 33532 31148
linear scale along its vertical axis, 6/92 33884 34169 30971
you would not be able to see as clearly 9/92 35493 35247 31829
the movements in the value of the fund 12/92 39643 37017 33846
and the indexes during the fund's early 3/93 41857 38633 35281
years. We use a logarithmic scale in 6/93 43509 38818 35705
financial reports of funds that have 9/93 46661 39818 36883
more than five years of performance 12/93 47057 40740 37709
history. 3/94 47735 39198 36434
6/94 45728 39362 36097
9/94 49025 41282 37700
12/94 48595 41275 37302
3/95 53219 45289 40241
6/95 59726 49607 43571
9/95 66512 53546 46814
12/95 65543 56767 49148
3/96 65885 59814 51677
6/96 68986 62495 53551
9/96 70010 64427 55253
12/96 75054 69792 58899
3/97 73919 71668 59388
6/97 87152 84168 69365
9/97 94564 90472 74692
12/97 93033 93069 76112
3/98 104513 106042 86382
6/98 110329 109563 89841
9/98 96989 98689 79544
12/98 123499 119686 96612
3/99 134488 125646 100801
6/99 141455 134486 106378
9/99 136233 126110 99434
12/99 160496 144859 115306
3/00 175016 148177 120225
6/00 159860 144241 117485
9/00 149505 142843 117050
12/00 136476 131675 106809
3/01 120881 116073 93498
6/01 128191 122862 98482
9/01 107786 104835 84408
12/01 118755 116037 93101
3/02 114488 116357 93162
6/02 93183 100777 81596
9/02 77134 83377 68758
12/02 82052 90402 73332
3/03 80857 87555 71053
6/03 90476 101025 80776
9/03 92762 103699 82555
12/03 102490 116317 91522
3/04 103044 118286 92439
6/04 103602 120321 93572
9/04 99561 118070 91352
12/04 $108137 $128963 $99107
Source: Lipper, Inc.
==========================================
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent
As of 12/31/04, including applicable sales past performance and cannot guarantee
charges comparable future results; current
performance may be lower or higher.
CLASS A SHARES Please visit AIMinvestments.com for the
Inception (5/1/84) 12.21% most recent month-end performance.
10 Years 7.71 Performance figures reflect reinvested
5 Years -8.64 distributions, changes in net asset
1 Year -0.36 value and the effect of the maximum
sales charge unless otherwise stated.
CLASS B SHARES Investment return and principal value
Inception (10/18/93) 7.03% will fluctuate so that you may have a
10 Years 7.65 gain or loss when you sell shares.
5 Years -8.64
1 Year -0.31 Class A share performance reflects
the maximum 5.50% sales charge, and
CLASS C SHARES Class B and Class C share performance
Inception (8/4/97) 1.30% reflects the applicable contingent
5 Years -8.30 deferred sales charge (CDSC) for the
1 Year 3.68 period involved. The CDSC on Class B
shares declines from 5% beginning at the
CLASS R SHARES time of purchase to 0% at the beginning
10 Years 8.05% of the seventh year. The CDSC on Class C
5 Years -7.83 shares is 1% for the first year after
1 Year 5.25 purchase. Class R shares do not have a
front-end sales charge; returns shown
========================================== are at net asset value and do not
reflect a 0.75% CDSC that may be imposed
Class R shares' inception date is on a total redemption of retirement plan
6/3/02. Returns since that date are assets within the first year.
historical returns. All other returns
are blended returns of historical Class The performance of the fund's share
R share performance and restated Class A classes will differ due to different
share performance (for periods prior to sales charge structures and class
the inception date of Class R shares) at expenses.
net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to
Class R shares.
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/04
AIM PREMIER EQUITY FUND
<Table>
<Caption>
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 12/31/04 indicative of future results. More
The following information has been Inception (3/15/02) -2.11% recent returns may be more or less than
prepared to provide Institutional Class 1 Year 6.06 those shown. All returns assume
shareholders with a performance overview reinvestment of distributions at net
specific to their holdings. ======================================== asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, Institutional Class shares have no sales shares, when redeemed, may be worth more
including defined contribution plans charge; therefore, performance is at net or less than their original cost. See
that meet certain criteria. asset value. Performance of full report for information on
Institutional Class shares will differ comparative benchmarks. Please consult
from performance of other share classes your fund prospectus for more
due to differing sales charges and class information. For the most current
expenses. month-end performance, please call
800-451-4246 or visit
AIMinvestments.com.
</Table>
Over for information on your fund's expenses.
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.
<Table>
AIMinvestments.com PEQ-INS-1 12/04 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE period. Simply divide your account value use this information to compare the
by $1,000 (for example, an $8,600 ongoing costs of investing in the fund
As a shareholder of the fund, you incur account value divided by $1,000 = 8.6), and other funds. To do so, compare this
ongoing costs, including management then multiply the result by the number 5% hypothetical example with the 5%
fees; and other fund expenses. This in the table under the heading entitled hypothetical examples that appear in the
example is intended to help you "Actual Expenses Paid During Period" to shareholder reports of the other funds.
understand your ongoing costs (in estimate the expenses you paid on your
dollars) of investing in the fund and to account during this period. Please note that the expenses shown
compare these costs with ongoing costs in the table are meant to highlight your
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs only. Therefore, the
example is based on an investment of PURPOSES hypothetical information is useful in
$1,000 invested at the beginning of the comparing ongoing costs only, and will
period and held for the entire period, The table below also provides not help you determine the relative
July 1, 2004-December 31, 2004. information about hypothetical account total costs of owning different funds.
values and hypothetical expenses based
ACTUAL EXPENSES on the fund's actual expense ratio and
an assumed rate of return of 5% per year
The table below provides information before expenses, which is not the fund's
about actual account values and actual actual return. The hypothetical account
expenses. You may use the information in values and expenses may not be used to
this table, together with the amount you estimate the actual ending account
invested, to estimate the expenses that balance or expenses you paid for the
you paid over the period. You may
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(07/01/04) (12/31/04)(1) PERIOD(2,3) (12/31/04) PERIOD(2,4)
Institutional Class $1,000.00 $1,045.10 $3.44 $1,021.77 $3.40
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 4.51% for the Institutional Class.
(2) Expenses are equal to the fund's annualized expense ratio, 0.67% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period). Effective on January 1, 2005, the advisor
contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated as if this agreement had been
in effect throughout the entire most recent fiscal half year is 0.66% for the Institutional Class.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent fiscal
half year is $3.39 for the Institutional Class.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year is $3.35 for the Institutional Class.
====================================================================================================================================
</Table>
AIMinvestments.com PEQ-INS-1 12/04
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.70%
ADVERTISING-1.11%
Interpublic Group of Cos., Inc. (The)(a) 1,582,800 $ 21,209,520
- ---------------------------------------------------------------------------
Omnicom Group Inc. 648,100 54,647,792
===========================================================================
75,857,312
===========================================================================
AEROSPACE & DEFENSE-1.58%
Boeing Co. (The) 350,000 18,119,500
- ---------------------------------------------------------------------------
General Dynamics Corp. 175,000 18,305,000
- ---------------------------------------------------------------------------
Honeywell International Inc. 785,900 27,828,719
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 808,200 43,933,752
===========================================================================
108,186,971
===========================================================================
ALUMINUM-0.35%
Alcoa Inc. 760,700 23,901,194
===========================================================================
APPAREL RETAIL-1.00%
Gap, Inc. (The) 1,670,000 35,270,400
- ---------------------------------------------------------------------------
Limited Brands 1,450,000 33,379,000
===========================================================================
68,649,400
===========================================================================
APPLICATION SOFTWARE-0.71%
Amdocs Ltd. (United Kingdom)(a) 1,175,000 30,843,750
- ---------------------------------------------------------------------------
Intuit Inc.(a) 400,000 17,604,000
===========================================================================
48,447,750
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.65%
Bank of New York Co., Inc. (The) 1,326,900 44,344,998
===========================================================================
BIOTECHNOLOGY-0.51%
Genentech, Inc.(a) 325,000 17,693,000
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 500,000 17,495,000
===========================================================================
35,188,000
===========================================================================
BREWERS-0.75%
Heineken N.V. (Netherlands)(b) 1,555,386 51,640,580
===========================================================================
BUILDING PRODUCTS-1.44%
Masco Corp. 2,708,000 98,923,240
===========================================================================
COMMUNICATIONS EQUIPMENT-2.12%
Cisco Systems, Inc.(a) 1,850,000 35,705,000
- ---------------------------------------------------------------------------
Motorola, Inc. 1,526,400 26,254,080
- ---------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 2,206,500 34,575,855
- ---------------------------------------------------------------------------
QUALCOMM Inc. 875,000 37,100,000
- ---------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 145,000 11,950,900
===========================================================================
145,585,835
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-0.26%
Best Buy Co., Inc. 300,000 $ 17,826,000
===========================================================================
COMPUTER HARDWARE-1.47%
Dell Inc.(a) 1,300,000 54,782,000
- ---------------------------------------------------------------------------
International Business Machines Corp. 470,800 46,411,464
===========================================================================
101,193,464
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.27%
Lexmark International, Inc.-Class A(a) 220,000 18,700,000
===========================================================================
CONSUMER ELECTRONICS-0.56%
Sony Corp.-ADR (Japan) 980,000 38,180,800
===========================================================================
CONSUMER FINANCE-1.04%
American Express Co. 325,000 18,320,250
- ---------------------------------------------------------------------------
Capital One Financial Corp. 150,000 12,631,500
- ---------------------------------------------------------------------------
MBNA Corp. 675,000 19,028,250
- ---------------------------------------------------------------------------
SLM Corp. 400,000 21,356,000
===========================================================================
71,336,000
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.37%
First Data Corp. 2,204,100 93,762,414
===========================================================================
DEPARTMENT STORES-1.18%
J.C. Penney Co., Inc. 475,000 19,665,000
- ---------------------------------------------------------------------------
Kohl's Corp.(a) 1,248,900 61,408,413
===========================================================================
81,073,413
===========================================================================
DIVERSIFIED BANKS-1.26%
Bank of America Corp. 1,125,400 52,882,546
- ---------------------------------------------------------------------------
Wachovia Corp. 640,600 33,695,560
===========================================================================
86,578,106
===========================================================================
DIVERSIFIED CHEMICALS-0.83%
Dow Chemical Co. (The) 1,157,400 57,302,874
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.29%
Cendant Corp. 3,776,200 88,287,556
===========================================================================
ELECTRIC UTILITIES-0.49%
FPL Group, Inc. 450,200 33,652,450
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.03%
Emerson Electric Co. 485,200 34,012,520
- ---------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-(CONTINUED)
Rockwell Automation, Inc. 740,000 $ 36,667,000
===========================================================================
70,679,520
===========================================================================
ENVIRONMENTAL SERVICES-1.90%
Waste Management, Inc. 4,364,300 130,667,142
===========================================================================
FOOD RETAIL-1.99%
Kroger Co. (The)(a) 6,094,900 106,904,546
- ---------------------------------------------------------------------------
Safeway Inc.(a) 1,484,300 29,300,082
===========================================================================
136,204,628
===========================================================================
FOOTWEAR-0.76%
NIKE, Inc.-Class B 575,000 52,146,750
===========================================================================
GENERAL MERCHANDISE STORES-1.34%
Target Corp. 1,764,100 91,609,713
===========================================================================
HEALTH CARE DISTRIBUTORS-1.64%
Cardinal Health, Inc. 1,297,000 75,420,550
- ---------------------------------------------------------------------------
McKesson Corp. 1,170,000 36,808,200
===========================================================================
112,228,750
===========================================================================
HEALTH CARE EQUIPMENT-1.50%
Baxter International Inc. 1,010,000 34,885,400
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 700,000 39,760,000
- ---------------------------------------------------------------------------
Waters Corp.(a) 600,000 28,074,000
===========================================================================
102,719,400
===========================================================================
HEALTH CARE FACILITIES-0.56%
HCA, Inc. 960,000 38,361,600
===========================================================================
HEALTH CARE SERVICES-0.46%
IMS Health Inc. 321,100 7,452,731
- ---------------------------------------------------------------------------
Quest Diagnostics Inc. 250,000 23,887,500
===========================================================================
31,340,231
===========================================================================
HEALTH CARE SUPPLIES-0.45%
Alcon Inc. (Switzerland) 385,000 31,031,000
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.34%
Starwood Hotels & Resorts Worldwide, Inc. 399,300 23,319,120
===========================================================================
HOUSEHOLD PRODUCTS-1.19%
Kimberly-Clark Corp. 592,300 38,979,263
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 775,000 42,687,000
===========================================================================
81,666,263
===========================================================================
HOUSEWARES & SPECIALTIES-0.28%
Fortune Brands, Inc. 250,000 19,295,000
===========================================================================
HYPERMARKETS & SUPER CENTERS-0.39%
Costco Wholesale Corp. 550,000 26,625,500
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.90%
General Electric Co. 2,888,500 $ 105,430,250
- ---------------------------------------------------------------------------
Textron Inc. 250,000 18,450,000
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 5,940,300 212,306,322
===========================================================================
336,186,572
===========================================================================
INDUSTRIAL MACHINERY-2.07%
Danaher Corp. 670,000 38,464,700
- ---------------------------------------------------------------------------
Dover Corp. 1,086,700 45,576,198
- ---------------------------------------------------------------------------
Eaton Corp. 325,000 23,517,000
- ---------------------------------------------------------------------------
Illinois Tool Works Inc. 370,000 34,291,600
===========================================================================
141,849,498
===========================================================================
INTEGRATED OIL & GAS-3.79%
Amerada Hess Corp. 579,420 47,732,620
- ---------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 1,406,900 82,162,960
- ---------------------------------------------------------------------------
ChevronTexaco Corp. 633,200 33,249,332
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 1,244,700 63,803,322
- ---------------------------------------------------------------------------
Murphy Oil Corp. 406,700 32,719,015
===========================================================================
259,667,249
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.49%
ALLTEL Corp. 577,200 33,916,272
===========================================================================
INTERNET RETAIL-0.95%
eBay Inc.(a) 265,000 30,814,200
- ---------------------------------------------------------------------------
IAC/InterActiveCorp(a)(c) 1,235,400 34,121,748
===========================================================================
64,935,948
===========================================================================
INTERNET SOFTWARE & SERVICES-0.60%
Yahoo! Inc.(a) 1,100,000 41,448,000
===========================================================================
INVESTMENT BANKING & BROKERAGE-2.42%
Goldman Sachs Group, Inc. (The) 300,000 31,212,000
- ---------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 649,700 38,832,569
- ---------------------------------------------------------------------------
Morgan Stanley 1,723,100 95,666,512
===========================================================================
165,711,081
===========================================================================
IT CONSULTING & OTHER SERVICES-1.22%
Accenture Ltd.-Class A (Bermuda)(a) 3,099,500 83,686,500
===========================================================================
LIFE & HEALTH INSURANCE-0.54%
Prudential Financial, Inc. 672,900 36,982,584
===========================================================================
MANAGED HEALTH CARE-1.94%
Aetna Inc. 250,000 31,187,500
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 515,000 45,335,450
- ---------------------------------------------------------------------------
WellPoint Inc.(a) 492,800 56,672,000
===========================================================================
133,194,950
===========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.39%
Harley-Davidson, Inc. 440,000 $ 26,730,000
===========================================================================
MOVIES & ENTERTAINMENT-0.79%
Walt Disney Co. (The) 1,940,000 53,932,000
===========================================================================
MULTI-LINE INSURANCE-0.45%
Hartford Financial Services Group, Inc. (The) 450,000 31,189,500
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.46%
Dominion Resources, Inc. 462,000 31,295,880
===========================================================================
OFFICE ELECTRONICS-1.32%
Xerox Corp.(a) 5,319,300 90,481,293
===========================================================================
OIL & GAS DRILLING-1.71%
GlobalSantaFe Corp. (Cayman Islands) 1,158,000 38,341,380
- ---------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 661,600 33,933,464
- ---------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 1,060,000 44,933,400
===========================================================================
117,208,244
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.88%
Baker Hughes Inc. 1,089,000 46,467,630
- ---------------------------------------------------------------------------
BJ Services Co. 716,000 33,322,640
- ---------------------------------------------------------------------------
Halliburton Co. 1,280,000 50,227,200
- ---------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 548,000 36,688,600
- ---------------------------------------------------------------------------
Smith International, Inc.(a) 570,750 31,054,507
===========================================================================
197,760,577
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.29%
Citigroup Inc. 2,070,400 99,751,872
- ---------------------------------------------------------------------------
JPMorgan Chase & Co. 1,464,000 57,110,640
===========================================================================
156,862,512
===========================================================================
PACKAGED FOODS & MEATS-3.98%
Campbell Soup Co. 1,632,700 48,801,403
- ---------------------------------------------------------------------------
General Mills, Inc. 2,170,600 107,900,526
- ---------------------------------------------------------------------------
Kraft Foods Inc.-Class A 2,277,400 81,098,214
- ---------------------------------------------------------------------------
Sara Lee Corp. 1,453,300 35,082,662
===========================================================================
272,882,805
===========================================================================
PAPER PRODUCTS-0.68%
Georgia-Pacific Corp. 1,223,000 45,838,040
- ---------------------------------------------------------------------------
Neenah Paper, Inc.(a)(c) 17,948 585,105
===========================================================================
46,423,145
===========================================================================
PERSONAL PRODUCTS-1.08%
Estee Lauder Cos. Inc. (The)-Class A 565,000 25,860,050
- ---------------------------------------------------------------------------
Gillette Co. (The) 1,075,000 48,138,500
===========================================================================
73,998,550
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
PHARMACEUTICALS-9.23%
Bristol-Myers Squibb Co. 1,887,800 $ 48,365,436
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 1,510,000 67,738,600
- ---------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,651,100 78,245,629
- ---------------------------------------------------------------------------
Johnson & Johnson 1,472,400 93,379,608
- ---------------------------------------------------------------------------
Merck & Co. Inc. 2,708,600 87,054,404
- ---------------------------------------------------------------------------
Pfizer Inc. 1,572,700 42,289,903
- ---------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 936,600 74,731,005
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,745,400 52,117,644
- ---------------------------------------------------------------------------
Wyeth 2,091,300 89,068,467
===========================================================================
632,990,696
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.75%
ACE Ltd. (Cayman Islands) 2,285,900 97,722,225
- ---------------------------------------------------------------------------
Allstate Corp. (The) 400,000 20,688,000
- ---------------------------------------------------------------------------
Chubb Corp. (The) 450,000 34,605,000
- ---------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 956,100 35,442,627
===========================================================================
188,457,852
===========================================================================
PUBLISHING-1.74%
Gannett Co., Inc. 519,600 42,451,320
- ---------------------------------------------------------------------------
New York Times Co. (The)-Class A 815,200 33,260,160
- ---------------------------------------------------------------------------
Tribune Co. 1,030,000 43,404,200
===========================================================================
119,115,680
===========================================================================
RAILROADS-1.12%
Norfolk Southern Corp. 960,200 34,749,638
- ---------------------------------------------------------------------------
Union Pacific Corp. 621,200 41,775,700
===========================================================================
76,525,338
===========================================================================
REGIONAL BANKS-0.94%
BB&T Corp. 819,000 34,438,950
- ---------------------------------------------------------------------------
SunTrust Banks, Inc. 405,400 29,950,952
===========================================================================
64,389,902
===========================================================================
RESTAURANTS-1.24%
McDonald's Corp. 1,250,000 40,075,000
- ---------------------------------------------------------------------------
Yum! Brands, Inc. 950,000 44,821,000
===========================================================================
84,896,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.51%
Applied Materials, Inc.(a) 2,030,000 34,713,000
===========================================================================
SEMICONDUCTORS-2.55%
Analog Devices, Inc. 1,744,200 64,395,864
- ---------------------------------------------------------------------------
Intel Corp. 1,881,800 44,015,302
- ---------------------------------------------------------------------------
National Semiconductor Corp. 1,994,700 35,804,865
- ---------------------------------------------------------------------------
Xilinx, Inc. 1,030,600 30,557,290
===========================================================================
174,773,321
===========================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SOFT DRINKS-0.88%
Coca-Cola Co. (The) 800,000 $ 33,304,000
- ---------------------------------------------------------------------------
PepsiCo, Inc. 525,000 27,405,000
===========================================================================
60,709,000
===========================================================================
SPECIALTY STORES-0.33%
Staples, Inc. 670,000 22,585,700
===========================================================================
SYSTEMS SOFTWARE-4.73%
Adobe Systems Inc. 350,000 21,959,000
- ---------------------------------------------------------------------------
Computer Associates International, Inc. 3,772,700 117,180,062
- ---------------------------------------------------------------------------
Microsoft Corp. 3,795,200 101,369,792
- ---------------------------------------------------------------------------
Oracle Corp.(a) 2,450,000 33,614,000
- ---------------------------------------------------------------------------
Symantec Corp.(a) 1,950,000 50,232,000
===========================================================================
324,354,854
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.66%
Countrywide Financial Corp. 365,000 13,508,650
- ---------------------------------------------------------------------------
Fannie Mae 911,500 64,907,915
- ---------------------------------------------------------------------------
Washington Mutual, Inc. 832,400 35,193,872
===========================================================================
113,610,437
===========================================================================
Total Common Stocks & Other Equity Interests
(Cost $5,683,380,702) 6,629,977,914
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-3.47%
Liquid Assets Portfolio-Institutional
Class(d) 119,054,041 $ 119,054,041
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 119,054,041 119,054,041
===========================================================================
Total Money Market Funds (Cost
$238,108,082) 238,108,082
===========================================================================
TOTAL INVESTMENTS-100.17% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,921,488,784) 6,868,085,996
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.40%
STIC Prime Portfolio-Institutional
Class(d)(e) 27,306,920 27,306,920
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,306,920) 27,306,920
===========================================================================
TOTAL INVESTMENTS-100.57% (Cost
$5,948,795,704) 6,895,392,916
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.57%) (39,241,056)
===========================================================================
NET ASSETS-100.00% $6,856,151,860
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$126,371,585, which represented 1.83% of the Fund's Total Investments. See
Note 1A.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$5,683,380,702)* $ 6,629,977,914
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $265,415,002) 265,415,002
============================================================
Total investments (cost $5,948,795,704) 6,895,392,916
____________________________________________________________
============================================================
Foreign currencies, at market value (cost
$314) 327
- ------------------------------------------------------------
Receivables for:
Investments sold 30,095,164
- ------------------------------------------------------------
Fund shares sold 876,506
- ------------------------------------------------------------
Dividends 11,615,984
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 570,984
- ------------------------------------------------------------
Other assets 66,109
============================================================
Total assets 6,938,617,990
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 10,619,597
- ------------------------------------------------------------
Fund shares reacquired 37,448,126
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,267,901
- ------------------------------------------------------------
Collateral upon return of securities
loaned 27,306,920
- ------------------------------------------------------------
Accrued distribution fees 2,923,342
- ------------------------------------------------------------
Accrued transfer agent fees 2,446,786
- ------------------------------------------------------------
Accrued operating expenses 453,458
============================================================
Total liabilities 82,466,130
============================================================
Net assets applicable to shares outstanding $ 6,856,151,860
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $10,092,375,074
- ------------------------------------------------------------
Undistributed net investment income (788,589)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (4,182,032,090)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 946,597,465
============================================================
$ 6,856,151,860
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 4,225,191,623
____________________________________________________________
============================================================
Class B $ 2,315,118,550
____________________________________________________________
============================================================
Class C $ 312,034,903
____________________________________________________________
============================================================
Class R $ 831,863
____________________________________________________________
============================================================
Institutional Class $ 2,974,921
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 427,648,250
____________________________________________________________
============================================================
Class B 252,665,016
____________________________________________________________
============================================================
Class C 34,026,511
____________________________________________________________
============================================================
Class R 84,630
____________________________________________________________
============================================================
Institutional Class 298,926
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.88
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.88 divided by
94.50%) $ 10.46
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.16
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.17
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.83
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.95
____________________________________________________________
============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $26,012,960
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $994,634) $ 125,438,615
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $403,714*) 3,358,823
- ---------------------------------------------------------------------------
Interest 98,725
===========================================================================
Total investment income 128,896,163
===========================================================================
EXPENSES:
Advisory fees 49,234,296
- ---------------------------------------------------------------------------
Administrative services fees 725,065
- ---------------------------------------------------------------------------
Custodian fees 600,725
- ---------------------------------------------------------------------------
Distribution fees:
Class A 11,551,335
- ---------------------------------------------------------------------------
Class B 28,505,751
- ---------------------------------------------------------------------------
Class C 3,624,154
- ---------------------------------------------------------------------------
Class R 3,593
- ---------------------------------------------------------------------------
Transfer agent fees--Class A,B,C,R & Institutional 26,056,032
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 225,306
- ---------------------------------------------------------------------------
Other 3,640,523
===========================================================================
Total expenses 124,166,780
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,766,556)
===========================================================================
Net expenses 122,400,224
===========================================================================
Net investment income 6,495,939
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 528,077,046
- ---------------------------------------------------------------------------
Foreign currencies (259,491)
- ---------------------------------------------------------------------------
Futures contracts 15,858,268
===========================================================================
543,675,823
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (222,461,581)
- ---------------------------------------------------------------------------
Foreign currencies (17,361)
- ---------------------------------------------------------------------------
Futures contracts (11,022,800)
===========================================================================
(233,501,742)
===========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 310,174,081
===========================================================================
Net increase in net assets resulting from operations $ 316,670,020
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 6,495,939 $ (25,735,883)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts 543,675,823 (519,632,972)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (233,501,742) 2,505,788,002
================================================================================================
Net increase in net assets resulting from operations 316,670,020 1,960,419,147
================================================================================================
Distributions to shareholders from net investment income:
Class A (6,005,272) --
- ------------------------------------------------------------------------------------------------
Institutional Class (28,013) --
================================================================================================
Decrease in net assets resulting from distributions (6,033,285) --
================================================================================================
Share transactions-net:
Class A (1,093,570,069) (586,536,341)
- ------------------------------------------------------------------------------------------------
Class B (1,396,211,918) (1,467,119,888)
- ------------------------------------------------------------------------------------------------
Class C (134,394,245) (101,720,007)
- ------------------------------------------------------------------------------------------------
Class R 137,938 318,566
- ------------------------------------------------------------------------------------------------
Institutional Class 603,693 (625,385)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,623,434,601) (2,155,683,055)
================================================================================================
Net increase (decrease) in net assets (2,312,797,866) (195,263,908)
================================================================================================
NET ASSETS:
Beginning of year 9,168,949,726 9,364,213,634
================================================================================================
End of year (including undistributed net investment income
(loss) of $(788,589) and $(990,003), respectively) $ 6,856,151,860 $ 9,168,949,726
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Premier Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary objective. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
F-8
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts
F-9
are closed, the Fund recognizes a realized gain or loss equal to the
difference between the proceeds from, or cost of, the closing transaction
and the Fund's basis in the contract. If the Fund were unable to liquidate
a futures contract and/or enter into an offsetting closing transaction, the
Fund would continue to be subject to market risk with respect to the value
of the contracts and continue to be required to maintain the margin
deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. Effective January 1, 2005
through December 31, 2009, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.75% of
the first $150 million, plus 0.615% of the next $4.85 billion, plus 0.57% of the
next $2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the
Fund's average daily net assets in excess of $10 billion. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $770,935.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $885,101 of expenses
incurred by the Fund in connection with matters related to recently settled
regulatory actions and investigations concerning market timing activity in the
AIM Funds, including legal, audit, shareholder servicing, communication and
trustee expenses. These expenses along with the related expense reimbursement,
are included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended December 31, 2004, AIM was
paid $725,065 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $26,056,032 for Class A, Class B, Class C, Class R and
Institutional Class shares. AISI may make payments to intermediaries that
provide omnibus account services, sub-accounting services and/or networking
services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and Institutional Class shares of the Fund.
The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended December 31, 2004, the Class A, Class
B, Class C and Class R shares paid $11,551,335, $28,505,751, $3,624,154 and
$3,593, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $388,971
in front-end sales commissions from the sale of Class A shares and $6,192,
$241,988, $19,556 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-10
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2003 AT COST SALES (DEPRECIATION) 12/31/04 INCOME
- --------------------------------------------------------------------------------------------------------------------------
Liquid Asset Portfolio-
Institutional Class $149,855,268 $1,520,793,513 $(1,551,594,740) $ -- $119,054,041 $1,488,808
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 149,855,268 1,520,793,513 (1,551,594,740) -- 119,054,041 1,466,301
==========================================================================================================================
Subtotal $299,710,536 $3,041,587,026 $(3,103,189,480) $ -- $238,108,082 $2,955,109
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------
Liquid Asset Portfolio-
Institutional Class $ --
- -----------------------
STIC Prime Portfolio-
Institutional Class --
=======================
Subtotal $ --
=======================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2003 AT COST SALES (DEPRECIATION) 12/31/04 INCOME*
- --------------------------------------------------------------------------------------------------------------------------
Liquid Asset Portfolio-
Institutional Class $119,778,490 $ 649,658,610 $ (769,437,100) $ -- $ -- $ 315,099
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class -- 300,579,793 (273,272,873) -- 27,306,920 88,615
==========================================================================================================================
Subtotal $119,778,490 $ 950,238,403 $(1,042,709,973) $ -- $27,306,920 $ 403,714
==========================================================================================================================
Total $419,489,026 $3,991,825,429 $(4,145,899,453) $ -- $265,415,002 $3,358,823
__________________________________________________________________________________________________________________________
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------
Liquid Asset Portfolio-
Institutional Class $ --
- -----------------------
STIC Prime Portfolio-
Institutional Class --
=======================
Subtotal $ --
=======================
Total $ --
_______________________
=======================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $208,839,267 and $151,062,573,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$108,971 and credits in custodian fees of $1,549 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$110,520.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $21,824
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-11
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $26,012,960 were
on loan to brokers. The loans were secured by cash collateral of $27,306,920
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $403,714 for
securities lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $6,033,285 $ --
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------------
Undistributed ordinary income $ 239,299
- -------------------------------------------------------------------------------
Unrealized appreciation -- investments 924,089,426
- -------------------------------------------------------------------------------
Temporary book/tax differences (1,121,639)
- -------------------------------------------------------------------------------
Capital loss carryforward (4,159,430,300)
- -------------------------------------------------------------------------------
Shares of beneficial interest 10,092,375,074
===============================================================================
Total net assets $ 6,856,151,860
_______________________________________________________________________________
===============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and return of capital distributions. The tax-basis unrealized
appreciation on investments amount includes appreciation on foreign currencies
of $253.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses and return of capital distributions.
F-12
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $4,144,170,085 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund utilized $543,143,350 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------------
December 31, 2009 $1,147,080,694
- ----------------------------------------------------------------------------------
December 31, 2010 2,279,293,105
- ----------------------------------------------------------------------------------
December 31, 2011 733,056,501
==================================================================================
Total capital loss carryforward $4,159,430,300
__________________________________________________________________________________
==================================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Premier Equity II Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $6,524,651,967 and $9,092,451,785, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,060,577,425
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (136,488,252)
==============================================================================
Net unrealized appreciation of investment securities $ 924,089,173
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $5,971,303,743.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and return of capital distributions, on December 31, 2004,
undistributed net investment income (loss) was decreased by $261,240,
undistributed net realized gain (loss) was increased by $281,979 and shares of
beneficial interest decreased by $20,739. This reclassification had no effect on
the net assets of the Fund.
F-13
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 19,026,912 $ 177,793,866 39,598,262 $ 320,765,623
- --------------------------------------------------------------------------------------------------------------------------------
Class B 7,798,250 67,922,205 13,786,253 105,078,641
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,961,009 17,069,552 3,249,627 24,835,033
- --------------------------------------------------------------------------------------------------------------------------------
Class R 39,878 369,677 89,985 704,135
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 276,850 2,558,155 -- --
================================================================================================================================
Issued as reinvestment of dividends:
Class A 550,080 5,357,824 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 2,565 25,160 -- --
================================================================================================================================
Issued in connection with acquisitions:(b)
Class A -- -- 2,782,677 24,469,013
- --------------------------------------------------------------------------------------------------------------------------------
Class B -- -- 3,838,877 31,511,253
- --------------------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,461,575 11,994,377
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 64,231,883 602,604,466 77,425,211 643,745,569
- --------------------------------------------------------------------------------------------------------------------------------
Class B (69,041,635) (602,604,466) (82,660,881) (643,745,569)
================================================================================================================================
Reacquired:
Class A (201,673,468) (1,879,326,225) (192,041,009) (1,575,516,546)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (99,213,876) (861,529,657) (126,732,034) (959,964,213)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (17,405,960) (151,463,797) (18,159,353) (138,549,417)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (24,986) (231,739) (47,869) (385,569)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (205,058) (1,979,622) (74,164) (625,385)
================================================================================================================================
(293,677,556) $(2,623,434,601) (277,482,843) $(2,155,683,055)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate the own 16% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with this entity to sell the Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related, for providing services to the Fund, AIM and/or AIM
affiliates including but not limited to services such as, securities
brokerage, distribution, third party record keeping and account
servicing. The Trust has no knowledge as to whether all or any portion
of the shares owned of record by these shareholders are also owned
beneficially.
(b) As of the opening of business on November 24, 2003, the Fund acquired
all of the net assets of AIM Premier Equity II Fund pursuant to a plan
of reorganization approved by AIM Premier Equity II Fund shareholders on
October 28, 2003. The acquisition was accomplished by a tax-free
exchange of 8,083,129 shares of the Fund for 12,162,356 shares of AIM
Premier Equity II Fund outstanding as of the close of business November
21, 2003. AIM Premier Equity II Fund net assets at that date of
$67,974,643 including $(5,277,895) of unrealized appreciation
(depreciation), were combined with those of the Fund. The aggregate net
assets of the Fund immediately before the acquisition were
$8,817,104,791.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(b)(c) 0.01(b) (0.01)(b) (0.00) (0.04)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 1.86 (3.35) (1.63) (2.42)
================================================================================================================================
Total from investment operations 0.51 1.87 (3.36) (1.63) (2.46)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.01) (1.31)
================================================================================================================================
Total distributions (0.01) -- -- (0.01) (1.31)
================================================================================================================================
Net asset value, end of period $ 9.88 $ 9.38 $ 7.51 $ 10.87 $ 12.51
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(d) 5.48% 24.90% (30.91)% (12.99)% (14.95)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,225,192 $5,116,444 $4,642,361 $8,502,699 $11,223,504
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(e) 1.26% 1.17% 1.08% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28%(e) 1.27% 1.19% 1.12% 1.04%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.39%(c)(e) 0.07% (0.08)% (0.03)% (0.11)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) 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 (loss) to average net assets excluding the special dividend
are $0.03 and 0.24% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of 4,620,534,125.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 1.73 (3.16) (1.54) (2.17)
================================================================================================================================
Total from investment operations 0.41 1.68 (3.23) (1.63) (2.48)
================================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (1.31)
================================================================================================================================
Net asset value, end of period $ 9.16 $ 8.75 $ 7.07 $ 10.30 $ 11.94
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(d) 4.69% 23.76% (31.36)% (13.61)% (15.65)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,315,119 $3,616,395 $4,274,489 $9,186,980 $12,491,366
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(e) 2.01% 1.92% 1.84% 1.77%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(e) 2.02% 1.94% 1.88% 1.81%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.36)%(c)(e) (0.68)% (0.84)% (0.79)% (0.89)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) 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 (loss) to average net assets excluding the special dividend
are $(0.04) and (0.51)% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $2,850,575,141.
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 1.74 (3.17) (1.54) (2.17)
=============================================================================================================================
Total from investment operations 0.41 1.69 (3.24) (1.63) (2.48)
=============================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (1.31)
=============================================================================================================================
Net asset value, end of period $ 9.17 $ 8.76 $ 7.07 $ 10.31 $ 11.95
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(d) 4.68% 23.90% (31.43)% (13.60)% (15.62)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $312,035 $433,332 $444,901 $943,211 $1,262,192
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(e) 2.01% 1.92% 1.84% 1.77%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(e) 2.02% 1.94% 1.88% 1.81%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(c)(e) (0.68)% (0.84)% (0.79)% (0.88)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) 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 (loss) to average net assets excluding the special dividend
are $(0.04) and (0.51)% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $362,415,401.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
---------------------- DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.34 $ 7.50 $ 9.16
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a)(b) (0.01)(a) (0.02)(a)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.48 1.85 (1.64)
=====================================================================================================
Total from investment operations 0.49 1.84 (1.66)
=====================================================================================================
Net asset value, end of period $9.83 $ 9.34 $ 7.50
_____________________________________________________________________________________________________
=====================================================================================================
Total return(c) 5.25% 24.53% (18.12)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $832 $ 651 $ 207
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%(d) 1.51% 1.48%(e)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%(d) 1.52% 1.50%(e)
=====================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(b)(d) (0.18)% (0.40)%(e)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(f) 86% 37% 36%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.00) and (0.01)% respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $718,550.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15,
2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.47 $ 7.55 $10.66
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a)(b) 0.05(a) 0.03(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 1.87 (3.14)
======================================================================================================
Total from investment operations 0.57 1.92 (3.11)
======================================================================================================
Less distributions from net realized gains (0.09) -- --
======================================================================================================
Net asset value, end of period $ 9.95 $ 9.47 $ 7.55
______________________________________________________________________________________________________
======================================================================================================
Total return(c) 6.06% 25.43% (29.17)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,975 $2,127 $2,255
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.58%(d) 0.71% 0.66%(e)
- ------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.60%(d) 0.72% 0.68%(e)
======================================================================================================
Ratio of net investment income to average net assets 1.07%(b)(d) 0.62% 0.42%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 86% 37% 36%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $0.09 and 0.92% respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $1,244,088.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and investigations related to market timing activity
and related issues in the AIM Funds, including those formerly advised by IFG.
These regulators alleged, in substance, that IFG and AIM failed to disclose in
the prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that they had entered into certain arrangements
permitting market timing of such Funds, thereby breaching their fiduciary duties
to such Funds. As a result of the foregoing, the regulators alleged that IFG and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM and
ADI will be made available for distribution to the shareholders of those AIM
Funds advised by AIM that were harmed by market timing activity, all as to be
determined by an independent distribution consultant. The settlement payments
will be distributed in accordance with a methodology to be determined by the
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Funds by $15 million per year for the next five years, based upon effective fee
rates and assets under management as of July 1, 2004, and not to increase
certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management fees
to be charged the AIM Funds are negotiated. Also, commencing in 2008 and not
less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond
R. Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's sales
department). As part of these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates and
assets under management as of July 1, 2004). The manner in which the settlement
payments will be distributed is unknown at the present time and will be
determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional regulatory
actions and/or civil lawsuits related to the above or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future. Additional regulatory inquiries related to the above or other issues
also may be received by the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD,
F-19
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the DOL, the Internal Revenue Service, the United States Attorney's Office for
the Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects to
those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal and state securities laws; (ii) violation of
various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv) breach
of contract. These lawsuits were initiated in both Federal and state courts and
seek such remedies as compensatory damages; restitution; injunctive relief;
disgorgement of management fees; imposition of a constructive trust; removal of
certain directors and/or employees; various corrective measures under ERISA;
rescission of certain Funds' advisory agreements; interest; and attorneys' and
experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; rescission of certain Funds' advisory agreements and
distribution plans; interest; prospective relief in the form of reduced fees;
and attorneys' and experts' fees. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; and (ii) breach of fiduciary duty. These lawsuits have been
filed in Federal courts and seek such remedies as damages; injunctive relief;
and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-20
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
F-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Premier Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Premier Equity Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 31, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
Name, Year of Birth and Trustee and/ Principal Occupation(s) Other Directorship(s)
Position(s) Held with the Trust or Officer Since During Past 5 Years Held by Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(5) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen(4) -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2004, the Fund designated 100%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. Your actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 0.07% was derived from U.S. Treasury
Obligations.
<Table>
<Caption>
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1)
AIM Balanced Fund* AIM Energy Fund(1)
AIM Basic Balanced Fund* AIM Financial Services Fund(1)
AIM Basic Value Fund AIM Global Health Care Fund
AIM Blue Chip Fund AIM Gold & Precious Metals Fund(1)
AIM Capital Development Fund AIM Health Sciences Fund(1)
AIM Charter Fund AIM Leisure Fund(1)
AIM Constellation Fund AIM Multi-Sector Fund(1)
AIM Core Stock Fund(1) AIM Real Estate Fund
AIM Dent Demographic Trends Fund AIM Technology Fund(1)
AIM Diversified Dividend Fund AIM Utilities Fund(1)
AIM Dynamics Fund(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund FIXED INCOME
AIM Large Cap Growth Fund
AIM Libra Fund TAXABLE
AIM Mid Cap Basic Value Fund AIM Floating Rate Fund
AIM Mid Cap Core Equity Fund(2) AIM High Yield Fund
AIM Mid Cap Growth Fund AIM Income Fund
AIM Mid Cap Stock Fund(1) AIM Intermediate Government Fund
AIM Opportunities I Fund AIM Limited Maturity Treasury Fund
AIM Opportunities II Fund AIM Money Market Fund
AIM Opportunities III Fund AIM Short Term Bond Fund
AIM Premier Equity Fund AIM Total Return Bond Fund
AIM S&P 500 Index Fund(1) Premier U.S. Government Money Portfolio(1)
AIM Select Equity Fund
AIM Small Cap Equity Fund(3) TAX-FREE
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) AIM High Income Municipal Fund
AIM Total Return Fund*(1) AIM Municipal Bond Fund
AIM Trimark Endeavor Fund AIM Tax-Exempt Cash Fund
AIM Trimark Small Companies Fund AIM Tax-Free Intermediate Fund
AIM Weingarten Fund
AIM ALLOCATION SOLUTIONS
* Domestic equity and income fund
AIM Aggressive Allocation Fund
INTERNATIONAL/GLOBAL EQUITY AIM Conservative Allocation Fund
AIM Moderate Allocation Fund
AIM Asia Pacific Growth Fund
AIM Developing Markets Fund
AIM European Growth Fund
AIM European Small Company Fund(5)
AIM Global Aggressive Growth Fund
AIM Global Equity Fund(6)
AIM Global Growth Fund
AIM Global Value Fund
AIM International Core Equity Fund(1)
AIM International Growth Fund
AIM International Small Company Fund(7)
AIM Trimark Fund
</Table>
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 20, 2005, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment
management industry since 1976 and manages $138 billion in assets. AIM is a
subsidiary of AMVESCAP PLC, one of the world's largest independent financial
services companies with $382 billion in assets under management. Data as of
December 31, 2004.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIMinvestments.com PEQ AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS. --Registered Trademark--
- -------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------
</Table>
APPENDIX III
AIM PREMIER EQUITY FUND
Semiannual Report to Shareholders o June 30, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM PREMIER EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL. INCOME IS
A SECONDARY OBJECTIVE.
o Unless otherwise stated, information presented in this report is as of June
30, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT The Fund provides a complete list of its
holdings four times in each fiscal year,
o Effective September 30, 2003, Class B o The unmanaged Standard & Poor's at the quarter-ends. For the second and
shares are not available as an Composite Index of 500 Stocks (the S&P fourth quarters, the lists appear in the
investment for retirement plans 500--Registered Trademark-- INDEX) is Fund's semiannual and annual reports to
maintained pursuant to Section 401 of an index of common stocks frequently shareholders. For the first and third
the Internal Revenue Code, including used as a general measure of U.S. stock quarters, the Fund files the lists with
401(k) plans, money purchase pension market performance. the Securities and Exchange Commission
plans and profit sharing plans. Plans (SEC) on Form N-Q. The most recent list
that have existing accounts invested in o The unmanaged LIPPER LARGE-CAP CORE of portfolio holdings is available at
Class B shares will continue to be FUND INDEX represents an average of the AIMinvestments.com. From our home page,
allowed to make additional purchases. performance of the 30 largest large- click on Products & Performance, then
capitalization core equity funds tracked Mutual Funds, then Fund Overview. Select
o Class R shares are available only to by Lipper, Inc., an independent mutual your Fund from the drop-down menu and
certain retirement plans. Please see the fund performance monitor. click on Complete Quarterly Holdings.
prospectus for more information. Shareholders can also look up the Fund's
o The Fund is not managed to track the Forms N-Q on the SEC's Web site at
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of any particular index, sec.gov. And copies of the Fund's Forms
including the indexes defined here, and N-Q may be reviewed and copied at the
o The Fund may invest up to 25% of its consequently, the performance of the SEC's Public Reference Room at 450 Fifth
assets in the securities of non-U.S. Fund may deviate significantly from the Street, N.W., Washington, D.C.
issuers. International investing performance of the indexes. 20549-0102. You can obtain information
presents certain risks not associated on the operation of the Public Reference
with investing solely in the United o A direct investment cannot be made in Room,including information about
States. These include risks relating to an index. Unless otherwise indicated, duplicating fee charges, by calling
fluctuations in the value of the U.S. index results include reinvested 1-202-942-8090 or 1-800-732-0330, or by
dollar relative to the values of other dividends, and they do not reflect sales electronic request at the following
currencies, the custody arrangements charges. Performance of an index of e-mail address: publicinfo@sec.gov. The
made for the Fund's foreign holdings, funds reflects fund expenses; SEC file numbers for the Fund are
differences in accounting, political performance of a market index does not. 811-1540 and 2-27334.
risks and the lesser degree of public
information required to be provided by OTHER INFORMATION A description of the policies and
non-U.S. companies. procedures that the Fund uses to
o The returns shown in management's determine how to vote proxies relating
o The Fund's investments in different, discussion of Fund performance are based to portfolio securities is available
independently managed investment on net asset values calculated for without charge, upon request, from our
disciplines create allocation risk, shareholder transactions. Generally Client Services department at
which is the risk that the allocation of accepted accounting principles require 800-959-4246 or on the AIM Web site,
investments among core, growth and value adjustments to be made to the net assets AIMinvestments.com. On the home page,
companies may have a more significant of the Fund at period end for financial scroll down and click on AIM Funds Proxy
effect on the Fund's net asset value reporting purposes, and as such, the net Policy. The information is also
when one of these disciplines is asset values for shareholder available on the Securities and Exchange
performing more poorly than the others. transactions and the returns based on Commission's Web site, sec.gov.
The active rebalancing of the Fund among those net asset values may differ from
these investment disciplines may result the net asset values and returns Information regarding how the Fund voted
in increased transaction costs. reported in the Financial Highlights. proxies related to its portfolio
securities during the 12 months ended
o The independent management of the o Industry classifications used in this June 30, 2005, is available at our Web
three discipline sections may also report are generally according to the site. Go to AIMinvestments.com, access
result in adverse tax consequences if Global Industry Classification Standard, the About Us tab, click on Required
the portfolio managers responsible for which was developed by and is the Notices and then click on Proxy Voting
the Fund's three investment disciplines exclusive property and a service mark of Activity. Next, select the Fund from the
effect transactions in the same security Morgan Stanley Capital International drop-down menu. The information is also
on or about the same time. Inc. and Standard & Poor's. available on the Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares AVLFX
Class B Shares AVLBX
Class C Shares AVLCX
Class R Shares AVLRX
========================================
</Table>
==========================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES
CHARGES AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
==========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMINVESTMENTS.COM
AIM PREMIER EQUITY FUND
DEAR FELLOW AIM SHAREHOLDER:
We would like to call your attention to two new elements in
this report on your Fund. First, on page 2, is a letter from
Bruce Crockett, the independent Chair of the Board of
[GRAHAM Trustees of the AIM Funds. We first introduced you to Mr.
PHOTO] Crockett in the annual report on your Fund dated December 31
of last year. Mr. Crockett has been on our Funds' Board
since 1992; he assumed his responsibilities as Chair last
October.
Mr. Crockett has expressed an interest in keeping
shareholders informed of the work of the Board regularly via
ROBERT H. GRAHAM letters in the Fund reports. We certainly consider this a
valuable addition to the reports. The Board is charged with
looking out for the interests of shareholders, and Mr.
Crockett's letter provides insight into some of the many
issues the Board addresses in governing your Fund.
One of the most important decisions the Board makes each
year is whether to approve the advisory agreement your Fund
has with AIM. Essentially, this agreement hires AIM to
[WILLIAMSON manage the assets in your Fund. A discussion of the factors
PHOTO] the Board considered in reviewing the agreement is the
second new element in the report, and we encourage you to
read it. It appears on pages 7 and 8.
Of course, this report also includes your Fund managers'
discussion of how they managed the Fund during the six-month
MARK H. WILLIAMSON reporting period. It was a rather muted six months in many
equity markets, with the strongest results coming from
somewhat specialized segments rather than the broad markets.
Domestically, for example, the energy sector vastly
outperformed the S&P 500 Index. Overseas, developing markets
produced much better results than developed markets. The
discussion of how your Fund was managed during the period
and the factors that affected its performance begins on page
3.
Further information about the markets, your Fund, and
investing in general is always available on our widely
acclaimed Web site, AIMinvestments.com. We invite you to
visit it frequently.
We at AIM remain committed to building solutions to help
you meet your investment goals. We thank you for your
continued participation in AIM Investments--Registered
Trademark--. If you have any questions, please contact our
award-winning Client Service representatives at
800-959-4246. We are happy to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, Chairman & President, A I M
AIM Funds Advisors, Inc.
August 10, 2005
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM PREMIER EQUITY FUND
DEAR FELLOW SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
Funds, I'm writing to report on the work being done by your
Board.
At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
[CROCKETT (AIM) that save shareholders approximately $20.8 million
PHOTO] annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
1, 2005, will be achieved by a permanent reduction to 0.25%
of the Rule 12b-1 fees on Class A and Class A3 shares of
those AIM Funds that previously charged these fees at a
higher rate.
Our June meeting, which was the culmination of more than
two and one-half months of review and discussions, took
place over a three-day period. The meeting included your
Board's annual comprehensive evaluation of each fund's
advisory agreement with AIM. After this evaluation, in which
questions about fees, performance and operations were
addressed by AIM, your Board approved all advisory
agreements for the year beginning July 1, 2005. You can find
information on the factors considered and conclusions
reached by your Board in its evaluation of each fund's
advisory agreement at AIMinvestments.com. (Go to "Products &
Performance" and click on "Investment Advisory Agreement
Renewals."). The advisory agreement information about your
Fund is also included in this semiannual report on pages 7
and 8. I encourage you to review it.
Together with monitoring fund expenses, fund performance
is your Board's priority. Our initial goal is to work with
AIM to bring about improvement in every AIM Fund that has
been underperforming its category.
Your Board has a well-defined process and structure for
monitoring all funds and identifying and assisting AIM in
improving underperforming funds. Our Investment
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 13 independent
Board members. Further, our Investment Committee is divided
into three underlying subcommittees, each responsible for,
among other things, reviewing the performance, fees and
expenses of the funds that have been assigned to it.
At subcommittee meetings, held throughout the year, the
performance of every AIM Fund is evaluated. If a fund has
underperformed its peer group for a meaningful period, we
work closely with AIM to discover the causes and help
develop the right responses. In some cases, AIM may
determine that a change in portfolio management strategy or
portfolio managers is required. In other cases, where a fund
no longer seems viable, it may be merged with a similar
fund, being careful to consider the needs of all
shareholders affected by the decision. Following AIM's
recommendation and your Board's approval, eight funds were
recently merged.
Be assured that your Board is working closely with the
management of AIM to help you reach your investment goals.
Should you or your advisor have questions or comments about
the governance of AIM Funds, I invite you to write to me at
AIM Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston, TX 77046. Your Board looks forward to
keeping you informed about the governance of your funds.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
On Behalf of the Board of Trustees
AIM Funds
August 10, 2005
2
AIM PREMIER EQUITY FUND
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
<Table>
===================================================================================== if a stock is trading significantly
PERFORMANCE SUMMARY above estimated intrinsic value, or if
======================================== there is a permanent, fundamental
Large-cap stocks either gave up ground deterioration resulting in reduced
or were virtually stalled for the six FUND VS. INDEXES intrinsic value with inadequate upside
months ended June 30, 2005. For the equity potential or unexpected deterioration in
market, the period was comprised of one TOTAL RETURNS, 12/31/04-6/30/05, EXCLUDING financial strength.
quarter of negative returns and one APPLICABLE SALES CHARGES. IF SALES
quarter of positive returns, resulting CHARGES WERE INCLUDED, RETURNS WOULD BE The growth team uses quantitative and
in little or no progress. LOWER. fundamental analysis to identify
companies generating sustainable,
The Fund's performance was in line Class A Shares -0.71% above-average earnings and cash flow
with the performance of the S&P 500 growth that is not fully reflected in
Index, the index that is both its broad Class B Shares -1.09 investor expectations or equity
market index and its style-specific valuations. Quantitative analysis
index. A presentation of your Fund's Class C Shares -1.09 focuses on the level, growth rate and
long-term performance appears on page 5. sustainability of earnings, revenue and
Class R Shares -0.81 cash flow. Fundamental analysis seeks to
understand a company's drivers of
S&P 500 Index (Broad Market Index success and to assess their durability.
and Style-specific Index) -0.81 The team's sell process seeks to
identify deterioration in the underlying
Lipper Large-Cap Core Fund Index reasons a stock was initially purchased.
(Peer Group Index) -1.01 Conditions that may cause us to sell a
stock include deteriorating business
SOURCE: LIPPER, INC. prospects, slowing earnings growth, an
extended valuation or a more attractive
======================================== opportunity in another security.
=====================================================================================
Our portfolio is a well-diversified,
HOW WE INVEST The team considers selling a stock when large-cap core fund of 125 to 200 stocks
a price target is exceeded, there is with the majority of holdings allocated
We combine core, value and growth deterioration in fundamentals, or a more to core holdings and lesser amounts
disciplines, each of which has a compelling opportunity exists. allocated to value and growth holdings.
different management team, to provide We strive to manage risk through the
return potential in a variety of The value team capitalizes on the large number of holdings and our
markets. Each team manages its fact that stock prices are more volatile diversified exposure to a broad variety
respective discipline independently. than business values and seeks to invest of industries across the value-to-growth
when a significant difference exists continuum.
The core team identifies growing between a stock's market price and their
companies whose stock prices may be estimate of the company's intrinsic MARKET CONDITIONS AND YOUR FUND
experiencing some near-term distress. value. (Estimated intrinsic value is a
Applying rigorous fundamental research value determined by the business's During the first three months of 2005,
focusing on cash flow analysis, the team estimated future cash flows and is domestic equity markets failed to gain
identifies companies with management independent of the stock market.) The
teams capable of weathering any team considers selling a stock to (continued)
near-term challenges while successfully capitalize on a more attractive
generating improving levels of free cash opportunity,
flow.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Pharmaceuticals 9.3% 1. Tyco International Ltd. (Bermuda) 3.0%
[PIE CHART]
2. Oil & Gas Equipment & Services 4.4 2. Waste Management, Inc. 1.9
Information Technology 17.9%
3. Industrial Conglomerates 4.3 3. Microsoft Corp. 1.9
Financials 14.3%
4. Systems Software 4.2 4. Computer Associates
Consumer Discretionary 11.1%
5. Property & Casualty Insurance 3.9 International, Inc. 1.6
Industrials 11.0%
6. Integrated Oil & Gas 3.8 5. Kroger Co. (The) 1.6
Energy 10.5%
7. Packaged Foods & Meats 3.5 6. Citigroup Inc. 1.5
Consumer Staples 8.9%
8. Semiconductors 3.0 7. HCA Inc. 1.4
Three other sectors, each
representing less than 2% of the 9. Managed Health Care 3.0 8. First Data Corp. 1.4
portfolio 3.7%
10. Investment Banking & Brokerage 3.0 9. Merck & Co. Inc 1.4
Money Market Funds Plus
Other Assets Less Liabilities 3.7% TOTAL NET ASSETS $5.7 BILLION 10. BJ Services Co. 1.3
Health Care 18.9% TOTAL NUMBER OF HOLDINGS* 142
The Fund's holdings are subject to
change, and there is no assurance that
the Fund will continue to hold any
particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
</Table>
3
AIM PREMIER EQUITY FUND
<Table>
consistent traction despite continued The Fund's second-largest sector more aggressive investments. We believe
growth in the U.S gross domestic weighting was in information technology that by incorporating three investment
product. Investors worried that rising (IT). Largely because corporations disciplines in one core fund, we can
energy prices and interest rates would failed to deploy the capital provide return potential in a variety of
restrict market returns. expenditures in IT that had been markets. Thank you for investing in AIM
expected in 2005, the sector produced Premier Equity Fund.
Crude oil prices remained high during negative returns in the S&P 500 and
the second quarter and stocks performed other major indexes. Disappointments in THE VIEWS AND OPINIONS EXPRESSED IN
relatively well, but not well enough to key holdings, as well as the negative MANAGEMENT'S DISCUSSION OF FUND
overcome the poor performance of the performance of the sector in general, PERFORMANCE ARE THOSE OF A I M ADVISORS,
first quarter. Major domestic equity detracted from Fund performance for the INC. THESE VIEWS AND OPINIONS ARE
indexes produced either low single-digit period. SUBJECT TO CHANGE AT ANY TIME BASED ON
or negative returns for the period, and FACTORS SUCH AS MARKET AND ECONOMIC
six of 10 sectors in the S&P 500 Index IT holding IBM has steered its future CONDITIONS. THESE VIEWS AND OPINIONS MAY
rendered negative returns. direction to focus on software NOT BE RELIED UPON AS INVESTMENT ADVICE
integration and outsourcing. The OR RECOMMENDATIONS, OR AS AN OFFER FOR A
This reporting period provided a company's experience in working with PARTICULAR SECURITY. THE INFORMATION IS
clear example of the Fund benefiting multiple platforms enables it to compete NOT A COMPLETE ANALYSIS OF EVERY ASPECT
from the inclusion of the growth and for projects involving virtually all OF ANY MARKET, COUNTRY, INDUSTRY,
value disciplines. This occurred in the types of software. Even so, because of SECURITY OR THE FUND. STATEMENTS OF FACT
health care sector, which was our disappointing capital expenditures in IT ARE FROM SOURCES CONSIDERED RELIABLE,
largest sector weighting and provided and IBM's difficulty closing deals in BUT A I M ADVISORS, INC. MAKES NO
the largest contribution to Fund countries with soft economic conditions, REPRESENTATION OR WARRANTY AS TO THEIR
performance. The Fund's health care its earnings announcement in April COMPLETENESS OR ACCURACY. ALTHOUGH
stocks outperformed the health care disappointed investors. We believe the HISTORICAL PERFORMANCE IS NO GUARANTEE
sector in the S&P 500 Index. Several market overreacted to IBM's OF FUTURE RESULTS, THESE INSIGHTS MAY
health care stocks in particular, namely announcement, and we continued to hold HELP YOU UNDERSTAND OUR INVESTMENT
HCA, WELLPOINT and ALCON, all owned at this stock at period-end. MANAGEMENT PHILOSOPHY.
period-end, were top contributors to
Fund performance. Each of these stocks After a strong showing in 2004, See important Fund and index
was selected by either the growth team industrials stocks generally suffered disclosures inside front cover.
or the value team, so our diversified during the period. This was primarily
investment styles worked well to provide because investors fled to other sectors, RONALD S. SLOAN,
positive returns in the sector. fearing that the industrial expansion of Chartered Financial
the last two years might be running out [SLOAN Analyst, senior
The strong performance from HCA and of steam. However, capital spending is PHOTO] portfolio manager, is
Wellpoint probably was helped by the expected to gain momentum in the second lead portfolio manager
improving job market. Additional jobs half the year. We believe that companies of AIM Premier Equity
may mean more employers providing health in the sector remain attractive because Fund. Mr. Sloan has 34 years of
care benefits, enlarging the pool of of their ability to generate cash flow, experience in the investment industry.
insured patients in general and the weakness of the dollar and their He joined AIM in 1998. Mr. Sloan
increasing the number of patients leverage to U.S. economic growth. attended the University of Missouri,
willing to undergo elective surgery. where he received both a B.S. in
HCA, one of the top hospital operators In its earnings report in May, business administration and an M.B.A.
in the U.S., benefited from increased industrials holding TYCO stated it had
admissions and surgeries. After used $1.5 billion of its cash to LANNY H. SACHNOWITZ,
experiencing better-than-expected repurchase convertible debt securities. senior portfolio
first-quarter results, HCA revised This created a one-time charge that [SACHNOWITZ manager, is portfolio
earnings estimates upward for the rest adversely affected earnings. Since Tyco PHOTO] manager of AIM Premier
of 2005. began repurchasing its convertible Equity Fund. Mr.
securities in 2004, it has reduced Sachnowitz joined AIM
Health benefits company Wellpoint shares outstanding by 76 million shares. in 1987. He received a B.S. in finance
operates the Blue Cross and Blue Shield We believe that this represents good from the University of Southern
plans. An increase in insured patients stewardship of cash. At period-end, we California, and he received his M.B.A
and Wellpoint's negotiating power in its remained confident in the group of from the University of Houston.
industry benefited performance. In large-market-share businesses that
addition to strong financial results for comprise Tyco. BRET W. STANLEY,
first-quarter 2005, the company declared Chartered Financial
a two-for-one stock split. IN CLOSING [STANLEY Analyst, senior
PHOTO] portfolio manager, is
The energy sector also contributed to We have positioned the Fund in a way we portfolio manager of
performance. Our overweight position and believe can provide a better store of AIM Premier Equity
your Fund's strong, double-digit returns value during difficult periods. This Fund. Mr. Stanley has 16 years of
in the sector helped compensate for difference may be small in a six-month experience in the investment industry.
disappointing returns in several other period, but we work earnestly to provide He joined AIM in 1998. Mr. Stanley
sectors. more stable, consistent results over attended the University of Texas, where
time to help investors offset the he received his B.B.A in finance, and
volatility of their the University of Houston, where he
earned his M.S. in finance.
Assisted by the Mid/Large Cap Core Team,
Large Cap Growth Team and Basic Value
Team
</Table>
4
AIM PREMIER EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Below you will find a presentation of your Fund's performance record for periods
ended June 30, 2005, the close of the six-month period covered by this report.
Please read the important disclosure accompanying these tables, which explains
how Fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
<Table>
======================================== CLASS R SHARES' INCEPTION DATE IS CLASS A SHARE PERFORMANCE REFLECTS
JUNE 3, 2002. RETURNS SINCE THAT DATE THE MAXIMUM 5.50% SALES CHARGE, AND
AVERAGE ANNUAL TOTAL RETURNS ARE HISTORICAL RETURNS. ALL OTHER CLASS B AND CLASS C SHARE PERFORMANCE
As of 6/30/05, including applicable RETURNS ARE BLENDED RETURNS OF REFLECTS THE APPLICABLE CONTINGENT
sales charges HISTORICAL CLASS R SHARE PERFORMANCE AND DEFERRED SALES CHARGE (CDSC) FOR THE
RESTATED CLASS A SHARE PERFORMANCE PERIOD INVOLVED. THE CDSC ON CLASS B
CLASS A SHARES (FOR PERIODS PRIOR TO THE INCEPTION DATE SHARES DECLINES FROM 5% BEGINNING AT THE
Inception (5/1/84) 11.87% OF CLASS R SHARES) AT NET ASSET VALUE, TIME OF PURCHASE TO 0% AT THE BEGINNING
10 Years 5.44 ADJUSTED TO REFLECT THE HIGHER RULE OF THE SEVENTH YEAR. THE CDSC ON CLASS C
5 Years -8.70 12B-1 FEES APPLICABLE TO CLASS R SHARES. SHARES IS 1% FOR THE FIRST YEAR AFTER
1 Year -2.05 PURCHASE. CLASS R SHARES DO NOT HAVE A
THE PERFORMANCE DATA QUOTED REPRESENT FRONT-END SALES CHARGE; RETURNS SHOWN
CLASS B SHARES PAST PERFORMANCE AND CANNOT GUARANTEE ARE AT NET ASSET VALUE AND DO NOT
Inception (10/18/93) 6.66% COMPARABLE FUTURE RESULTS; CURRENT REFLECT A 0.75% CDSC THAT MAY BE IMPOSED
10 Years 5.37 PERFORMANCE MAY BE LOWER OR HIGHER. ON A TOTAL REDEMPTION OF RETIREMENT PLAN
5 Years -8.70 PLEASE VISIT AIMINVESTMENTS.COM FOR THE ASSETS WITHIN THE FIRST YEAR.
1 Year -2.16 MOST RECENT MONTH-END PERFORMANCE.
PERFORMANCE FIGURES REFLECT REINVESTED THE PERFORMANCE OF THE FUND'S SHARE
CLASS C SHARES DISTRIBUTIONS, CHANGES IN NET ASSET CLASSES WILL DIFFER DUE TO DIFFERENT
Inception (8/4/97) 1.08% VALUE AND THE EFFECT OF THE MAXIMUM SALES CHARGE STRUCTURES AND CLASS
5 Years -8.35 SALES CHARGE UNLESS OTHERWISE STATED. EXPENSES.
1 Year 1.83 INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT YOU MAY HAVE A
CLASS R SHARES GAIN OR LOSS WHEN YOU SELL SHARES.
10 Years 5.77%
5 Years -7.89
1 Year 3.39
========================================
</Table>
5
AIM PREMIER EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE to estimate the expenses that you paid The hypothetical account values and
over the period. Simply divide your expenses may not be used to estimate the
As a shareholder of the Fund, you incur account value by $1,000 (for example, an actual ending account balance or
two types of costs: (1) transaction $8,600 account value divided by $1,000 = expenses you paid for the period. You
costs, which may include sales charges 8.6), then multiply the result by the may use this information to compare the
(loads) on purchase payments; contingent number in the table under the heading ongoing costs of investing in the Fund
deferred sales charges on redemptions; entitled "Actual Expenses Paid During and other funds. To do so, compare this
and redemption fees, if any; and (2) Period" to estimate the expenses you 5% hypothetical example with the 5%
ongoing costs, including management paid on your account during this period. hypothetical examples that appear in the
fees; distribution and/or service fees shareholder reports of the other funds.
(12b-1); and other Fund expenses. This HYPOTHETICAL EXAMPLE FOR
example is intended to help you COMPARISON PURPOSES Please note that the expenses shown
understand your ongoing costs (in in the table are meant to highlight your
dollars) of investing in the Fund and to The table below also provides ongoing costs only and do not reflect
compare these costs with ongoing costs information about hypothetical account any transactional costs, such as sales
of investing in other mutual funds. The values and hypothetical expenses based charges (loads) on purchase payments,
example is based on an investment of on the Fund's actual expense ratio and contingent deferred sales charges on
$1,000 invested at the beginning of the an assumed rate of return of 5% per year redemptions, and redemption fees, if
period and held for the entire period before expenses, which is not the Fund's any. Therefore, the hypothetical
January 1, 2005, through June 30, 2005. actual return. The Fund's actual information is useful in comparing
cumulative total returns at net asset ongoing costs only, and will not help
ACTUAL EXPENSES value after expenses for the six months you determine the relative total costs
ended June 30, 2005, appear in the table of owning different funds. In addition,
The table below provides information "Fund vs. Indexes" on page 3. if these transactional costs were
about actual account values and actual included, your costs would have been
expenses. You may use the information in higher.
this table, together with the amount you
invested,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4)
A $1,000.00 $992.90 $6.08 $1,018.70 $6.16
B 1,000.00 989.10 9.77 1,014.98 9.89
C 1,000.00 989.10 9.77 1,014.98 9.89
R 1,000.00 991.90 7.31 1,017.46 7.40
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June 30,
2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net asset value
after expenses for the six months ended June 30, 2005, appear in the table "Fund vs. Indexes" on page 3.
(2) Expenses are equal to the Fund's annualized expense ratio (1.23%, 1.98%, 1.98% and 1.48% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year
period). Effective on July 1, 2005, the advisor contractually agreed to waive advisory fees in an amount equal to 0.02% of
average daily net assets annualized. The annualized expense ratio restated as if this agreement had been in effect throughout
the entire most recent fiscal half year are 1.21%, 1.96%, 1.96% and 1.46% for Class A, B, C and R shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal half
year are $5.98, $9.67, $9.67 and $7.21 for Class A, B, C and R shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
half year are $6.06, $9.79, $9.79 and $7.30 for Class A, B, C and R shares, respectively.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
</Table>
6
AIM PREMIER EQUITY FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Funds Group o The quality of services to be provided o Fees relative to those of clients of
(the "Board") oversees the management of by AIM. The Board reviewed the AIM with comparable investment
AIM Premier Equity Fund (the "Fund") credentials and experience of the strategies. The Board reviewed the
and, as required by law, determines officers and employees of AIM who will advisory fee rate for the Fund under the
annually whether to approve the provide investment advisory services to Advisory Agreement. The Board noted
continuance of the Fund's advisory the Fund. In reviewing the that, based on the Fund's current assets
agreement with A I M Advisors, Inc. qualifications of AIM to provide and taking account of the breakpoint in
("AIM"). Based upon the recommendation investment advisory services, the Board the Fund's advisory fee schedule, this
of the Investments Committee of the reviewed the qualifications of AIM's rate (i) was comparable to the advisory
Board, which is comprised solely of investment personnel and considered such fee rates for a variable insurance fund
independent trustees, at a meeting held issues as AIM's portfolio and product advised by AIM and offered to insurance
on June 30, 2005, the Board, including review process, various back office company separate accounts with
all of the independent trustees, support functions provided by AIM and investment strategies comparable to
approved the continuance of the advisory AIM's equity and fixed income trading those of the Fund; and (ii) was lower
agreement (the "Advisory Agreement") operations. Based on the review of these than the advisory fee rates for three
between the Fund and AIM for another and other factors, the Board concluded offshore funds for which an affiliate of
year, effective July 1, 2005. that the quality of services to be AIM serves as advisor with investment
provided by AIM was appropriate and that strategies comparable to those of the
The Board considered the factors AIM currently is providing satisfactory Fund. The Board noted that AIM has
discussed below in evaluating the services in accordance with the terms of agreed to waive advisory fees of the
fairness and reasonableness of the the Advisory Agreement. Fund, as discussed below. Based on this
Advisory Agreement at the meeting on review, the Board concluded that the
June 30, 2005 and as part of the Board's o The performance of the Fund relative advisory fee rate for the Fund under the
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed Advisory Agreement was fair and
deliberations, the Board and the the performance of the Fund during the reasonable.
independent trustees did not identify past one, three and five calendar years
any particular factor that was against the performance of funds advised o Fees relative to those of comparable
controlling, and each trustee attributed by other advisors with investment funds with other advisors. The Board
different weights to the various strategies comparable to those of the reviewed the advisory fee rate for the
factors. Fund. The Board noted that the Fund's Fund under the Advisory Agreement. The
performance in such periods was below Board compared effective contractual
One of the responsibilities of the the median performance of such advisory fee rates at a common asset
Senior Officer of the Fund, who is comparable funds. The Board noted that level and noted that the Fund's rate was
independent of AIM and AIM's affiliates, AIM has acknowledged that the Fund above the median rate of the funds
is to manage the process by which the continues to require a long-term advised by other advisors with
Fund's proposed management fees are solution to its under-performance, and investment strategies comparable to
negotiated to ensure that they are that management is continuing to closely those of the Fund that the Board
negotiated in a manner which is at arm's monitor the performance of the Fund and reviewed. The Board noted that AIM has
length and reasonable. To that end, the analyze various possible long-term agreed to waive advisory fees of the
Senior Officer must either supervise a solutions. Based on this review, the Fund, as discussed below. Based on this
competitive bidding process or prepare Board concluded that no changes should review, the Board concluded that the
an independent written evaluation. The be made to the Fund and that it was not advisory fee rate for the Fund under the
Senior Officer has recommended an necessary to change the Fund's portfolio Advisory Agreement was fair and
independent written evaluation in lieu management team at this time. reasonable.
of a competitive bidding process and,
upon the direction of the Board, has o The performance of the Fund relative o Expense limitations and fee waivers.
prepared such an independent written to indices. The Board reviewed the The Board noted that AIM has
evaluation. Such written evaluation also performance of the Fund during the past contractually agreed to waive advisory
considered certain of the factors one, three and five calendar years fees of the Fund through December 31,
discussed below. In addition, as against the performance of the Lipper 2009 to the extent necessary so that the
discussed below, the Senior Officer made Large-Cap Core Index. The Board noted advisory fees payable by the Fund do not
certain recommendations to the Board in that the Fund's performance in such exceed a specified maximum advisory fee
connection with such written evaluation. periods was below the performance of rate, which maximum rate includes
such Index. The Board noted that AIM has breakpoints and is based on net asset
The discussion below serves as a acknowledged that the Fund continues to levels. The Board noted that AIM also
summary of the Senior Officer's require a long-term solution to its has contractually agreed to waive an
independent written evaluation and under-performance, and that management additional 0.02% of the Fund's advisory
recommendations to the Board in is continuing to closely monitor the fees through June 30, 2006. The Board
connection therewith, as well as a performance of the Fund and analyze considered the contractual nature of
discussion of the material factors and various possible long-term solutions. these fee waivers and noted that they
the conclusions with respect thereto Based on this review, the Board remain in effect until June 30, 2006.
that formed the basis for the Board's concluded that no changes should be made The Board considered the effect these
approval of the Advisory Agreement. to the Fund and that it was not fee waivers would have on the Fund's
After consideration of all of the necessary to change the Fund's portfolio estimated expenses and concluded that
factors below and based on its informed management team at this time. the levels of fee waivers/expense
business judgment, the Board determined limitations for the Fund were fair and
that the Advisory Agreement is in the o Meeting with the Fund's portfolio reasonable.
best interests of the Fund and its managers and investment personnel. With
shareholders and that the compensation respect to the Fund, the Board is o Breakpoints and economies of scale.
to AIM under the Advisory Agreement is meeting periodically with such Fund's The Board reviewed the structure of the
fair and reasonable and would have been portfolio managers and/or other Fund's advisory fee under the Advisory
obtained through arm's length investment personnel and believes that Agreement, noting that it includes one
negotiations. such individuals are competent and able breakpoint. The Board reviewed the level
to continue to carry out their of the Fund's advisory fees, and noted
o The nature and extent of the advisory responsibilities under the Advisory that such fees, as a percentage of the
services to be provided by AIM. The Agreement. Fund's net assets, have decreased as net
Board reviewed the services to be assets increased because the Advisory
provided by AIM under the Advisory o Overall performance of AIM. The Board Agreement includes a breakpoint. The
Agreement. Based on such review, the considered the overall performance of Board noted that AIM has contractually
Board concluded that the range of AIM in providing investment advisory and agreed to waive advisory fees of the
services to be provided by AIM under the portfolio administrative services to the Fund through December 31, 2009 to the
Advisory Agreement was appropriate and Fund and concluded that such performance extent necessary so that the advisory
that AIM currently is providing services was satisfactory. fees payable by the Fund do not exceed a
in accordance with the terms of the specified maximum advisory fee rate,
Advisory Agreement. which maximum rate includes breakpoints
and is based on net asset levels. The
Board concluded that the Fund's fee
levels under the Advisory Agreement
therefore reflect economies of scale and
that it was not necessary to change the
advisory fee breakpoints in the Fund's
advisory fee schedule.
(continued)
</Table>
7
AIM PREMIER EQUITY FUND
<Table>
o Investments in affiliated money market o Profitability of AIM and its o Other factors and current trends. In
funds. The Board also took into account affiliates. The Board reviewed determining whether to continue the
the fact that uninvested cash and cash information concerning the profitability Advisory Agreement for the Fund, the
collateral from securities lending of AIM's (and its affiliates') Board considered the fact that AIM,
arrangements (collectively, "cash investment advisory and other activities along with others in the mutual fund
balances") of the Fund may be invested and its financial condition. The Board industry, is subject to regulatory
in money market funds advised by AIM considered the overall profitability of inquiries and litigation related to a
pursuant to the terms of an SEC AIM, as well as the profitability of AIM wide range of issues. The Board also
exemptive order. The Board found that in connection with managing the Fund. considered the governance and compliance
the Fund may realize certain benefits The Board noted that AIM's operations reforms being undertaken by AIM and its
upon investing cash balances in AIM remain profitable, although increased affiliates, including maintaining an
advised money market funds, including a expenses in recent years have reduced internal controls committee and
higher net return, increased liquidity, AIM's profitability. Based on the review retaining an independent compliance
increased diversification or decreased of the profitability of AIM's and its consultant, and the fact that AIM has
transaction costs. The Board also found affiliates' investment advisory and undertaken to cause the Fund to operate
that the Fund will not receive reduced other activities and its financial in accordance with certain governance
services if it invests its cash balances condition, the Board concluded that the policies and practices. The Board
in such money market funds. The Board compensation to be paid by the Fund to concluded that these actions indicated a
noted that, to the extent the Fund AIM under its Advisory Agreement was not good faith effort on the part of AIM to
invests in affiliated money market excessive. adhere to the highest ethical standards,
funds, AIM has voluntarily agreed to and determined that the current
waive a portion of the advisory fees it o Benefits of soft dollars to AIM. The regulatory and litigation environment to
receives from the Fund attributable to Board considered the benefits realized which AIM is subject should not prevent
such investment. The Board further by AIM as a result of brokerage the Board from continuing the Advisory
determined that the proposed securities transactions executed through "soft Agreement for the Fund.
lending program and related procedures dollar" arrangements. Under these
with respect to the lending Fund is in arrangements, brokerage commissions paid
the best interests of the lending Fund by the Fund and/or other funds advised
and its respective shareholders. The by AIM are used to pay for research and
Board therefore concluded that the execution services. This research is
investment of cash collateral received used by AIM in making investment
in connection with the securities decisions for the Fund. The Board
lending program in the money market concluded that such arrangements were
funds according to the procedures is in appropriate.
the best interests of the lending Fund
and its respective shareholders. o AIM's financial soundness in light of
the Fund's needs. The Board considered
o Independent written evaluation and whether AIM is financially sound and has
recommendations of the Fund's Senior the resources necessary to perform its
Officer. The Board noted that, upon obligations under the Advisory
their direction, the Senior Officer of Agreement, and concluded that AIM has
the Fund had prepared an independent the financial resources necessary to
written evaluation in order to assist fulfill its obligations under the
the Board in determining the Advisory Agreement.
reasonableness of the proposed
management fees of the AIM Funds, o Historical relationship between the
including the Fund. The Board noted that Fund and AIM. In determining whether to
the Senior Officer's written evaluation continue the Advisory Agreement for the
had been relied upon by the Board in Fund, the Board also considered the
this regard in lieu of a competitive prior relationship between AIM and the
bidding process. In determining whether Fund, as well as the Board's knowledge
to continue the Advisory Agreement for of AIM's operations, and concluded that
the Fund, the Board considered the it was beneficial to maintain the
Senior Officer's written evaluation and current relationship, in part, because
the recommendation made by the Senior of such knowledge. The Board also
Officer to the Board that the Board reviewed the general nature of the
consider implementing a process to non-investment advisory services
assist them in more closely monitoring currently performed by AIM and its
the performance of the AIM Funds. The affiliates, such as administrative,
Board concluded that it would be transfer agency and distribution
advisable to implement such a process as services, and the fees received by AIM
soon as reasonably practicable. The and its affiliates for performing such
Board also considered the Senior services. In addition to reviewing such
Officer's recommendation that the Board services, the trustees also considered
consider an additional fee waiver for the organizational structure employed by
the Fund due to the Fund's AIM and its affiliates to provide those
under-performance. The Board concluded services. Based on the review of these
that such a fee waiver in the amount of and other factors, the Board concluded
0.02% of the Fund's advisory fees was that AIM and its affiliates were
appropriate for the Fund and requested qualified to continue to provide
such a fee waiver from AIM. The Board non-investment advisory services to the
noted that AIM has agreed to this fee Fund, including administrative, transfer
waiver, as discussed above. agency and distribution services, and
that AIM and its affiliates currently
are providing satisfactory
non-investment advisory services.
</Table>
8
SUPPLEMENT TO SEMIANNUAL REPORT DATED 6/30/05
AIM PREMIER EQUITY FUND
<Table>
=========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS
For periods ended 6/30/05 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) -1.82% THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 1 Year 4.41 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. Institutional 6 Months* -0.10 ASSET VALUE. INVESTMENT RETURN AND
Class shares are offered exclusively to PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
institutional investors, including *Cumulative total return that has not SHARES, WHEN REDEEMED, MAY BE WORTH MORE
defined contribution plans that meet been annualized OR LESS THAN THEIR ORIGINAL COST. SEE
certain criteria. ========================================= FULL REPORT FOR INFORMATION ON
COMPARATIVE BENCHMARKS. PLEASE CONSULT
INSTITUTIONAL CLASS SHARES HAVE NO SALES YOUR FUND PROSPECTUS FOR MORE
CHARGE; THEREFORE, PERFORMANCE IS AT NAV. INFORMATION. FOR THE MOST CURRENT
INSTITUTIONAL CLASS SHARES WOULD HAVE HAD MONTH-END PERFORMANCE, PLEASE CALL
DIFFERENT RETURNS DUE TO DIFFERENCES IN 800-451-4246 OR VISIT AIMinvestments.com.
THE EXPENSE STRUCTURE OF THE
INSTITUTIONAL CLASS.
=========================================
FUND NASDAQ SYMBOL
AIM Premier Equity Fund AVLVX
=========================================
</Table>
Over for information on your Fund's expenses.
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.
<Table>
AIMinvestments.com PEQ-INS-2 YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE divide your account value by $1,000 (for The hypothetical account values and
example, an $8,600 account value divided expenses may not be used to estimate the
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the actual ending account balance or expenses
ongoing costs, including management fees result by the number in the table under you paid for the period. You may use this
and other Fund expenses. This example is the heading entitled "Actual Expenses information to compare the ongoing costs
intended to help you understand your Paid During Period" to estimate the of investing in the Fund and other funds.
ongoing costs (in dollars) of investing expenses you paid on your account during To do so, compare this 5% hypothetical
in the Fund and to compare these costs this period. example with the 5% hypothetical examples
with ongoing costs of investing in other that appear in the shareholder reports of
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR COMPARISON the other funds.
investment of $1,000 invested at the PURPOSES
beginning of the period and held for the Please note that the expenses shown in
entire period January 1, 2005, through The table below also provides information the table are meant to highlight your
June 30, 2005. about hypothetical account values and ongoing costs only. Therefore, the
hypothetical expenses based on the Fund's hypothetical information is useful in
ACTUAL EXPENSES actual expense ratio and an assumed rate comparing ongoing costs only, and will
of return of 5% per year before expenses, not help you determine the relative total
The table below provides information which is not the Fund's actual return. costs of owning different funds.
about actual account values and actual The Fund's actual cumulative total return
expenses. You may use the information in after expenses for the six months ended
this table, together with the amount you June 30, 2005, appears in the table on
invested, to estimate the expenses that the front of this supplement.
you paid over the period. Simply
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (1/1/05) (6/30/05)(1) PERIOD(2,3) (6/30/05) PERIOD(2,4)
Institutional $1,000.00 $999.00 $3.62 $1,021.17 $3.66
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2005, through June
30, 2005, after actual expenses and will differ from the hypothetical ending account value which is based on the Fund's expense
ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total return after expenses for the
six months ended June 30, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio, 0.73% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 181/365 (to reflect the one-half year period). Effective on July 1, 2005, the
advisor contractually agreed to waive advisory fees in an amount equal to 0.02% of average daily net assets annualized. The
annualized expense ratio restated as if this agreement had been in effect throughout the entire most recent fiscal half year is
0.71% for the Institutional Class shares.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal half
year are $3.52 for the Institutional Class shares.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
half year are $3.56 for the Institutional Class shares.
===================================================================================================================================
</Table>
AIMinvestments.com PEQ-INS-2
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.30%
ADVERTISING-1.09%
Interpublic Group of Cos., Inc. (The)(a) 1,372,800 $ 16,720,704
- ---------------------------------------------------------------------------
Omnicom Group Inc. 568,100 45,368,466
===========================================================================
62,089,170
===========================================================================
AEROSPACE & DEFENSE-1.43%
Boeing Co. (The) 225,000 14,850,000
- ---------------------------------------------------------------------------
Honeywell International Inc. 665,900 24,391,917
- ---------------------------------------------------------------------------
Lockheed Martin Corp. 235,000 15,244,450
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 487,000 26,906,750
===========================================================================
81,393,117
===========================================================================
AIR FREIGHT & LOGISTICS-0.13%
FedEx Corp. 90,000 7,290,900
===========================================================================
ALUMINUM-0.30%
Alcoa Inc. 650,700 17,002,791
===========================================================================
APPAREL RETAIL-0.77%
Chico's FAS, Inc.(a) 450,000 15,426,000
- ---------------------------------------------------------------------------
Gap, Inc. (The) 1,440,000 28,440,000
===========================================================================
43,866,000
===========================================================================
APPLICATION SOFTWARE-0.39%
Amdocs Ltd. (United Kingdom)(a) 850,000 22,465,500
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.22%
Bank of New York Co., Inc. (The) 2,407,700 69,293,606
===========================================================================
BIOTECHNOLOGY-0.84%
Amgen Inc.(a) 448,000 27,086,080
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 475,000 20,895,250
===========================================================================
47,981,330
===========================================================================
BREWERS-0.76%
Heineken N.V. (Netherlands)(b)(c) 1,398,786 43,154,971
===========================================================================
BUILDING PRODUCTS-0.57%
Masco Corp. 1,015,900 32,264,984
===========================================================================
COMMUNICATIONS EQUIPMENT-1.96%
Cisco Systems, Inc.(a) 2,497,000 47,717,670
- ---------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 1,998,000 33,246,720
- ---------------------------------------------------------------------------
QUALCOMM Inc. 930,000 30,699,300
===========================================================================
111,663,690
===========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
COMPUTER HARDWARE-2.56%
Apple Computer, Inc.(a) 675,000 $ 24,846,750
- ---------------------------------------------------------------------------
Dell Inc.(a) 1,825,000 72,105,750
- ---------------------------------------------------------------------------
International Business Machines Corp. 659,000 48,897,800
===========================================================================
145,850,300
===========================================================================
COMPUTER STORAGE & PERIPHERALS-1.02%
EMC Corp.(a) 1,000,000 13,710,000
- ---------------------------------------------------------------------------
Lexmark International, Inc.-Class A(a) 685,200 44,421,516
===========================================================================
58,131,516
===========================================================================
CONSUMER ELECTRONICS-1.35%
Koninklijke (Royal) Philips Electronics
N.V.(c) (Netherlands) 1,910,500 48,124,010
- ---------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 840,000 28,929,600
===========================================================================
77,053,610
===========================================================================
CONSUMER FINANCE-0.57%
American Express Co. 250,000 13,307,500
- ---------------------------------------------------------------------------
SLM Corp. 375,000 19,050,000
===========================================================================
32,357,500
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.44%
First Data Corp. 1,951,300 78,325,182
- ---------------------------------------------------------------------------
Sabre Holdings Corp.-Class A(b) 187,000 3,730,650
===========================================================================
82,055,832
===========================================================================
DEPARTMENT STORES-1.53%
Federated Department Stores, Inc. 150,000 10,992,000
- ---------------------------------------------------------------------------
J.C. Penney Co., Inc. 390,000 20,506,200
- ---------------------------------------------------------------------------
Kohl's Corp.(a) 482,200 26,959,802
- ---------------------------------------------------------------------------
Nordstrom, Inc. 425,000 28,887,250
===========================================================================
87,345,252
===========================================================================
DIVERSIFIED BANKS-0.67%
Bank of America Corp. 838,000 38,221,180
===========================================================================
DIVERSIFIED CHEMICALS-0.18%
Dow Chemical Co. (The) 232,200 10,339,866
===========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.76%
Cendant Corp. 1,926,200 43,089,094
===========================================================================
ELECTRIC UTILITIES-0.49%
FPL Group, Inc. 658,700 27,704,922
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.19%
Rockwell Automation, Inc. 225,000 $ 10,959,750
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.92%
Waste Management, Inc. 3,861,100 109,423,574
===========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.20%
Monsanto Co. 185,000 11,630,950
===========================================================================
FOOD RETAIL-2.13%
Kroger Co. (The)(a) 4,853,800 92,367,814
- ---------------------------------------------------------------------------
Safeway Inc. 1,284,300 29,012,337
===========================================================================
121,380,151
===========================================================================
FOOTWEAR-0.57%
NIKE, Inc.-Class B 375,000 32,475,000
===========================================================================
GENERAL MERCHANDISE STORES-0.95%
Target Corp. 995,400 54,159,714
===========================================================================
HEALTH CARE DISTRIBUTORS-1.92%
Cardinal Health, Inc. 1,107,000 63,741,060
- ---------------------------------------------------------------------------
McKesson Corp. 1,020,000 45,685,800
===========================================================================
109,426,860
===========================================================================
HEALTH CARE EQUIPMENT-0.91%
Baxter International Inc. 870,000 32,277,000
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 375,000 19,676,250
===========================================================================
51,953,250
===========================================================================
HEALTH CARE FACILITIES-1.41%
HCA Inc. 1,420,000 80,471,400
===========================================================================
HEALTH CARE SERVICES-0.84%
Caremark Rx, Inc.(a) 325,000 14,469,000
- ---------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 225,000 12,006,000
- ---------------------------------------------------------------------------
Quest Diagnostics Inc. 400,000 21,308,000
===========================================================================
47,783,000
===========================================================================
HEALTH CARE SUPPLIES-0.75%
Alcon, Inc. (Switzerland) 390,000 42,646,500
===========================================================================
HOMEBUILDING-0.26%
D.R. Horton, Inc. 400,000 15,044,000
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.23%
Hilton Hotels Corp. 550,000 13,117,500
===========================================================================
HOUSEHOLD PRODUCTS-0.92%
Clorox Co. (The) 200,000 11,144,000
- ---------------------------------------------------------------------------
Kimberly-Clark Corp. 532,700 33,341,693
- ---------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
HOUSEHOLD PRODUCTS-(CONTINUED)
Procter & Gamble Co. (The) 150,000 $ 7,912,500
===========================================================================
52,398,193
===========================================================================
HOUSEWARES & SPECIALTIES-0.43%
Fortune Brands, Inc. 275,000 24,420,000
===========================================================================
INDUSTRIAL CONGLOMERATES-4.27%
General Electric Co. 1,823,000 63,166,950
- ---------------------------------------------------------------------------
Textron Inc. 150,000 11,377,500
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 5,777,800 168,711,760
===========================================================================
243,256,210
===========================================================================
INDUSTRIAL MACHINERY-1.29%
Dover Corp. 1,362,300 49,560,474
- ---------------------------------------------------------------------------
Illinois Tool Works Inc. 300,000 23,904,000
===========================================================================
73,464,474
===========================================================================
INTEGRATED OIL & GAS-3.77%
Amerada Hess Corp. 248,220 26,437,912
- ---------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 457,800 28,557,564
- ---------------------------------------------------------------------------
ConocoPhillips 535,000 30,757,150
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 626,700 36,016,449
- ---------------------------------------------------------------------------
Murphy Oil Corp. 804,800 42,034,704
- ---------------------------------------------------------------------------
TOTAL S.A. (France)(c) 218,100 51,036,603
===========================================================================
214,840,382
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.88%
SBC Communications Inc. 2,120,200 50,354,750
===========================================================================
INTERNET SOFTWARE & SERVICES-0.97%
Google Inc.-Class A(a) 55,000 16,178,250
- ---------------------------------------------------------------------------
VeriSign, Inc.(a) 630,000 18,118,800
- ---------------------------------------------------------------------------
Yahoo! Inc.(a) 600,000 20,790,000
===========================================================================
55,087,050
===========================================================================
INVESTMENT BANKING & BROKERAGE-2.95%
Goldman Sachs Group, Inc. (The) 415,000 42,338,300
- ---------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 240,000 23,827,200
- ---------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 569,700 31,339,197
- ---------------------------------------------------------------------------
Morgan Stanley 1,349,700 70,818,759
===========================================================================
168,323,456
===========================================================================
IT CONSULTING & OTHER SERVICES-0.96%
Accenture Ltd.-Class A (Bermuda)(a) 2,422,700 54,922,609
===========================================================================
MANAGED HEALTH CARE-2.99%
Aetna Inc. 540,000 44,722,800
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 965,000 50,315,100
- ---------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MANAGED HEALTH CARE-(CONTINUED)
WellPoint, Inc.(a) 1,080,600 $ 75,252,984
===========================================================================
170,290,884
===========================================================================
MOVIES & ENTERTAINMENT-1.43%
News Corp.-Class A 1,765,200 28,560,936
- ---------------------------------------------------------------------------
Walt Disney Co. (The) 2,095,000 52,752,100
===========================================================================
81,313,036
===========================================================================
MULTI-LINE INSURANCE-1.01%
American International Group, Inc. 492,000 28,585,200
- ---------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 390,000 29,164,200
===========================================================================
57,749,400
===========================================================================
MULTI-UTILITIES-0.59%
Dominion Resources, Inc. 462,100 33,913,519
===========================================================================
OFFICE ELECTRONICS-0.88%
Xerox Corp.(a) 3,631,500 50,078,385
===========================================================================
OIL & GAS DRILLING-1.18%
Nabors Industries, Ltd. (Bermuda)(a) 520,500 31,552,710
- ---------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 662,700 35,765,919
===========================================================================
67,318,629
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-4.42%
Baker Hughes Inc. 662,500 33,893,500
- ---------------------------------------------------------------------------
BJ Services Co. 1,438,800 75,508,224
- ---------------------------------------------------------------------------
Halliburton Co. 1,090,000 52,123,800
- ---------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 315,000 14,975,100
- ---------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 478,000 36,299,320
- ---------------------------------------------------------------------------
Smith International, Inc. 611,750 38,968,475
===========================================================================
251,768,419
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.52%
Apache Corp. 459,200 29,664,320
===========================================================================
OIL & GAS REFINING & MARKETING-0.56%
Valero Energy Corp. 400,000 31,644,000
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.27%
Citigroup Inc. 1,831,100 84,651,753
- ---------------------------------------------------------------------------
JPMorgan Chase & Co. 1,264,000 44,644,480
===========================================================================
129,296,233
===========================================================================
PACKAGED FOODS & MEATS-3.47%
Campbell Soup Co. 879,500 27,062,215
- ---------------------------------------------------------------------------
General Mills, Inc. 1,121,600 52,479,664
- ---------------------------------------------------------------------------
Kraft Foods Inc.-Class A 2,024,900 64,412,069
- ---------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
PACKAGED FOODS & MEATS-(CONTINUED)
Unilever N.V. (Netherlands)(c) 834,300 $ 54,035,148
===========================================================================
197,989,096
===========================================================================
PAPER PRODUCTS-0.63%
Georgia-Pacific Corp. 1,128,700 35,892,660
===========================================================================
PERSONAL PRODUCTS-0.96%
Gillette Co. (The) 1,075,000 54,427,250
===========================================================================
PHARMACEUTICALS-9.28%
Bristol-Myers Squibb Co. 1,697,800 42,411,044
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 917,900 35,660,415
- ---------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,484,900 72,032,499
- ---------------------------------------------------------------------------
Johnson & Johnson 965,000 62,725,000
- ---------------------------------------------------------------------------
Merck & Co. Inc. 2,512,900 77,397,320
- ---------------------------------------------------------------------------
Pfizer Inc. 1,362,700 37,583,266
- ---------------------------------------------------------------------------
Sanofi-Aventis (France)(c) 806,600 66,061,472
- ---------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 350,000 11,480,000
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,576,300 49,085,982
- ---------------------------------------------------------------------------
Wyeth 1,669,500 74,292,750
===========================================================================
528,729,748
===========================================================================
PROPERTY & CASUALTY INSURANCE-3.85%
ACE Ltd. (Cayman Islands) 1,594,900 71,531,265
- ---------------------------------------------------------------------------
Allstate Corp. (The) 250,000 14,937,500
- ---------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A(a) 760 63,460,000
- ---------------------------------------------------------------------------
Chubb Corp. (The) 413,300 35,382,613
- ---------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The)(b) 859,900 33,991,847
===========================================================================
219,303,225
===========================================================================
PUBLISHING-1.43%
Gannett Co., Inc. 682,000 48,510,660
- ---------------------------------------------------------------------------
Tribune Co. 934,500 32,875,710
===========================================================================
81,386,370
===========================================================================
RAILROADS-0.47%
Union Pacific Corp. 412,300 26,717,040
===========================================================================
REGIONAL BANKS-0.47%
Fifth Third Bancorp 655,600 27,017,276
===========================================================================
RESTAURANTS-0.53%
Yum! Brands, Inc. 575,000 29,946,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.50%
Applied Materials, Inc. 1,760,000 28,476,800
===========================================================================
SEMICONDUCTORS-3.04%
Analog Devices, Inc. 1,634,800 60,994,388
- ---------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Intel Corp. 1,366,800 $ 35,618,808
- ---------------------------------------------------------------------------
National Semiconductor Corp. 2,377,700 52,380,731
- ---------------------------------------------------------------------------
Xilinx, Inc. 950,100 24,227,550
===========================================================================
173,221,477
===========================================================================
SOFT DRINKS-0.69%
Coca-Cola Co. (The) 944,900 39,449,575
===========================================================================
SPECIALTY CHEMICALS-0.20%
Ecolab Inc. 350,000 11,326,000
===========================================================================
SPECIALTY STORES-0.49%
Staples, Inc. 1,300,000 27,716,000
===========================================================================
STEEL-0.18%
Nucor Corp. 225,000 10,264,500
===========================================================================
SYSTEMS SOFTWARE-4.23%
Adobe Systems Inc. 400,000 11,448,000
- ---------------------------------------------------------------------------
Computer Associates International, Inc. 3,369,100 92,582,868
- ---------------------------------------------------------------------------
Microsoft Corp. 4,288,200 106,518,888
- ---------------------------------------------------------------------------
Oracle Corp.(a) 2,300,000 30,360,000
===========================================================================
240,909,756
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.28%
Countrywide Financial Corp. 600,000 23,166,000
- ---------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
Fannie Mae 851,500 $ 49,727,600
===========================================================================
72,893,600
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $4,846,219,144) 5,486,857,102
===========================================================================
MONEY MARKET FUNDS-3.52%
Liquid Assets Portfolio-Institutional
Class(d) 100,324,509 100,324,509
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 100,324,509 100,324,509
===========================================================================
Total Money Market Funds (Cost
$200,649,018) 200,649,018
===========================================================================
TOTAL INVESTMENTS-99.82% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,046,868,162) 5,687,506,120
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.39%
STIC Prime Portfolio-Institutional
Class(d)(e) 22,422,631 22,422,631
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $22,422,631) 22,422,631
===========================================================================
TOTAL INVESTMENTS-100.21% (Cost
$5,069,290,793) 5,709,928,751
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.21%) (12,051,107)
===========================================================================
NET ASSETS-100.00% $5,697,877,644
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at June 30, 2005.
(c) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market
prices. The aggregate market value of these securities at June 30, 2005
was $262,412,204, which represented 4.60% of the Fund's Total
Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$4,846,219,144)* $ 5,486,857,102
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $223,071,649) 223,071,649
============================================================
Total investments (cost $5,069,290,793) 5,709,928,751
============================================================
Receivables for:
Investments sold 24,292,810
- ------------------------------------------------------------
Fund shares sold 545,475
- ------------------------------------------------------------
Dividends 7,670,151
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 468,166
- ------------------------------------------------------------
Other assets 162,221
============================================================
Total assets 5,743,067,574
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 16,978,175
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,196,239
- ------------------------------------------------------------
Collateral upon return of securities
loaned 22,422,631
- ------------------------------------------------------------
Accrued distribution fees 2,247,341
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 816
- ------------------------------------------------------------
Accrued transfer agent fees 1,816,189
- ------------------------------------------------------------
Accrued operating expenses 528,539
============================================================
Total liabilities 45,189,930
============================================================
Net assets applicable to shares outstanding $ 5,697,877,644
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 9,000,936,397
- ------------------------------------------------------------
Undistributed net investment income 2,410,776
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,946,059,913)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 640,590,384
============================================================
$ 5,697,877,644
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 3,633,224,171
____________________________________________________________
============================================================
Class B $ 1,782,219,205
____________________________________________________________
============================================================
Class C $ 249,467,217
____________________________________________________________
============================================================
Class R $ 1,296,818
____________________________________________________________
============================================================
Institutional Class $ 31,670,233
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 370,417,898
____________________________________________________________
============================================================
Class B 196,665,698
____________________________________________________________
============================================================
Class C 27,504,789
____________________________________________________________
============================================================
Class R 133,054
____________________________________________________________
============================================================
Institutional Class 3,186,242
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.81
- ------------------------------------------------------------
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 $ 9.06
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.07
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.75
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.94
____________________________________________________________
============================================================
</Table>
* At June 30, 2005, securities with an aggregate market value of $21,619,638
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the six months ended June 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,009,435) $ 46,661,395
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $110,632 after compensation
to counterparties of $791,481) 2,830,772
===========================================================================
Total investment income 49,492,167
===========================================================================
EXPENSES:
Advisory fees 19,292,840
- ---------------------------------------------------------------------------
Administrative services fees 334,967
- ---------------------------------------------------------------------------
Custodian fees 284,715
- ---------------------------------------------------------------------------
Distribution fees:
Class A 4,808,396
- ---------------------------------------------------------------------------
Class B 10,034,095
- ---------------------------------------------------------------------------
Class C 1,369,875
- ---------------------------------------------------------------------------
Class R 2,757
- ---------------------------------------------------------------------------
Transfer agent fees:
Class A, B, C & R 9,836,828
- ---------------------------------------------------------------------------
Institutional Class 1,082
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 96,196
- ---------------------------------------------------------------------------
Other 1,020,432
===========================================================================
Total expenses 47,082,183
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (789,381)
===========================================================================
Net expenses 46,292,802
===========================================================================
Net investment income 3,199,365
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(2,501,783)) 236,100,787
- ---------------------------------------------------------------------------
Foreign currencies (128,610)
===========================================================================
235,972,177
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (305,959,254)
- ---------------------------------------------------------------------------
Foreign currencies (47,827)
===========================================================================
(306,007,081)
===========================================================================
Net gain (loss) from investment securities and foreign
currencies (70,034,904)
===========================================================================
Net increase (decrease) in net assets resulting from
operations $ (66,835,539)
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2005 and the year ended December 31, 2004
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2005 2004
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,199,365 $ 6,495,939
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 235,972,177 543,675,823
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (306,007,081) (233,501,742)
================================================================================================
Net increase (decrease) in net assets resulting from
operations (66,835,539) 316,670,020
================================================================================================
Distributions to shareholders from net investment income:
Class A -- (6,005,272)
- ------------------------------------------------------------------------------------------------
Institutional Class -- (28,013)
================================================================================================
Decrease in net assets resulting from distributions -- (6,033,285)
================================================================================================
Share transactions-net:
Class A (558,312,678) (1,093,570,069)
- ------------------------------------------------------------------------------------------------
Class B (503,916,365) (1,396,211,918)
- ------------------------------------------------------------------------------------------------
Class C (58,798,435) (134,394,245)
- ------------------------------------------------------------------------------------------------
Class R 466,285 137,938
- ------------------------------------------------------------------------------------------------
Institutional Class 29,122,516 603,693
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,091,438,677) (2,623,434,601)
================================================================================================
Net increase (decrease) in net assets (1,158,274,216) (2,312,797,866)
================================================================================================
NET ASSETS:
Beginning of period 6,856,151,860 9,168,949,726
================================================================================================
End of period (including undistributed net investment
income (loss) of $2,410,776 and $(788,589),
respectively). $ 5,697,877,644 $ 6,856,151,860
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Premier Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary investment objective. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, 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. However, the Fund has not had prior claims or losses pursuant to these
contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period including estimates
and assumptions related to taxation. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services,
which may be considered fair valued, or market makers. Each security
reported on the NASDAQ National Market System is valued at the NASDAQ
Official Closing Price ("NOCP") as of the close of the customary trading
session on the valuation date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs and domestic and foreign index futures.
F-8
]
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F. 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.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are received or
made depending upon whether unrealized gains or losses are incurred. When
the contracts are closed, the Fund recognizes a realized gain or loss equal
to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
I. 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 substitute such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
F-9
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $150 million 0.80%
- ----------------------------------------------------------------------
Over $150 million 0.625%
______________________________________________________________________
======================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund based
on the Fund's average daily net assets do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- ----------------------------------------------------------------------
First $150 million 0.75%
- ----------------------------------------------------------------------
Next $4.85 billion 0.615%
- ----------------------------------------------------------------------
Next $2.5 billion 0.57%
- ----------------------------------------------------------------------
Next $2.5 billion 0.545%
- ----------------------------------------------------------------------
Over $10 billion 0.52%
______________________________________________________________________
======================================================================
</Table>
Effective July 1, 2005, AIM has contractually agreed to waive advisory fees
in an amount equal to 0.02% of average daily net assets annualized, through June
30, 2006. AIM did not waive fees and/or reimburse expenses during the period
under this expense limitation.
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). AIM is also voluntarily waiving a portion of the
advisory fee payable by the Fund equal to the difference between the income
earned from investing in the affiliated money market fund and the hypothetical
income earned from investing in an appropriate comparative benchmark. Voluntary
fee waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the six months ended June 30, 2005, AIM waived fees of $630,269.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement are included in the Statement of Operations. For
the six months ended June 30, 2005, AMVESCAP reimbursed expenses of the Fund in
the amount of $71,810.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. Pursuant to such agreement, for the six months
ended June 30, 2005, AIM was paid $334,967.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended June 30, 2005, the
Fund paid AISI $9,836,828 for Class A, Class B, Class C and Class R share
classes and $1,082 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class B,
Class C, Class R and Institutional Class shares of the Fund. The Trust has
adopted plans pursuant to Rule 12b-1 under the 1940 Act with respect to the
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules impose a cap on
the total sales charges, including asset-based sales charges that may be paid by
any class of shares of the Fund. Pursuant to the Plans, for the six months ended
June 30, 2005, the Class A, Class B, Class C and Class R shares paid $4,808,396,
$10,034,095, $1,369,875 and $2,757, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During six months
ended June 30, 2005, AIM Distributors advised the Fund that it retained $145,267
in front-end sales commissions from the sale of Class A shares and $2,848,
$238,068, $8,278 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or ADI.
F-10
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the six months ended June 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-
Institutional
Class $119,054,041 $ 644,669,139 $ (663,398,671) $ -- $100,324,509 $1,352,313 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 119,054,041 644,669,139 (663,398,671) -- 100,324,509 1,367,827 --
===================================================================================================================================
Subtotal $238,108,082 $1,289,338,278 $(1,326,797,342) $ -- $200,649,018 $2,720,140 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/04 AT COST FROM SALES (DEPRECIATION) 06/30/05 INCOME*
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class $27,306,920 $ 404,168,873 $ (409,053,162) $ -- $22,422,631 $ 110,632
==========================================================================================================================
Total $265,415,002 $1,693,507,151 $(1,735,850,504) $ -- $223,071,649 $2,830,772
__________________________________________________________________________________________________________________________
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------
STIC Prime Portfolio-
Institutional Class $ --
=======================
Total $ --
_______________________
=======================
</Table>
* Net of compensation to counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the six months ended June 30, 2005, the
Fund engaged in securities purchases of $43,993,251 and sales of $17,221,076,
which resulted in net realized gains (losses) of $(2,501,783).
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended June 30, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $87,302.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, current
Trustees are eligible to participate in a retirement plan that provides for
benefits to be paid upon retirement to Trustees over a period of time based on
the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended June 30, 2005, the Fund paid legal fees of
$14,474 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as
counsel to the Independent Trustees. A member of that firm is a Trustee of the
Trust.
F-11
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the six months ended June 30, 2005, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At June 30, 2005, securities with an aggregate value of $21,619,638 were on
loan to brokers. The loans were secured by cash collateral of $22,422,631
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2005, the Fund received dividends on cash
collateral of $110,632 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of December
31, 2004 to utilizing $4,144,170,085 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund had a capital loss carryforward as of December 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
December 31, 2009 $1,147,080,694
- ------------------------------------------------------------------------------
December 31, 2010 2,279,293,105
- ------------------------------------------------------------------------------
December 31, 2011 733,056,501
==============================================================================
Total capital loss carryforward $4,159,430,300
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Premier Equity II Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
F-12
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2005 was $1,353,314,447 and $2,422,004,211, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 813,786,709
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (191,828,078)
===============================================================================
Net unrealized appreciation of investment securities $ 621,958,631
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $5,087,970,120.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under certain circumstances, Class A shares and Class R
shares are subject to CDSC. Generally, Class B shares will automatically convert
to Class A shares eight years after the end of the calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING(a)
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 5,269,269 $ 51,423,059 19,026,912 $ 177,793,866
- --------------------------------------------------------------------------------------------------------------------------------
Class B 2,801,051 25,285,154 7,798,250 67,922,205
- --------------------------------------------------------------------------------------------------------------------------------
Class C 627,739 5,662,134 1,961,009 17,069,552
- --------------------------------------------------------------------------------------------------------------------------------
Class R 61,755 594,927 39,878 369,677
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,191,942 32,042,652 276,850 2,558,155
================================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 550,080 5,357,824
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- 2,565 25,160
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 17,280,096 167,657,056 64,231,883 602,604,466
- --------------------------------------------------------------------------------------------------------------------------------
Class B (18,668,213) (167,657,056) (69,041,635) (602,604,466)
================================================================================================================================
Reacquired:
Class A (79,779,717) (777,392,793) (201,673,468) (1,879,326,225)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (40,132,156) (361,544,463) (99,213,876) (861,529,657)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (7,149,461) (64,460,569) (17,405,960) (151,463,797)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (13,331) (128,642) (24,986) (231,739)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (304,626) (2,920,136) (205,058) (1,979,622)
================================================================================================================================
(116,815,652) $(1,091,438,677) (293,677,556) $(2,623,434,601)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 15% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, 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 these shareholders are also owned beneficially.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000(A)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.88 $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) 0.02(b) 0.04(b)(c) 0.01(b) (0.01)(b) (0.00) (0.04)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.09) 0.47 1.86 (3.35) (1.63) (2.42)
=================================================================================================================================
Total from investment
operations (0.07) 0.51 1.87 (3.36) (1.63) (2.46)
=================================================================================================================================
Less distributions:
Dividends from net
investment income -- (0.01) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- (0.01) (1.31)
=================================================================================================================================
Total distributions -- (0.01) -- -- (0.01) (1.31)
=================================================================================================================================
Net asset value, end of
period $ 9.81 $ 9.88 $ 9.38 $ 7.51 $ 10.87 $ 12.51
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) (0.71)% 5.48% 24.90% (30.91)% (12.99)% (14.95)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $3,633,224 $4,225,192 $5,116,444 $4,642,361 $8,502,699 $11,223,504
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.23%(e) 1.26% 1.26% 1.17% 1.08% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.25%(e) 1.28% 1.27% 1.19% 1.12% 1.04%
=================================================================================================================================
Ratio of net investment
income (loss) to average
net assets 0.38%(e) 0.39%(c) 0.07% (0.08)% (0.03)% (0.11)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 86% 37% 36% 38% 67%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend of $3.00 per share
owned of Microsoft Corp. on December 2, 2004. Net investment income per
share and the ratio of net investment income to average net assets
excluding the special dividend are $0.03 and 0.24%, respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on 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.
(e) Ratios are annualized and based on average daily net assets of
$3,878,595,782.
(f) Not annualized for periods less than one year.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ---------------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000(A)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.16 $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (0.02)(b) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) (0.08) 0.44 1.73 (3.16) (1.54) (2.17)
=================================================================================================================================
Total from investment
operations (0.10) 0.41 1.68 (3.23) (1.63) (2.48)
=================================================================================================================================
Less distributions from net
realized gains -- -- -- -- (0.01) (1.31)
=================================================================================================================================
Net asset value, end of
period $ 9.06 $ 9.16 $ 8.75 $ 7.07 $ 10.30 $ 11.94
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) (1.09)% 4.69% 23.76% (31.36)% (13.61)% (15.65)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,782,219 $2,315,119 $3,616,395 $4,274,489 $9,186,980 $12,491,366
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.98%(e) 2.01% 2.01% 1.92% 1.84% 1.77%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.00%(e) 2.03% 2.02% 1.94% 1.88% 1.81%
=================================================================================================================================
Ratio of net investment
income (loss) to average
net assets (0.37)%(e) (0.36)%(c) (0.68)% (0.84)% (0.79)% (0.89)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 86% 37% 36% 38% 67%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.04) and (0.51)%, respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on 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.
(e) Ratios are annualized and based on average daily net assets of
$2,023,450,185.
(f) Not annualized for periods less than one year.
F-15
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
2005 2004 2003 2002 2001 2000(A)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.17 $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(b) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) (0.08) 0.44 1.74 (3.17) (1.54) (2.17)
=================================================================================================================================
Total from investment operations (0.10) 0.41 1.69 (3.24) (1.63) (2.48)
=================================================================================================================================
Less distributions from net realized
gains -- -- -- -- (0.01) (1.31)
=================================================================================================================================
Net asset value, end of period $ 9.07 $ 9.17 $ 8.76 $ 7.07 $ 10.31 $ 11.95
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) (1.09)% 4.68% 23.90% (31.43)% (13.60)% (15.62)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $249,467 $312,035 $433,332 $444,901 $943,211 $1,262,192
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.98%(e) 2.01% 2.01% 1.92% 1.84% 1.77%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.00%(e) 2.03% 2.02% 1.94% 1.88% 1.81%
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.37)%(e) (0.36)%(c) (0.68)% (0.84)% (0.79)% (0.88)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 86% 37% 36% 38% 67%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.04) and (0.51)%, respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on 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.
(e) Ratios are annualized and based on average daily net assets of
$276,245,401.
(f) Not annualized for periods less than one year.
F-16
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------- DECEMBER 31,
2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.83 $9.34 $ 7.50 $ 9.16
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.01(a)(b) (0.01)(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.09) 0.48 1.85 (1.64)
===============================================================================================================
Total from investment operations (0.08) 0.49 1.84 (1.66)
===============================================================================================================
Net asset value, end of period $ 9.75 $9.83 $ 9.34 $ 7.50
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(c) (0.81)% 5.25% 24.53% (18.12)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,297 $832 $ 651 $ 207
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.48%(d) 1.51% 1.51% 1.48%(e)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.50%(d) 1.53% 1.52% 1.50%(e)
===============================================================================================================
Ratio of net investment income (loss) to average net assets 0.13%(d) 0.14%(b) (0.18)% (0.40)%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(f) 23% 86% 37% 36%
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend of
$3.00 per share owned of Microsoft Corp. on December 2, 2004. Net
investment income (loss) per share and the ratio of net investment
income (loss) to average net assets excluding the special dividend are
$(0.00) and (0.01)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,111,867.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-17
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------
MARCH 15, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------- DECEMBER 31,
2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.95 $ 9.47 $ 7.55 $10.66
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.10(a)(b) 0.05(a) ()0.03(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.05) 0.47 1.87 (3.14)
=========================================================================================================================
Total from investment operations (0.01) 0.57 1.92 (3.11)
=========================================================================================================================
Less distributions from net investment income -- (0.09) -- --
=========================================================================================================================
Net asset value, end of period $ 9.94 $ 9.95 $ 9.47 $ 7.55
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) (0.10)% 6.06% 25.43% (29.17)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $31,670 $2,975 $2,127 $2,255
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.73%(d) 0.58% 0.71% 0.66%(e)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.75%(d) 0.60% 0.72% 0.68%(e)
=========================================================================================================================
Ratio of net investment income to average net assets 0.88%(d) 1.07%(b) 0.62% 0.42%(e)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(f) 23% 86% 37% 36%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend of $3.00 per share
owned of Microsoft Corp. on December 2, 2004. Net investment income per
share and the ratio of net investment income to average net assets
excluding the special dividend are $0.09 and 0.92%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$3,468,748.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) is being created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
agreed to create a $50 million fair fund ($30 million of which is civil
penalties) to compensate shareholders harmed by market timing and related
activity in funds advised by AIM. These two fair funds may increase as a result
of contributions from third parties who reach final settlements with the SEC or
other regulators to resolve allegations of market timing and/or late trading
that also may have harmed applicable AIM Funds. These two fair funds will be
distributed in accordance with a methodology to be determined by AIM's
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC. As
the methodology is unknown at the present time, management of AIM and the Fund
are unable to estimate the impact, if any, that the distribution of these two
fair funds may have on the Fund or whether such distribution will have an impact
on the Fund's financial statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, 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
F-18
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
Section 529 college savings plans and procedures for locating lost
securityholders. IFG, AIM and ADI are providing full cooperation with respect to
these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action No.
05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose in
the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act). The
WVAG complaint is seeking, among other things, injunctive relief, civil monetary
penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG lawsuit, it could be barred from serving
as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted. On July 7,
2005, the Supreme Court of West Virginia ruled in the context of a separate
lawsuit that the WVAG does not have authority pursuant to W. Va. Code Section
46A-6-104 of the West Virginia Consumer Credit and Protection Act to bring an
action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related activity
in the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- that the defendants charged excessive advisory and/or distribution fees
and failed to pass on to shareholders the perceived savings generated by
economies of scale and that the defendants adopted unlawful distribution
plans;
- that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of the
same AIM Fund were not charged the same distribution fees;
- that the defendants improperly used the assets of the AIM Funds to pay
brokers to aggressively promote the sale of the AIM Funds over other
mutual funds and that the defendants concealed such payments from
investors by disguising them as brokerage commissions; and
- that the defendants breached their fiduciary duties by failing to ensure
that the AIM Funds participated in class action settlements in which they
were eligible to participate.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-19
EQUITY FUND
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley President Suite 100
James T. Bunch Houston, TX 77046-1173
Bruce L. Crockett Mark H. Williamson
Chair Executive Vice President INVESTMENT ADVISOR
Albert R. Dowden A I M Advisors, Inc.
Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza
Jack M. Fields Senior Vice President and Chief Compliance Suite 100
Carl Frischling Officer Houston, TX 77046-1173
Robert H. Graham
Gerald J. Lewis Russell C. Burk TRANSFER AGENT
Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc.
Lewis F. Pennock P.O. Box 4739
Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739
Larry Soll Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President and Treasurer Boston, MA 02110-2801
Robert G. Alley
Vice President
J. Philip Ferguson
Vice President
Karen Dunn Kelley
Vice President
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, NY 10036-2714
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Basic Balanced Fund* AIM Developing Markets Fund
AIM Basic Value Fund AIM European Growth Fund AIM Floating Rate Fund
AIM Blue Chip Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Capital Development Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Charter Fund AIM Global Equity Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM Global Value Fund AIM Money Market Fund
AIM Dynamics Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Growth Fund AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM International Small Company Fund(6) Premier Portfolio
AIM Mid Cap Basic Value Fund AIM Trimark Fund Premier U.S. Government Money
AIM Mid Cap Core Equity Fund(2) Portfolio(1)
AIM Mid Cap Growth Fund SECTOR EQUITY
AIM Opportunities I Fund TAX-FREE
AIM Opportunities II Fund AIM Advantage Health Sciences Fund(1)
AIM Opportunities III Fund AIM Energy Fund(1) AIM High Income Municipal Fund(8)
AIM Premier Equity Fund AIM Financial Services Fund(1) AIM Municipal Bond Fund
AIM S&P 500 Index Fund(1) AIM Global Health Care Fund AIM Tax-Exempt Cash Fund
AIM Select Equity Fund AIM Global Real Estate Fund AIM Tax-Free Intermediate Fund
AIM Small Cap Equity Fund(3) AIM Gold & Precious Metals Fund(1) Premier Tax-Exempt Portfolio
AIM Small Cap Growth Fund(4) AIM Leisure Fund(1)
AIM Small Company Growth Fund(1) AIM Multi-Sector Fund(1)
AIM Trimark Endeavor Fund AIM Real Estate Fund(7) AIM ALLOCATION SOLUTIONS
AIM Trimark Small Companies Fund AIM Technology Fund(1)
AIM Weingarten Fund AIM Utilities Fund(1) AIM Conservative Allocation Fund
AIM Growth Allocation Fund(9)
AIM Moderate Allocation Fund
AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
</Table>
*Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Dynamics Fund to AIM Dynamics Fund, INVESCO Energy Fund to AIM Energy Fund,
INVESCO Financial Services Fund to AIM Financial Services Fund, INVESCO Gold &
Precious Metals Fund to AIM Gold & Precious Metals Fund, INVESCO International
Core Equity Fund to AIM International Core Equity Fund, INVESCO Leisure Fund to
AIM Leisure Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO
S&P 500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund
to AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology
Fund, INVESCO U.S. Government Money Fund to Premier U.S. Government Money
Portfolio, INVESCO Utilities Fund to AIM Utilities Fund. (2) As of end of
business on February 27, 2004, AIM Mid Cap Core Equity Fund has limited public
sales of its shares to certain investors. For more information on who may
continue to invest in the Fund, please contact your financial advisor. (3)
Effective December 13, 2004, AIM Small Cap Equity Fund is open to all investors.
(4) As of end of business on March 18, 2002, AIM Small Cap Growth Fund has
limited public sales of its shares to certain investors. For more information on
who may continue to invest in the Fund, please contact your financial advisor.
(5) As of end of business on March 28, 2005, AIM European Small Company Fund has
limited public sales of its shares to certain investors. For more information on
who may continue to invest in the Fund, please contact your financial advisor.
(6) Effective December 30, 2004, AIM International Emerging Growth Fund was
renamed AIM International Small Company Fund. As of end of business on March 14,
2005, the Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please contact your
financial advisor. (7) As of end of business on April 29, 2005, AIM Real Estate
Fund has limited public sales of its shares to certain investors. For more
information on who may continue to invest in the Fund, please contact your
financial advisor. (8) As of end of business August 5, 2005, AIM High Income
Municipal Fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the Fund, please contact your
financial advisor. (9) Effective April 29, 2005, AIM Aggressive Allocation Fund
was renamed AIM Growth Allocation Fund.
If used after Oct. 20, 2005, this report must be accompanied by a Fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $129 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $373 billion in assets under management. Data as of June 30,
2005.
AIMinvestments.com PEQ-SAR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
APPENDIX IV
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
of AIM Premier Equity Fund into AIM Charter Fund
April 30, 2005
(Unaudited)
SHARES MARKET VALUE
- --------------------------------------- -----------------------------------------
AIM CHARTER FUND AIM CHARTER
AIM PREMIER AIM CHARTER PRO FORMA AIM PREMIER AIM CHARTER FUND PRO FORMA
EQUITY FUND FUND COMBINING EQUITY FUND FUND COMBINING
- ----------- ----------- ------------- ------------ ------------ ---------------
DOMESTIC STOCKS & OTHER EQUITY
INTERESTS--83.91%
ADVERTISING--0.79%
1,432,800 - 1,432,800 Interpublic Group of Cos., Inc. (The) (a)(b) $ 18,425,808 $ - $ 18,425,808
588,100 - 588,100 Omnicom Group Inc. 48,753,490 - 48,753,490
67,179,298 - 67,179,298
AEROSPACE & DEFENSE--1.40%
225,000 - 225,000 Boeing Co. (The) 13,392,000 - 13,392,000
705,900 - 705,900 Honeywell International Inc. 25,242,984 - 25,242,984
761,100 700,000 1,461,100 Northrop Grumman Corp. 41,738,724 38,388,000 80,126,724
80,373,708 38,388,000 118,761,708
AIR FREIGHT & LOGISTICS--0.13%
130,000 - 130,000 FedEx Corp. 11,043,500 - 11,043,500
ALUMINUM--0.24%
690,700 - 690,700 Alcoa Inc. 20,044,114 - 20,044,114
APPAREL RETAIL--0.55%
575,000 - 575,000 Chico's FAS, Inc. (a) 14,737,250 - 14,737,250
1,500,000 - 1,500,000 Gap, Inc. (The) 32,025,000 - 32,025,000
46,762,250 - 46,762,250
APPLICATION SOFTWARE--0.33%
1,030,000 - 1,030,000 Amdocs Ltd. (a) 27,511,300 - 27,511,300
ASSET MANAGEMENT & CUSTODY BANKS--1.03%
2,191,700 915,000 3,106,700 Bank of New York Co., Inc. (The) 61,236,098 25,565,100 86,801,198
BIOTECHNOLOGY--0.26%
600,000 - 600,000 Gilead Sciences, Inc. (a) 22,260,000 - 22,260,000
BUILDING PRODUCTS--0.39%
1,055,900 - 1,055,900 Masco Corp. 33,250,291 - 33,250,291
COMMUNICATIONS EQUIPMENT--0.66%
1,325,000 - 1,325,000 Cisco Systems, Inc. (a) 22,896,000 - 22,896,000
950,000 - 950,000 QUALCOMM Inc. 33,145,500 - 33,145,500
56,041,500 - 56,041,500
COMPUTER HARDWARE--1.82%
600,000 - 600,000 Apple Computer, Inc. (a) 21,636,000 - 21,636,000
1,875,000 - 1,875,000 Dell Inc. (a) 65,306,250 - 65,306,250
454,500 418,000 872,500 International Business Machines Corp. 34,714,710 31,926,840 66,641,550
121,656,960 31,926,840 153,583,800
COMPUTER STORAGE & PERIPHERALS--1.15%
1,000,000 - 1,000,000 EMC Corp. (a) 13,120,000 - 13,120,000
698,700 507,900 1,206,600 Lexmark International, Inc.-Class A (a) 48,524,715 35,273,655 83,798,370
61,644,713 5,273,655 96,918,370
CONSUMER FINANCE--0.64%
300,000 - 300,000 American Express Co. 15,810,000 - 15,810,000
800,000 - 800,000 SLM Corp. 38,112,000 - 38,112,000
53,922,000 - 53,922,000
DATA PROCESSING & OUTSOURCED
SERVICES--1.23%
2,044,800 685,000 2,729,800 First Data Corp. 77,763,744 26,050,510 103,814,294
DEPARTMENT STORES--1.76%
400,000 - 400,000 J.C. Penney Co., Inc. 18,964,000 - 18,964,000
1,128,300 1,022,100 2,150,400 Kohl's Corp. (a) 53,707,080 48,651 102,359,040
550,000 - 550,000 Nordstrom, Inc. 27,956,500 - 27,956,500
100,627,580 48,651 149,279,540
DIVERSIFIED BANKS--0.89%
873,200 807,000 1,680,200 Bank of America Corp. 39,328,928 36,347,280 75,676,208
DIVERSIFIED CHEMICALS--1.00%
1,076,300 758,000 1,834,300 Dow Chemical Co. (The) 49,434,459 34,814,940 84,249,399
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES--0.61%
2,591,200 - 2,591,200 Cendant Corp. 51,590,792 - 51,590,792
ELECTRIC UTILITIES--0.78%
855,200 759,100 1,614,300 FPL Group, Inc. 34,909,264 30,986,465 65,895,726
ELECTRICAL COMPONENTS & EQUIPMENT--0.26%
472,200 - 472,200 Rockwell Automation, Inc. 21,829,806 - 21,829,806
ENVIRONMENTAL SERVICES--2.04%
4,039,100 2,006,500 6,045,600 Waste Management, Inc. 115,073,959 57,165,185 172,239,144
FERTILIZERS & AGRICULTURAL
CHEMICALS--0.14%
200,000 - 200,000 Monsanto Co. 11,724,000 - 11,724,000
SHARES MARKET VALUE
- --------------------------------------- -----------------------------------------
AIM CHARTER FUND AIM CHARTER
AIM PREMIER AIM CHARTER PRO FORMA AIM PREMIER AIM CHARTER FUND PRO FORMA
EQUITY FUND FUND COMBINING EQUITY FUND FUND COMBINING
- ----------- ----------- ------------- ------------ ------------ ---------------
FOOD RETAIL--1.82%
5,061,800 2,912,000 7,973,800 Kroger Co. (The) (a) $ 79,824,586 $ 45,922,240 125,746,826
1,344,300 - 1,344,300 Safeway Inc. (a) 28,620,147 - 28,620,147
108,444,733 45,922,240 154,366,973
FOOTWEAR--0.44%
485,000 - 485,000 NIKE, Inc.-Class B 37,252,850 - 37,252,850
GENERAL MERCHANDISE STORES--0.58%
1,060,400 - 1,060,400 Target Corp. 49,202,560 - 49,202,560
HEALTH CARE DISTRIBUTORS--1.23%
1,167,000 - 1,167,000 Cardinal Health, Inc. 64,850,190 - 64,850,190
1,060,000 - 1,060,000 McKesson Corp. 39,220,000 - 39,220,000
104,070,190 - 104,070,190
HEALTH CARE EQUIPMENT--0.80%
910,000 - 910,000 Baxter International Inc. 33,761,000 - 33,761,000
575,000 - 575,000 Becton, Dickinson & Co. 33,649,000 - 33,649,000
67,410,000 - 67,410,000
HEALTH CARE FACILITIES--0.86%
1,310,000 - 1,310,000 HCA Inc. 73,150,400 - 73,150,400
HEALTH CARE SERVICES--0.28%
220,000 - 220,000 Quest Diagnostics Inc. 23,276,000 - 23,276,000
HOMEBUILDING--0.14%
400,000 - 400,000 D.R. Horton, Inc. 12,200,000 - 12,200,000
HOTELS, RESORTS & CRUISE LINES--0.37%
550,000 - 550,000 Hilton Hotels Corp. 12,006,500 - 12,006,500
349,300 - 349,300 Starwood Hotels & Resorts Worldwide, Inc. (c) 18,980,962 - 18,980,962
30,987,462 - 30,987,462
HOUSEHOLD PRODUCTS--1.11%
175,000 - 175,000 Clorox Co. (The) 11,077,500 - 11,077,500
557,800 513,000 1,070,800 Kimberly-Clark Corp. 34,834,610 32,036,850 66,871,460
300,000 - 300,000 Procter & Gamble Co. (The) 16,245,000 - 16,245,000
62,157,110 32,036,850 94,193,960
HOUSEWARES & SPECIALTIES--0.35%
350,000 - 350,000 Fortune Brands, Inc. 29,603,000 - 29,603,000
INDUSTRIAL CONGLOMERATES--4.54%
2,671,800 1,434,500 4,106,300 General Electric Co. 96,719,160 51,928,900 148,648,060
200,000 - 200,000 Textron Inc. 15,070,000 - 15,070,000
5,519,600 1,523,000 7,042,600 Tyco International Ltd. 172,818,676 47,685,130 220,503,806
284,607,836 99,614,030 384,221,866
INDUSTRIAL MACHINERY--1.36%
225,000 - 225,000 Danaher Corp. 11,391,750 - 11,391,750
1,078,300 1,023,800 2,102,100 Dover Corp. 39,206,988 37,225,368 76,432,356
320,000 - 320,000 Illinois Tool Works Inc. 26,822,400 - 26,822,400
77,421,138 37,225,368 114,646,506
INTEGRATED OIL & GAS--2.71%
433,420 400,600 834,020 Amerada Hess Corp. (b) 40,589,783 37,516,190 78,105,973
250,000 - 250,000 ConocoPhillips 26,212,500 - 26,212,500
652,000 603,500 1,255,500 Exxon Mobil Corp. 37,183,560 34,417,605 71,601,165
309,600 284,650 594,250 Murphy Oil Corp. 27,582,264 25,359,468 52,941,732
131,568,107 97,293,263 228,861,370
INTEGRATED TELECOMMUNICATION
SERVICES--0.77%
1,362,580 1,382,000 2,744,580 SBC Communications Inc. 32,429,404 32,891,600 65,321,004
INTERNET SOFTWARE & SERVICES--0.61%
75,000 - 75,000 Google Inc.-Class A (a) 16,500,000 - 16,500,000
525,000 - 525,000 VeriSign, Inc. (a) 13,891,500 - 13,891,500
625,000 - 625,000 Yahoo! Inc. (a)(b) 21,568,750 - 21,568,750
51,960,250 - 51,960,250
INVESTMENT BANKING & BROKERAGE--2.39%
350,000 - 350,000 Goldman Sachs Group, Inc. (The) 37,376,500 - 37,376,500
250,000 - 250,000 Lehman Brothers Holdings Inc. 22,930,000 - 22,930,000
589,700 - 589,700 Merrill Lynch & Co., Inc. 31,802,521 - 31,802,521
1,418,700 668,250 2,086,950 Morgan Stanley 74,651,994 35,163,315 109,815,309
166,761,015 35,163,315 201,924,330
MANAGED HEALTH CARE--1.89%
550,000 - 550,000 Aetna Inc. 40,353,500 - 40,353,500
500,000 - 500,000 UnitedHealth Group Inc. 47,255,000 - 47,255,000
567,800 - 567,800 WellPoint, Inc. (a) 72,536,450 - 72,536,450
160,144,950 - 160,144,950
MOVIES & ENTERTAINMENT--0.68%
2,175,000 - 2,175,000 Walt Disney Co. (The) 57,420,000 - 57,420,000
MULTI-LINE INSURANCE--0.35%
410,000 - 410,000 Hartford Financial Services Group,
Inc. (The) 29,671,700 - 29,671,700
MULTI-UTILITIES & UNREGULATED
POWER--0.83%
483,800 445,000 928,800 Dominion Resources, Inc. 36,478,520 33,553,000 70,031,520
OFFICE ELECTRONICS--1.03%
3,431,600 3,156,300 6,587,900 Xerox Corp. (a) 45,468,700 41,820,975 87,289,675
SHARES
- -------------------------------------------------
AIM CHARTER FUND
AIM PREMIER EQUITY AIM CHARTER PRO FORMA
FUND FUND COMBINING
- ------------------ ----------- ----------------
OIL & GAS EQUIPMENT & SERVICES--3.74%
686,800 638,000 1,324,800 Baker Hughes Inc.
1,302,400 830,000 2,132,400 BJ Services Co.
1,150,000 - 1,150,000 Halliburton Co.
275,000 - 275,000 National-Oilwell Varco Inc.
498,000 - 498,000 Schlumberger Ltd.
548,850 504,800 1,053,650 Smith International, Inc.
OIL & GAS EXPLORATION & PRODUCTION--0.61%
476,800 442,200 919,000 Apache Corp.
OIL & GAS REFINING & MARKETING --0.32%
400,000 - 400,000 Valero Energy Corp.
OIL & GAS DRILLING--2.04%
1,015,600 852,100 1,867,700 GlobalSantaFe Corp.
636,300 585,200 1,221,500 Nabors Industries, Ltd.
950,000 - 950,000 Transocean Inc.
OTHER DIVERSIFIED FINANCIAL SERVICES--2.00%
1,923,800 670,000 2,593,800 Citigroup Inc.
1,324,000 - 1,324,000 JPMorgan Chase & Co.
PACKAGED FOODS & MEATS--4.33%
1,638,500 1,507,000 3,145,500 Campbell Soup Co.
1,750,500 1,610,000 3,360,500 General Mills, Inc.
2,122,100 1,170,000 3,292,100 Kraft Foods Inc.-Class A
PAPER PRODUCTS--0.92%
1,181,800 1,087,000 2,268,800 Georgia-Pacific Corp.
PERSONAL PRODUCTS--0.67%
1,100,000 - 1,100,000 Gillette Co. (The)
PHARMACEUTICALS--6.68%
1,777,600 1,635,000 3,412,600 Bristol-Myers Squibb Co.
1,149,500 1,070,000 2,219,500 Forest Laboratories, Inc.
1,050,000 - 1,050,000 Johnson & Johnson
2,631,100 2,420,000 5,051,100 Merck & Co. Inc.
1,422,700 - 1,422,700 Pfizer Inc.
1,749,300 815,000 2,564,300 Wyeth
PROPERTY & CASUALTY INSURANCE--4.61%
2,129,900 1,030,000 3,159,900 ACE Ltd.
760 710 1,470 Berkshire Hathaway Inc.-Class A
432,700 398,000 830,700 Chubb Corp. (The)
900,400 828,122 1,728,522 St. Paul Travelers Cos., Inc. (The)
PUBLISHING--1.71%
489,300 450,000 939,300 Gannett Co., Inc.
978,500 900,000 1,878,500 Tribune Co.
RAILROADS--0.85%
584,900 538,000 1,122,900 Union Pacific Corp.
REGIONAL BANKS--0.68%
686,500 631,400 1,317,900 Fifth Third Bancorp
RESTAURANTS--0.46%
375,000 - 375,000 McDonald's Corp.
600,000 - 600,000 Yum! Brands, Inc.
SEMICONDUCTOR EQUIPMENT--0.32%
1,840,000 - 1,840,000 Applied Materials, Inc.
SEMICONDUCTORS--3.49%
1,691,500 751,000 2,442,500 Analog Devices, Inc.
1,567,300 1,441,500 3,008,800 Intel Corp.
2,925,500 1,771,000 4,696,500 National Semiconductor Corp.
994,800 915,000 1,909,800 Xilinx, Inc.
SOFT DRINKS--0.97%
981,100 910,000 1,891,100 Coca-Cola Co. (The)
SPECIALTY CHEMICALS--0.14%
350,000 - 350,000 Ecolab Inc.
SPECIALTY STORES--0.29%
1,300,000 - 1,300,000 Staples, Inc.
SYSTEMS SOFTWARE--4.28%
225,000 - 225,000 Adobe Systems Inc.
3,517,700 1,403,093 4,920,793 Computer Associates International, Inc.
3,573,700 3,287,000 6,860,700 Microsoft Corp.
2,450,000 - 2,450,000 Oracle Corp.
750,000 - 750,000 Symantec Corp.
MARKET VALUE
----------------------------------------------------
AIM CHARTER FUND
AIM PREMIER EQUITY AIM CHARTER PRO FORMA
FUND FUND COMBINING
------------------ -------------- ----------------
OIL & GAS EQUIPMENT & SERVICES--3.74%
Baker Hughes Inc. (b) $ 30,301,616 $ 28,148,560 $ 58,450,176
BJ Services Co. 63,492,000 40,462,500 103,954,500
Halliburton Co. 47,828,500 - 47,828,500
National-Oilwell Varco Inc. (a) 10,928,500 - 10,928,500
Schlumberger Ltd. 34,068,180 - 34,068,180
Smith International, Inc. 31,932,093 29,369,264 61,301,357
218,550,889 97,980,324 316,531,213
OIL & GAS EXPLORATION & PRODUCTION--0.61%
Apache Corp. 26,839,072 24,891,438 51,730,510
OIL & GAS REFINING & MARKETING --0.32%
Valero Energy Corp. 27,412,000 - 27,412,000
OIL & GAS DRILLING--2.04%
GlobalSantaFe Corp. 34,124,160 28,630,560 62,754,720
Nabors Industries, Ltd. (a) 34,277,481 31,524,724 65,802,205
Transocean Inc. (a) 44,051,500 - 44,051,500
112,453,141 60,155,284 172,608,425
OTHER DIVERSIFIED FINANCIAL SERVICES--2.00%
Citigroup Inc. 90,341,648 31,463,200 121,804,848
JPMorgan Chase & Co. 46,988,760 - 46,988,760
137,330,408 31,463,200 168,793,608
PACKAGED FOODS & MEATS--4.33%
Campbell Soup Co. 48,728,990 44,818,180 93,547,170
General Mills, Inc. 86,474,700 79,534,000 166,008,700
Kraft Foods Inc.-Class A (b) 68,777,261 37,919,700 106,696,961
203,980,951 162,271,880 366,252,831
PAPER PRODUCTS--0.92%
Georgia-Pacific Corp. 40,500,286 37,251,490 77,751,776
PERSONAL PRODUCTS--0.67%
Gillette Co. (The) 56,804,000 - 56,804,000
PHARMACEUTICALS--6.68%
Bristol-Myers Squibb Co. 46,217,600 42,510,000 88,727,600
Forest Laboratories, Inc. (a) 41,014,160 38,177,600 79,191,760
Johnson & Johnson 72,061,500 - 72,061,500
Merck & Co. Inc. 89,194,290 82,038,000 171,232,290
Pfizer Inc. 38,654,759 - 38,654,759
Wyeth 78,613,542 36,626,100 115,239,642
365,755,851 199,351,700 565,107,551
PROPERTY & CASUALTY INSURANCE--4.61%
ACE Ltd. 91,500,504 44,248,800 135,749,304
Berkshire Hathaway Inc.-Class A (a) 64,106,000 59,888,500 123,994,500
Chubb Corp. (The) 35,386,206 32,548,440 67,934,646
St. Paul Travelers Cos., Inc. (The) (b) 32,234,320 29,646,768 61,881,088
223,227,030 166,332,508 389,559,538
PUBLISHING--1.71%
Gannett Co., Inc. 37,676,100 34,650,000 72,326,100
Tribune Co. 37,770,100 34,740,000 72,510,100
75,446,200 69,390,000 144,836,200
RAILROADS--0.85%
Union Pacific Corp. 37,392,657 34,394,340 71,786,997
REGIONAL BANKS--0.68%
Fifth Third Bancorp 29,862,750 27,465,900 57,328,650
RESTAURANTS--0.46%
McDonald's Corp. 10,991,250 - 10,991,250
Yum! Brands, Inc. 28,176,000 - 28,176,000
39,167,250 - 39,167,250
SEMICONDUCTOR EQUIPMENT--0.32%
Applied Materials, Inc. 27,360,800 - 27,360,800
SEMICONDUCTORS--3.49%
Analog Devices, Inc. 57,697,065 25,616,610 83,313,675
Intel Corp. 36,862,896 33,904,080 70,766,976
National Semiconductor Corp. (b) 55,818,540 33,790,680 89,609,220
Xilinx, Inc. 26,799,912 24,650,100 51,450,012
177,178,413 117,961,470 295,139,883
SOFT DRINKS--0.97%
Coca-Cola Co. (The) 42,618,984 39,530,400 82,149,384
SPECIALTY CHEMICALS--0.14%
Ecolab Inc. 11,448,500 - 11,448,500
SPECIALTY STORES--0.29%
Staples, Inc. 24,791,000 - 24,791,000
SYSTEMS SOFTWARE--4.28%
Adobe Systems Inc. 13,380,750 - 13,380,750
Computer Associates International, Inc. 94,626,130 37,743,202 132,369,332
Microsoft Corp. 90,414,610 83,161,100 173,575,710
Oracle Corp. (a) 28,322,000 - 28,322,000
Symantec Corp. 14,085,000 - 14,085,000
240,828,490 120,904,302 361,732,792
SHARES
- -------------------------------------------------
AIM CHARTER FUND
AIM PREMIER EQUITY AIM CHARTER PRO FORMA
FUND FUND COMBINING
- ------------------ ----------- ----------------
THRIFTS & MORTGAGE FINANCE--1.56%
575,000 - 575,000 Countrywide Financial Corp.
891,500 - 891,500 Fannie Mae
798,600 734,560 1,533,160 Washington Mutual, Inc.
Total Domestic Stocks & Other Equity Interests
(Cost $6,392,674,939)
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 11.62%
BERMUDA--1.28%
3,167,100 1,812,800 4,979,900 Accenture Ltd.-Class A (IT Consulting & Other Services)
FINLAND --0.76%
2,092,000 1,924,100 4,016,100 Nokia Oyj-ADR (Communications Equipment)
FRANCE--2.03%
846,600 - 846,600 Sanofi-Aventis (Pharmaceuticals)
226,500 210,000 436,500 TOTAL S.A. (Integrated Oil & Gas)
ISRAEL--1.17%
1,650,400 1,518,000 3,168,400 Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals)
JAPAN--0.38%
880,000 - 880,000 Sony Corp.-ADR (Consumer Electronics)
NETHERLANDS--2.90%
1,464,586 1,347,106 2,811,692 Heineken N.V. (Brewers)
1,277,500 1,570,900 2,848,400 Koninklijke (Royal) Philips Electronics N.V. (Consumer Electronics)
876,300 450,000 1,326,300 Unilever N.V. (Packaged Foods & Meats)
SWITZERLAND--0.46%
400,000 - 400,000 Alcon, Inc. (Health Care Supplies)
UNITED KINGDOM--2.64%
616,100 573,100 1,189,200 BP PLC-ADR (Integrated Oil & Gas)
1,554,700 1,430,000 2,984,700 GlaxoSmithKline PLC-ADR (Pharmaceuticals)
Total Foreign Stocks & Other Equity Interests
(Cost $880,246,494)
MONEY MARKET FUNDS--5.11%
116,996,643 99,092,267 216,088,910 Liquid Assets Portfolio-Institutional Class
116,996,643 99,092,267 216,088,910 STIC Prime Portfolio-Institutional Class
Total Money Market Funds (Cost $432,177,820)
TOTAL INVESTMENTS--100.64% (EXCLUDING INVESTMENTS
PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED)
(COST $7,705,099,253)
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES
LOANED - 1.63%
89,276,787 48,554,750 137,831,537 STIC Prime Portfolio-Institutional Class
Total Money Market Funds (purchased with cash collateral from
securities loaned) (Cost $137,831,537)
TOTAL INVESTMENTS
(Cost $7,842,930,790)--102.27%
OTHER ASSETS LESS LIABILITIES--(2.26%)
ADJUSTMENTS--(0.01%)
NET ASSETS--100.00%
MARKET VALUE
-----------------------------------------------------
AIM CHARTER FUND
AIM PREMIER EQUITY AIM CHARTER PRO FORMA
FUND FUND COMBINING
------------------ --------------- ----------------
THRIFTS & MORTGAGE FINANCE--1.56%
Countrywide Financial Corp. $ 20,809,250 $ - $ 20,809,250
Fannie Mae 48,096,425 - 48,096,425
Washington Mutual, Inc. 32,998,152 30,352,019 63,350,171
101,903,827 30,352,019 132,255,846
Total Domestic Stocks & Other Equity Interests 5,057,746,690 2,040,386,868 7,098,133,558
(Cost $6,392,674,939)
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 11.62%
BERMUDA--1.28%
Accenture Ltd.-Class A (IT Consulting & Other Services) (a) 68,726,070 39,337,760 108,063,830
FINLAND --0.76%
Nokia Oyj-ADR (Communications Equipment) 33,430,160 30,747,118 64,177,278
FRANCE--2.03%
Sanofi-Aventis (Pharmaceuticals) (d) 74,968,809 - 74,968,809
TOTAL S.A. (Integrated Oil & Gas) (d) 50,366,724 46,697,625 97,064,349
125,335,533 46,697,625 172,033,158
ISRAEL--1.17%
Teva Pharmaceutical Industries Ltd.-ADR (Pharmaceuticals) (b) 51,558,496 47,422,320 98,980,816
JAPAN--0.38%
Sony Corp.-ADR (Consumer Electronics) (b) 32,304,800 - 32,304,800
NETHERLANDS--2.90%
Heineken N.V. (Brewers) (b)(d) 46,510,980 42,780,158 89,291,138
Koninklijke (Royal) Philips Electronics N.V. (Consumer Electronics) (a)(d) 31,689,691 38,967,777 70,657,468
Unilever N.V. (Packaged Foods & Meats) (d) 56,397,036 28,961,162 85,358,198
134,597,707 110,709,097 245,306,804
SWITZERLAND--0.46%
Alcon, Inc. (Health Care Supplies) 38,800,000 - 38,800,000
UNITED KINGDOM--2.64%
BP PLC-ADR (Integrated Oil & Gas) 37,520,490 34,901,790 72,422,280
GlaxoSmithKline PLC-ADR (Pharmaceuticals) (b) 78,590,085 72,286,500 150,876,585
116,110,575 107,188,290 223,298,865
Total Foreign Stocks & Other Equity Interests 600,863,341 382,102,210 982,965,551
(Cost $880,246,494)
MONEY MARKET FUNDS--5.11%
Liquid Assets Portfolio-Institutional Class (e) 116,996,643 99,092,267 216,088,910
STIC Prime Portfolio-Institutional Class (e) 116,996,643 99,092,267 216,088,910
Total Money Market Funds (Cost $432,177,820) 233,993,286 198,184,534 432,177,820
TOTAL INVESTMENTS--100.64% (EXCLUDING INVESTMENTS
PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED) 5,892,603,317 2,620,673,612 8,513,276,929
(COST $7,705,099,253)
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES
LOANED - 1.63%
STIC Prime Portfolio-Institutional Class (e)(f) 89,276,787 48,554,750 137,831,537
Total Money Market Funds (purchased with cash collateral from
securities loaned) (Cost $137,831,537) 89,276,787 48,554,750 137,831,537
TOTAL INVESTMENTS 5,981,880,104 2,669,228,362 8,651,108,466
(Cost $7,842,930,790)--102.27%
OTHER ASSETS LESS LIABILITIES--(2.26%) (117,104,039) (74,116,177) (191,220,216)
ADJUSTMENTS--(0.01%) - - (418,000)
-------------- -------------- ---------------
NET ASSETS--100.00% $5,864,776,065 $2,595,112,185 $ 8,459,470,250
============== ============== ===============
- ----------
Investment Abbreviations:
ADR American Depositary Receipt
Notes to Schedule of Investments:
* As of April 30, 2005, all of the securities held by AIM Premier Equity
Fund would comply with the compliance guidelines and/or investment
restrictions of AIM Charter Fund.
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) Each unit represents one common share and one Class B share.
(d) In accordance with the procedures established by the Board of Trustees,
the foreign security is fair valued using adjusted closing market prices.
The aggregate market value of these securities for AIM Premier Equity Fund
at April 30, 2005 was $259,933,240, which represented 4.43% of AIM Premier
Equity's Net Assets. The aggregate market value of these securities for
AIM Charter Fund at April 30, 2005 was $157,406,722, which represented
6.07% of AIM Charter Fund's Net Assets. The aggregate market value of all
foreign securities at April 30, 2005 was $417,339,962, which represented
4.93% of the pro forma combining Net Assets of AIM Charter Fund.
(e) Liquid Assets Portfolio and STIC Prime Portfolio are affiliated with AIM
Premier Equity Fund and AIM Charter Fund by having the same investment
advisor.
(f) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF AIM PREMIER EQUITY FUND INTO AIM CHARTER FUND
APRIL 30, 2005
(Unaudited)
AIM
AIM AIM CHARTER FUND
PREMIER EQUITY CHARTER PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
---------------- ---------------- ---------------- ----------------
ASSETS:
Investments, at market value * $ 5,658,610,031 $ 2,422,489,078 $ - $ 8,081,099,109
(cost $5,104,918,197 - AIM Premier Equity Fund)
(cost $2,168,003,236 - AIM Charter Fund)
(cost $7,272,921,433 - Pro Forma combining)
Investments in affiliated money market funds,
at market value 323,270,073 246,739,284 - 570,009,357
(cost $323,270,073 - AIM Premier Equity Fund)
(cost $246,739,284 - AIM Charter Fund)
(cost $570,009,357 - Pro Forma combining)
---------------- ---------------- ---------------- ----------------
Total Investments 5,981,880,104 2,669,228,362 - 8,651,108,466
(cost $5,428,188,270 - AIM Premier Equity Fund)
(cost $2,414,742,520 - AIM Charter Fund)
(cost $7,842,930,790 - Pro Forma combining)
Foreign currencies (cost $314) 325 - - 325
Receivables for:
Investments sold 28,202,772 10,259,283 - 38,462,055
Fund shares sold 1,743,748 1,154,630 - 2,898,378
Dividends 7,794,080 3,504,023 - 11,298,103
Investments matured - 3,726,980 - 3,726,980
Investment for trustee deferred compensation
and retirement plans 352,928 182,582 - 535,510
Other assets 3,922 77,730 - 81,652
---------------- ---------------- ---------------- ----------------
Total assets 6,019,977,879 2,688,133,590 - 8,708,111,469
================ ================ ================ ================
LIABILITIES:
Payables for:
Investments purchased 47,044,103 35,732,912 - 82,777,015
Fund shares reacquired 8,711,789 5,459,001 - 14,170,790
Amount due to custodian 2,789,379 - - 2,789,379
Trustee deferred compensation and retirement plans 1,061,339 427,471 - 1,488,810
Collateral upon return of securities loaned 89,276,787 48,554,750 - 137,831,537
Accrued distribution fees 3,091,658 1,154,170 - 4,245,828
Accrued trustees' and officer's fees and benefits 1,125 4,283 - 5,408
Accrued transfer agent fees 2,498,523 1,401,614 - 3,900,137
Accrued operating expenses 727,111 287,204 418,000 1,432,315
Total liabilities 155,201,814 93,021,405 418,000 248,641,219
---------------- ---------------- ---------------- ----------------
Net assets applicable to shares outstanding $ 5,864,776,065 $ 2,595,112,185 $ (418,000) $ 8,459,470,250
================ ================ ================ ================
NET ASSETS CONSIST OF:
Shares of beneficial interest 9,347,922,021 2,864,487,450 - 12,212,409,471
Undistributed net investment income (loss) (395,529) 7,469,377 (418,000) 6,655,848
Undistributed net realized gain (loss)
from investment securities and foreign currencies (4,036,436,338) (531,341,969) - (4,567,778,307)
Unrealized appreciation of investment securities
and foreign currencies 553,685,911 254,497,327 - 808,183,238
---------------- ---------------- ---------------- ----------------
$ 5,864,776,065 $ 2,595,112,185 $ (418,000) $ 8,459,470,250
================ ================ ================ ================
NET ASSETS:
Class A $ 3,727,854,177 $ 1,728,245,191 $ (265,695) $ 5,455,833,673
Class B $ 1,873,531,688 $ 737,901,802 $ (133,532) $ 2,611,299,958
Class C $ 259,425,156 $ 122,064,170 $ (18,490) $ 381,470,836
Class R $ 1,100,827 $ 2,638,154 $ (79) $ 3,738,902
---------------- ---------------- ---------------- ----------------
Institutional Class $ 2,864,217 $ 4,262,868 $ (204) $ 7,126,881
================ ================ ================ ================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE
(AIM PREMIER EQUITY FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM CHARTER FUND):
Class A 392,034,826 138,840,425 299,436,586 438,277,011
Class B 212,978,857 61,847,517 157,089,724 218,937,241
Class C 29,466,041 10,202,499 21,682,068 31,884,567
Class R 116,454 212,871 88,815 301,686
---------------- ---------------- ---------------- ----------------
Institutional Class 298,519 333,492 223,990 557,482
================ ================ ================ ================
Class A:
Net asset value per share $ 9.51 $ 12.45 $ 12.45
Offering price per share:
(Net asset value of $9.51/ 94.50% - AIM
Premier Equity Fund)
(Net asset value of $12.45/ 94.50% - AIM Charter
Fund) $ 10.06 $ 13.17 $ 13.17
Class B:
Net asset value and offering price per share $ 8.80 $ 11.93 $ 11.93
Class C:
Net asset value and offering price per share $ 8.80 $ 11.96 $ 11.96
Class R:
Net asset value and offering price per share $ 9.45 $ 12.39 $ 12.39
---------------- ---------------- ----------------
Institutional Class:
Net asset value and offering price per share $ 9.59 $ 12.78 $ 12.78
================ ================ ================
- --------------
* At April 30, 2005, securities with an aggregate market value of
$87,354,612 and $47,654,302 were on loan to brokers for AIM Premier Equity
Fund and AIM Charter Fund, respectively.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF AIM PREMIER EQUITY FUND INTO AIM CHARTER FUND
FOR THE YEAR ENDED APRIL 30, 2005
(Unaudited)
AIM
AIM CHARTER FUND
PREMIER EQUITY AIM CHARTER PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
-------------- ------------- ------------- -------------
INVESTMENT INCOME:
Dividends $ 117,986,591 $ 64,651,379 $ - $ 182,637,970
(net of foreign withholding tax of
$753,923 - AIM Premier Equity Fund)
(net of foreign withholding tax of
$478,128 - AIM Charter Fund)
(net of foreign withholding tax of
$1,232,051 - Pro Forma combining)
Dividends from affiliated money market funds 4,267,753 3,494,519 - 7,762,272
(including securities lending income of
$195,394 after compensation to
counterparties of $900,371 - AIM
Premier Equity Fund)
(including securities lending income of
$25,315 after compensation to
counterparties of $509,549 - AIM Charter Fund)
(including securities lending income of
$220,709 after compensation to
counterparties of $1,409,920 - Pro Forma combining)
Interest 27,549 3,188 - 30,737
Total investment income 122,281,893 68,149,086 - 190,430,979
EXPENSES:
Advisory fees 44,064,814 18,511,307 (262,500) 62,313,621
Administrative services fees 700,251 569,575 (481,981) 787,845
Custodian fees 512,473 281,814 - 794,287
Distribution fees:
Class A 10,656,995 5,596,767 2,131,399 18,385,161
Class B 24,231,608 9,057,124 - 33,288,732
Class C 3,196,645 1,410,730 - 4,607,375
Class R 4,142 12,719 - 16,861
Transfer agent fees--Class A, B, C & R 23,774,681 7,806,485 (1,147,644) 30,433,522
Transfer agent fees--Institutional Class - 3,021 - 3,021
Trustees' and officer's fees and benefits 233,161 103,681 (12,695) 324,147
Other 2,606,754 1,373,776 (75,910) 3,904,620
Total expenses 109,981,524 44,726,999 150,669 154,859,192
Less: Fees waived, expenses reimbursed and
expense offset arrangements (1,726,792) (536,611) (1,025,020) (3,288,423)
Net expenses 108,254,732 44,190,388 (874,351) 151,570,769
Net investment income 14,027,161 23,958,698 874,351 38,860,210
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 231,514,640 180,395,994 - 411,910,634
Foreign currencies (371,045) 161,467 - (209,578)
231,143,595 180,557,461 - 411,701,056
Net unrealized appreciation (depreciation) of:
Investment securities (4,611,522) (86,795,523) - (91,407,045)
Foreign currencies 319,378 26,284 - 345,662
(4,292,144) (86,769,239) - (91,061,383)
Net gain from investment securities and
foreign currencies 226,851,451 93,788,222 - 320,639,673
Net increase in net assets resulting
from operations $ 240,878,612 $ 117,746,920 $ 874,351 $ 359,499,883
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF AIM PREMIER EQUITY FUND INTO AIM CHARTER FUND
APRIL 30, 2005
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Plan of Reorganization (the "Plan")
between AIM Charter Fund and AIM Premier Equity Fund and the consummation of the
transactions contemplated therein to be accounted for as a tax-free
reorganization of investment companies. The Plan would be accomplished by an
exchange of shares of AIM Charter Fund for the net assets of AIM Premier Equity
Fund and the distribution of AIM Charter Fund shares to AIM Premier Equity Fund
shareholders. If the Plan were to have taken place at April 30, 2005, AIM
Premier Equity Fund - Class A shareholders would have received 299,436,586
shares of AIM Charter Fund - Class A shares, AIM Premier Equity Fund - Class B
shareholders would have received 157,089,724 shares of AIM Charter Fund - Class
B shares, AIM Premier Equity Fund - Class C shareholders would have received
21,682,068 shares of AIM Charter Fund - Class C shares, AIM Premier Equity Fund
- - Class R shareholders would have received 88,815 shares of AIM Charter Fund -
Class R shares, and AIM Premier Equity Fund - Institutional Class shareholders
would have received 223,990 shares of AIM Charter Fund - Institutional Class
shares.
The preparation of pro forma combined 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 pro forma combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Certain expenses have been adjusted to reflect the
expected expenses of the combined entity. The merger adjustments represent those
adjustments needed to present the results of operations of the pro forma
combined AIM Charter Fund as if the proposed merger had taken effect on April
30, 2005. Actual results could differ from those estimates.
The pro forma financial statements should be read in conjunction with the
historical financial statements of AIM Premier Equity Fund and AIM Charter Fund.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Upon the closing date of the merger transaction, the advisory fee payable by
AIM Charter Fund will be permanently reduced to 0.80% of the first $150 million,
plus 0.625% of the Fund's average daily net assets in excess of $150 million.
The pro forma combined advisory fees were adjusted to reflect these advisory fee
rates in effect for AIM Premier Equity Fund. The advisory fees based on pro
forma combined assets for the year ended April 30, 2005 were $62,313,621.
Correspondingly, advisory fee waivers have been adjusted to reflect the
contractual agreement by the advisor to waive advisory fees for the period
January 1, 2005 through December 31, 2009 as part of its settlement with the
Attorney General of New York. The advisory fees will not exceed the following
annual rates applied to the average daily net assets of the Fund: 0.75% of the
first $150 million; 0.615% of the next $4.85 billion; 0.57% of the next $2.5
billion; 0.545% of the next $2.5 billion and 0.52% of the excess over $10
billion.
(b) Pursuant to the master administrative services agreement for AIM Charter
Fund, fees paid on pro forma combined assets for the year ended April 30, 2005
are $787,845. The administrative services fees were adjusted to reflect the
fees in effect under the administrative services agreement for the AIM Charter
Fund.
(c) Pursuant to the terms of a master distribution agreement for Class A shares
of AIM Charter Fund, the Fund pays AIM Distributors, Inc. a fee calculated at
0.30% of the average daily net assets of Class A shares. The Class A
distribution fees on the pro forma combined assets for the year ended April 30,
2005 were $18,385,161 after the reorganization of Class A shares of AIM Premier
Equity Fund into Class A shares of AIM Charter Fund. The distribution fees were
adjusted to reflect the distribution rate paid in accordance with AIM Charter
Fund's Class A distribution agreement. Effective July 1, 2005, the master
distribution agreement for Class A shares was permanently reduced to 0.25%.
(d) Transfer agency fees were restated to reflect the pro forma combined number
of open accounts under the terms of the transfer agency agreement of AIM Charter
Fund. The effect of this restatement is to reduce transfer agency fees on a pro
forma basis by $1,147,644 for Class A, Class B, Class C and Class R shares.
(e) Trustees' and officer's fees and benefits were reduced by $12,695 to
eliminate the effects of duplicative fixed costs of retainer and meeting fees.
NOTE 2 - PRO FORMA ADJUSTMENTS - (CONTINUED)
(f) Other expenses were reduced by $75,910 to eliminate the effects of
duplicative fixed costs of professional services fees and production of reports
to shareholders.
NOTE 3 - REORGANIZATION COSTS
AIM Premier Equity Funds is expected to incur an estimated $3,031,000 in
reorganization costs. These costs represent the estimated non recurring expense
of AIM Premier Equity Fund carrying out its obligation under the Plan and
consist of management's estimate of professional services fees, printing costs
and mailing charges related to the proposed reorganization. The shareholders of
AIM Premier Equity Fund will pay 14% of these costs. Accrued operating expenses
and Undistributed net investment income on the Pro Forma Statement of Assets &
Liabilities have been adjusted accordingly.
APPENDIX V
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS *
of AIM Aggressive Growth Fund and AIM Weingarten Fund
into AIM Constellation Fund
April 30, 2005
(Unaudited)
SHARES
- ------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATIONFUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
COMMON STOCKS & OTHER EQUITY
INTERESTS--97.85%
ADVERTISING--0.72%
700,000 - 1,117,100 1,817,100 Lamar Advertising Co.-Class A
AEROSPACE & DEFENSE--0.78%
- 275,000 - 275,000 Boeing Co. (The)
- - 1,250,000 1,250,000 Honeywell International Inc.
175,000 - - 175,000 L-3 Communications Holdings, Inc.
AIR FREIGHT & LOGISTICS--0.69%
- 275,000 500,000 775,000 FedEx Corp.
ALUMINUM--0.37%
- - 1,208,500 1,208,500 Alcoa Inc.
APPAREL RETAIL--0.93%
- - 500,000 500,000 Abercrombie & Fitch Co.-Class A
400,000 - - 400,000 Aeropostale, Inc.
- 800,000 - 800,000 Chico's FAS, Inc .
531,000 - - 531,000 Hot Topic, Inc.
- - 711,200 711,200 Ross Stores, Inc.
APPAREL, ACCESSORIES & LUXURY
GOODS--0.70%
- - 2,000,000 2,000,000 Coach, Inc.
530,000 - - 530,000 Fossil, Inc.
APPLICATION SOFTWARE--2.10%
400,000 1,450,000 800,000 2,650,000 Amdocs Ltd. (United Kingdom)
1,250,000 - - 1,250,000 BEA Systems, Inc.
- - 1,200,000 1,200,000 Autodesk, Inc.
- - 500,000 500,000 Cognos, Inc. (Canada)
- - 600,000 600,000 Mercury Interactive Corp.
- - 500,000 500,000 NAVTEQ Corp.
579,947 - - 579,947 Synopsys, Inc.
1,350,000 - - 1,350,000 TIBCO Software Inc.
ASSET MANAGEMENT & CUSTODY
BANKS--1.09%
250,000 - - 250,000 Affiliated Managers Group, Inc.
- - 300,000 300,000 Franklin Resources, Inc.
850,000 - 380,000 1,230,000 Investors Financial Services Corp.
443,700 - - 443,700 Nuveen Investments-Class A
-
BIOTECHNOLOGY--2.31%
- - 744,700 744,700 Amgen Inc.
675,000 - - 675,000 Amylin Pharmaceuticals, Inc.
370,000 - - 370,000 Eyetech Pharmaceuticals Inc.
- 900,000 1,527,600 2,427,600 Gilead Sciences, Inc.
500,000 - - 500,000 MedImmune, Inc.
350,000 - - 350,000 Neurocrine Biosciences, Inc.
165,000 - - 165,000 OSI Pharmaceuticals, Inc.
- - 1,142,800 1,142,800 Protein Design Labs, Inc.
1,130,000 - - 1,130,000 QLT Inc. (Canada)
-
BREWERS--0.13%
200,000 - - 200,000 Molson Coors Brewing Co.-Class B
BROADCASTING & CABLE TV--1.24%
1,100,000 - - 1,100,000 Radio One, Inc.-Class D
1,375,000 - 1,500,000 2,875,000 Univision Communications Inc.-
Class A
- - 1,000,000 1,000,000 XM Satellite Radio Holdings Inc.-
Class A
-
BUILDING PRODUCTS--0.20%
300,000 - - 300,000 American Standard Cos. Inc.
135,000 - - 135,000 York International Corp.
CASINOS & GAMING--0.49%
400,000 - - 400,000 Aztar Corp.
400,000 - - 400,000 International Game Technology
- 550,000 120,800 670,800 Las Vegas Sands Corp.
MARKET VALUE
--------------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
COMMON STOCKS & OTHER EQUITY
INTERESTS--97.85%
ADVERTISING--0.72%
Lamar Advertising Co.-Class A (a) $ 26,166,000 $ - $ 41,757,198 $ 67,923,198
AEROSPACE & DEFENSE--0.78%
Boeing Co. (The) - 16,368,000 - 16,368,000
Honeywell International Inc. - - 44,700,000 44,700,000
L-3 Communications Holdings, Inc. 12,419,750 - - 12,419,750
12,419,750 16,368,000 44,700,000 73,487,750
AIR FREIGHT & LOGISTICS--0.69%
FedEx Corp. - 23,361,250 42,475,000 65,836,250
ALUMINUM--0.37%
Alcoa Inc. - - 35,070,670 35,070,670
APPAREL RETAIL--0.93%
Abercrombie & Fitch Co.-Class A - - 26,975,000 26,975,000
Aeropostale, Inc. (a) 11,172,000 - - 11,172,000
Chico's FAS, Inc . (a) - 20,504,000 - 20,504,000
Hot Topic, Inc. (a) 10,614,690 - - 10,614,690
Ross Stores, Inc. - - 19,003,264 19,003,264
21,786,690 20,504,000 45,978,264 88,268,954
APPAREL, ACCESSORIES & LUXURY
GOODS--0.70%
Coach, Inc. (a) - - 53,600,000 53,600,000
Fossil, Inc. (a) 12,327,800 - - 12,327,800
12,327,800 - 53,600,000 65,927,800
APPLICATION SOFTWARE--2.10%
Amdocs Ltd. (United Kingdom) (a) 10,684,000 38,729,500 21,368,000 70,781,500
BEA Systems, Inc. (a) 8,625,000 - - 8,625,000
Autodesk, Inc. - - 38,196,000 38,196,000
Cognos, Inc. (Canada) (a) - - 18,920,000 18,920,000
Mercury Interactive Corp. (a) - - 24,798,000 24,798,000
NAVTEQ Corp. (a) - - 18,210,000 18,210,000
Synopsys, Inc. (a) 9,534,329 - - 9,534,329
TIBCO Software Inc. (a) 9,639,000 - - 9,639,000
38,482,329 38,729,500 121,492,000 198,703,829
ASSET MANAGEMENT & CUSTODY
BANKS--1.09%
Affiliated Managers Group, Inc. (a) 15,632,500 - - 15,632,500
Franklin Resources, Inc. - - 20,604,000 20,604,000
Investors Financial Services Corp. 35,657,500 - 15,941,000 51,598,500
Nuveen Investments-Class A 15,081,363 - - 15,081,363
66,371,363 - 36,545,000 102,916,363
BIOTECHNOLOGY--2.31%
Amgen Inc. (a) - - 43,348,987 43,348,987
Amylin Pharmaceuticals, Inc. (a) 11,475,000 - - 11,475,000
Eyetech Pharmaceuticals Inc. (a) 8,506,300 - - 8,506,300
Gilead Sciences, Inc. (a) - 33,390,000 56,673,960 90,063,960
MedImmune, Inc. (a) 12,685,000 - - 12,685,000
Neurocrine Biosciences, Inc. (a) 12,236,000 - - 12,236,000
OSI Pharmaceuticals, Inc. (a) 7,810,275 - - 7,810,275
Protein Design Labs, Inc. (a) - - 20,433,264 20,433,264
QLT Inc. (Canada) (a) 12,113,600 - - 12,113,600
64,826,175 33,390,000 120,456,211 218,672,386
BREWERS--0.13%
Molson Coors Brewing Co.-Class B 12,350,000 - - 12,350,000
BROADCASTING & CABLE TV--1.24%
Radio One, Inc.-Class D (a) 14,377,000 - - 14,377,000
Univision Communications Inc.-
Class A (a) 36,148,750 - 39,435,000 75,583,750
XM Satellite Radio Holdings Inc.-
Class A (a)(b) - - 27,740,000 27,740,000
50,525,750 - 67,175,000 117,700,750
BUILDING PRODUCTS--0.20%
American Standard Cos. Inc. 13,413,000 - - 13,413,000
York International Corp. 5,282,550 - - 5,282,550
18,695,550 - - 18,695,550
CASINOS & GAMING--0.49%
Aztar Corp. (a) 10,924,000 - - 10,924,000
International Game Technology 10,756,000 - - 10,756,000
Las Vegas Sands Corp. (a)(b) - 20,597,500 4,523,960 25,121,460
21,680,000 20,597,500 4,523,960 46,801,460
SHARES
- --------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
-
COMMUNICATIONS EQUIPMENT--2.78%
- 2,100,000 4,000,000 6,100,000 Cisco Systems, Inc.
- - 1,000,000 1,000,000 Comverse Technology, Inc
625,000 - 1,074,764 1,699,764 Juniper Networks, Inc.
- 1,300,000 826,600 2,126,600 QUALCOMM Inc.
- 300,000 - 300,000 Research In Motion Ltd. (Canada)
231,169 - - 231,169 Tekelec
COMPUTER & ELECTRONICS RETAIL--0.48%
300,000 - 600,000 900,000 Best Buy Co., Inc.
COMPUTER HARDWARE--3.30%
- 1,200,000 2,100,000 3,300,000 Apple Computer, Inc.
- 1,800,000 3,750,000 5,550,000 Dell Inc.
COMPUTER STORAGE & PERIPHERALS--1.18%
1,500,000 - - 1,500,000 Brocade Communications Systems, Inc.
625,000 - - 625,000 Electronics for Imaging, Inc.
- 2,650,000 3,000,000 5,650,000 EMC Corp.
- 300,000 - 300,000 Lexmark International, Inc.-Class A
CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS--0.98%
- - 600,000 600,000 Caterpillar Inc.
- - 500,000 500,000 Deere & Co.
224,000 - - 224,000 Terex Corp.
CONSUMER ELECTRONICS--0.82%
- - 400,000 400,000 Garmin Ltd. (Cayman Islands)
100,000 - 693,200 793,200 Harman International Industries, Inc.
CONSUMER FINANCE--1.66%
- 500,000 750,000 1,250,000 American Express Co.
225,000 700,000 1,000,000 1,925,000 SLM Corp.
DATA PROCESSING & OUTSOURCED SERVICES--3.31%
350,000 - - 350,000 Affiliated Computer Services, Inc.-Class A
1,000,000 600,000 - 1,600,000 Alliance Data Systems Corp.
- 375,000 1,000,000 1,375,000 Automatic Data Processing, Inc.
575,000 - 1,500,000 2,075,000 Fiserv, Inc.
825,000 - 1,000,000 1,825,000 Iron Mountain Inc.
1,000,000 - - 1,000,000 Paychex, Inc.
DEPARTMENT STORES--1.26%
- 700,000 - 700,000 J.C. Penney Co., Inc.
- 111,400 500,000 611,400 Kohl's Corp.
- 700,000 - 700,000 Nordstrom, Inc.
- - 157,372 157,372 Sears Holdings Corp.
DISTILLERS & VINTNERS--0.15%
- 275,000 - 275,000 Constellation Brands, Inc. - Class A
DIVERSIFIED BANKS--0.48%
- - 1,000,000 1,000,000 Bank of America Corp.
DIVERSIFIED CHEMICALS--1.15%
- - 650,000 650,000 Dow Chemical Co. (The)
- - 1,000,000 1,000,000 E. I. du Pont de Nemours & Co.
- - 600,000 600,000 Eastman Chemical Co.
DIVERSIFIED COMMERCIAL SERVICES--1.13%
600,000 - - 600,000 ARAMARK Corp.-Class B
267,000 - - 267,000 Career Education Corp.
- 1,075,000 - 1,075,000 Cendant Corp.
471,500 - - 471,500 ChoicePoint Inc.
450,000 - - 450,000 Cintas Corp.
205,000 1,075,000 - 1,280,000 CoStar Group Inc.
625,000 1,075,000 - 1,700,000 Jackson Hewitt Tax Services Inc.
1,000,000 - - 1,000,000 Sirva Inc.
DIVERSIFIED METALS & MINING--0.54%
- - 390,300 390,300 Peabody Energy Corp.
- - 400,000 400,000 Phelps Dodge Corp.
DRUG RETAIL--0.45%
- - 1,000,000 1,000,000 Walgreen Co.
ELECTRIC UTILITIES--0.11%
405,000 - - 405,000 DPL Inc.
MARKET VALUE
--------------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
COMMUNICATIONS EQUIPMENT--2.78%
Cisco Systems, Inc. (a) $ - $ 36,288,000 $ 69,120,000 $ 105,408,000
Comverse Technology, Inc (a) - - 22,790,000 22,790,000
Juniper Networks, Inc. (a) 14,118,750 - 24,278,919 38,397,669
QUALCOMM Inc. - 45,357,000 28,840,074 74,197,074
Research In Motion Ltd. (Canada) (a)(b) - 19,323,000 - 19,323,000
Tekelec (a) 3,146,210 - - 3,146,210
17,264,960 100,968,000 145,028,993 263,261,953
COMPUTER & ELECTRONICS RETAIL--0.48%
Best Buy Co., Inc. 15,102,000 - 30,204,000 45,306,000
COMPUTER HARDWARE--3.30%
Apple Computer, Inc. (a) - 43,272,000 75,726,000 118,998,000
Dell Inc. (a) - 62,694,000 130,612,500 193,306,500
- 105,966,000 206,338,500 312,304,500
COMPUTER STORAGE & PERIPHERALS--1.18%
Brocade Communications Systems, Inc. (a) 6,540,000 - - 6,540,000
Electronics for Imaging, Inc. (a) 10,262,500 - - 10,262,500
EMC Corp. (a) - 34,768,000 39,360,000 74,128,000
Lexmark International, Inc.-Class A (a) - 20,835,000 - 20,835,000
16,802,500 55,603,000 39,360,000 111,765,500
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS--0.98%
Caterpillar Inc. - - 52,830,000 52,830,000
Deere & Co. - - 31,270,000 31,270,000
Terex Corp. (a) 8,373,120 - - 8,373,120
8,373,120 - 84,100,000 92,473,120
CONSUMER ELECTRONICS--0.82%
Garmin Ltd. (Cayman Islands) (b) - - 15,800,000 15,800,000
Harman International Industries, Inc. 7,858,000 - 54,471,656 62,329,656
7,858,000 - 70,271,656 78,129,656
CONSUMER FINANCE--1.66%
American Express Co. - 26,350,000 39,525,000 65,875,000
SLM Corp. 10,719,000 33,348,000 47,640,000 91,707,000
10,719,000 59,698,000 87,165,000 157,582,000
DATA PROCESSING & OUTSOURCED
SERVICES--3.31%
Affiliated Computer Services, Inc.-
Class A (a) 16,684,500 - - 16,684,500
Alliance Data Systems Corp. (a) 40,400,000 24,240,000 - 64,640,000
Automatic Data Processing, Inc. - 16,290,000 43,440,000 59,730,000
Fiserv, Inc. (a) 24,322,500 - 63,450,000 87,772,500
Iron Mountain Inc. (a) 24,502,500 - 29,700,000 54,202,500
Paychex, Inc. 30,600,000 - - 30,600,000
136,509,500 40,530,000 136,590,000 313,629,500
DEPARTMENT STORES--1.26%
J.C. Penney Co., Inc. - 33,187,000 - 33,187,000
Kohl's Corp. (a) - 5,302,640 23,800,000 29,102,640
Nordstrom, Inc. - 35,581,000 - 35,581,000
Sears Holdings Corp. (a) - - 21,282,989 21,282,989
74,070,640 45,082,989 119,153,629
DISTILLERS & VINTNERS--0.15%
Constellation Brands, Inc. - Class A (a) - 14,495,250 - 14,495,250
DIVERSIFIED BANKS--0.48%
Bank of America Corp. - - 45,040,000 45,040,000
DIVERSIFIED CHEMICALS--1.15%
Dow Chemical Co. (The) - - 29,854,500 29,854,500
E. I. du Pont de Nemours & Co. - - 47,110,000 47,110,000
Eastman Chemical Co. - - 32,400,000 32,400,000
- - 109,364,500 109,364,500
DIVERSIFIED COMMERCIAL SERVICES--1.13%
ARAMARK Corp.-Class B 14,706,000 - - 14,706,000
Career Education Corp. (a) 8,394,480 - - 8,394,480
Cendant Corp. - 21,403,250 - 21,403,250
ChoicePoint Inc. (a) 18,610,105 - - 18,610,105
Cintas Corp. 17,365,500 - - 17,365,500
CoStar Group Inc. (a) 8,107,750 - - 8,107,750
Jackson Hewitt Tax Services Inc. 11,512,500 - - 11,512,500
Sirva Inc. (a) 6,980,000 - - 6,980,000
85,676,335 21,403,250 - 107,079,585
DIVERSIFIED METALS & MINING--0.54%
Peabody Energy Corp. - - 17,083,431 17,083,431
Phelps Dodge Corp. - - 34,340,000 34,340,000
- 51,423,431 51,423,431
DRUG RETAIL--0.45%
Walgreen Co. - - 43,060,000 43,060,000
ELECTRIC UTILITIES--0.11%
DPL Inc. 10,303,200 - - 10,303,200
SHARES
- -------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
ELECTRICAL COMPONENTS & EQUIPMENT--1.29%
- 275,000 - 275,000 Cooper Industries, Ltd.-Class A (Bermuda)
1,100,000 - - 1,100,000 EnerSys
- - 510,500 510,500 Emerson Electric Co.
- 646,400 700,000 1,346,400 Rockwell Automation, Inc.
EMPLOYMENT SERVICES--0.59%
- - 2,250,000 2,250,000 Robert Half International Inc.
ELECTRONIC EQUIPMENT MANUFACTURES--0.35%
250,000 - - 250,000 Amphenol Corp.-Class A
375,000 - - 375,000 Cogent Inc.
- - 300,800 300,800 Dolby Laboratories Inc.-Class A
400,000 - - 400,000 Tektronix, Inc.
ELECTRONIC MANUFACTURING SERVICES--0.05%
183,800 - - 183,800 Molex Inc.
FERTILIZERS & AGRICULTURAL CHEMICALS--0.43%
- - 700,000 700,000 Monsanto Co.
FOOD DISTRIBUTORS--0.20%
- - 550,000 550,000 Sysco Corp.
FOOD RETAIL--0.23%
- - 214,700 214,700 Whole Food Market, Inc.
FOOTWEAR--0.69%
- 350,000 500,000 850,000 NIKE, Inc. -Class B
GENERAL MERCHANDISE STORES--0.36%
- 500,000 - 500,000 Target Corp.
400,000 - - 400,000 Tuesday Morning Corp.
GOLD--0.37%
- - 545,500 545,500 Newmont Mining Corp.
- - 1,076,000 1,076,000 Placer Dome Inc. (Canada)
HEALTH CARE EQUIPMENT--6.31%
- 300,000 520,600 820,600 Bard (C.R.), Inc.
- - 1,034,200 1,034,200 Becton, Dickinson & Co.
500,000 - 2,253,175 2,753,175 Biomet, Inc.
900,000 - - 900,000 Cytyc Corp.
425,000 - 665,300 1,090,300 Fisher Scientific International Inc.
425,000 300,000 - 725,000 Kinetic Concepts, Inc.
425,000 - - 425,000 Kyphon Inc.
- - 815,700 815,700 Medtronic, Inc.
500,000 - - 500,000 PerkinElmer, Inc.
- - 1,254,500 1,254,500 St. Jude Medical, Inc.
305,000 475,000 1,040,900 1,820,900 Varian Medical Systems, Inc.
350,000 450,000 - 800,000 Waters Corp.
- - 475,600 475,600 Zimmer Holdings, Inc.
HEALTH CARE FACILITIES--1.00%
- 575,000 500,000 1,075,000 HCA Inc.
- - 1,000,000 1,000,000 Health Management Associates, Inc.-Class A
200,000 - - 200,000 Triad Hospitals, Inc.
HEALTH CARE SERVICES--1.87%
475,000 550,000 2,427,881 3,452,881 Caremark Rx, Inc.
210,000 - - 210,000 Cerner Corp.
450,000 - - 450,000 DaVita, Inc.
250,000 - - 250,000 Omnicare, Inc.
HEALTH CARE SUPPLIES--1.37%
435,000 - - 435,000 Advanced Medical Optics, Inc.
- 325,000 677,400 1,002,400 Alcon, Inc. (Switzerland)
100,000 - - 100,000 Cooper Cos., Inc. (The)
200,000 - - 200,000 Millipore Corp.
HOME ENTERTAINMENT SOFTWARE--0.31%
- - 550,000 550,000 Electronic Arts Inc.
HOME IMPROVEMENT RETAIL--0.21%
- 550,000 - 550,000 Home Depot, Inc. (The)
HOMEBUILDING--0.18%
- 550,000 - 550,000 D.R. Horton, Inc.
HOTELS, RESORTS & CRUISE LINES--1.36%
- - 900,000 900,000 Carnival Corp. (Panama)
- 1,150,000 - 1,150,000 Hilton Hotels Corp.
450,000 - - 450,000 Royal Caribbean Cruises Ltd. (Liberia)
- - 750,000 750,000 Starwood Hotels & Resorts Worldwide, Inc.
HOUSEHOLD APPLIANCES--0.18%
1,173,900 - - 1,173,900 Blount International, Inc.
MARKET VALUE
------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
ELECTRICAL COMPONENTS & EQUIPMENT--1.29%
Cooper Industries, Ltd.-Class A (Bermuda) $ - $ 17,506,500 $ - $ 17,506,500
EnerSys (a) 10,373,000 - - 10,373,000
Emerson Electric Co. - - 31,993,035 31,993,035
Rockwell Automation, Inc. - 29,883,072 32,361,000 62,244,072
10,373,000 47,389,572 64,354,035 122,116,607
EMPLOYMENT SERVICES--0.59%
Robert Half International Inc. - - 55,845,000 55,845,000
ELECTRONIC EQUIPMENT MANUFACTURES--0.35%
Amphenol Corp.-Class A 9,860,000 - - 9,860,000
Cogent Inc. (a) 8,437,500 - - 8,437,500
Dolby Laboratories Inc.-Class A (a)(c) - - 6,151,360 6,151,360
Tektronix, Inc. 8,664,000 - - 8,664,000
26,961,500 - 6,151,360 33,112,860
ELECTRONIC MANUFACTURING SERVICES--0.05%
Molex Inc. 4,670,358 - - 4,670,358
FERTILIZERS & AGRICULTURAL CHEMICALS--0.43%
Monsanto Co. - - 41,034,000 41,034,000
FOOD DISTRIBUTORS--0.20%
Sysco Corp. - - 19,030,000 19,030,000
FOOD RETAIL--0.23%
Whole Food Market, Inc. - - 21,409,884 21,409,884
FOOTWEAR--0.69%
NIKE, Inc. -Class B - 26,883,500 38,405,000 65,288,500
GENERAL MERCHANDISE STORES--0.36%
Target Corp. - 23,200,000 - 23,200,000
Tuesday Morning Corp. (a) 10,504,000 - - 10,504,000
10,504,000 23,200,000 - 33,704,000
GOLD--0.37%
Newmont Mining Corp. - - 20,712,635 20,712,635
Placer Dome Inc. (Canada) - - 14,375,360 14,375,360
- 35,087,995 35,087,995
HEALTH CARE EQUIPMENT--6.31%
Bard (C.R.), Inc. - 21,351,000 37,051,102 58,402,102
Becton, Dickinson & Co. - - 60,521,384 60,521,384
Biomet, Inc. 19,345,000 - 87,175,341 106,520,341
Cytyc Corp. (a) 19,179,000 - - 19,179,000
Fisher Scientific International Inc. (a) 25,236,500 - 39,505,514 64,742,014
Kinetic Concepts, Inc. (a) 26,116,250 18,435,000 - 44,551,250
Kyphon Inc. (a) 11,113,750 - - 11,113,750
Medtronic, Inc. - - 42,987,390 42,987,390
PerkinElmer, Inc. 9,250,000 - - 9,250,000
St. Jude Medical, Inc. (a) - - 48,963,135 48,963,135
Varian Medical Systems, Inc. (a) 10,290,700 16,026,500 35,119,966 61,437,166
Waters Corp. (a) 13,870,500 17,833,500 - 31,704,000
Zimmer Holdings, Inc. (a) - - 38,723,352 38,723,352
134,401,700 73,646,000 390,047,184 598,094,884
HEALTH CARE FACILITIES--1.00%
HCA Inc. - 32,108,000 27,920,000 60,028,000
Health Management Associates, Inc.-Class A - - 24,730,000 24,730,000
Triad Hospitals, Inc. (a) 10,250,000 - - 10,250,000
10,250,000 32,108,000 52,650,000 95,008,000
HEALTH CARE SERVICES--1.87%
Caremark Rx, Inc. (a) 19,023,750 22,027,500 97,236,634 138,287,884
Cerner Corp. (a)(d) 12,192,600 - - 12,192,600
DaVita, Inc. (a) 18,135,000 - - 18,135,000
Omnicare, Inc. 8,667,500 - - 8,667,500
58,018,850 22,027,500 97,236,634 177,282,984
HEALTH CARE SUPPLIES--1.37%
Advanced Medical Optics, Inc. (a) 16,086,300 - - 16,086,300
Alcon, Inc. (Switzerland) (a) - 31,525,000 65,707,800 97,232,800
Cooper Cos., Inc. (The) 6,755,000 - - 6,755,000
Millipore Corp. (a) 9,644,000 - - 9,644,000
32,485,300 31,525,000 65,707,800 129,718,100
HOME ENTERTAINMENT SOFTWARE--0.31%
Electronic Arts Inc. (a) - - 29,364,500 29,364,500
HOME IMPROVEMENT RETAIL--0.21%
Home Depot, Inc. (The) - 19,453,500 - 19,453,500
HOMEBUILDING--0.18%
D.R. Horton, Inc. - 16,775,000 - 16,775,000
HOTELS, RESORTS & CRUISE LINES--1.36%
Carnival Corp. (Panama) (e) - - 43,992,000 43,992,000
Hilton Hotels Corp. - 25,104,500 - 25,104,500
Royal Caribbean Cruises Ltd. (Liberia) 18,909,000 - - 18,909,000
Starwood Hotels & Resorts Worldwide, Inc. (f) - - 40,755,000 40,755,000
18,909,000 25,104,500 84,747,000 128,760,500
HOUSEHOLD APPLIANCES--0.18%
Blount International, Inc. (a) 17,385,459 - - 17,385,459
SHARES
- ------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
HOUSEHOLD PRODUCTS--0.56%
- 325,000 - 325,000 Clorox Co. (The)
- - 600,000 600,000 Procter & Gamble (The)
HOUSEWARES & SPECIALTIES--0.33%
- 375,000 - 375,000 Fortune Brands, Inc.
HYPERMARKETS & SUPER CENTERS--0.31%
- - 613,400 613,400 Wal-Mart Stores, Inc.
INDUSTRIAL CONGLOMERATES--2.30%
- - 1,500,000 1,500,000 General Electric Co.
250,000 300,000 - 550,000 Textron Inc.
- 2,650,000 1,250,000 3,900,000 Tyco International Ltd. (Bermuda)
INDUSTRIAL GASES--0.84%
239,000 - - 239,000 Airgas, Inc.
- - 600,000 600,000 Air Products & Chemicals, Inc.
- - 841,400 841,400 Praxair, Inc.
INDUSTRIAL MACHINERY--2.84%
- 350,000 1,000,000 1,350,000 Danaher Corp.
300,000 - - 300,000 Dover Corp.
- - 500,000 500,000 Eaton Corp.
- - 363,300 363,300 Illinois Tool Works Inc.
- - 1,100,000 1,100,000 Ingersoll-Rand Co. Ltd.-Class A (Bermuda)
- - 600,000 600,000 Parker Hannifin Corp.
250,000 - - 250,000 Pentair, Inc.
INTEGRATED OIL & GAS--2.25%
- - 488,000 488,000 Chevron Corp.
- 200,000 500,000 700,000 ConocoPhillips
- - 1,500,000 1,500,000 Exxon Mobil Corp.
- - 414,400 414,400 Occidental Petroleum Corp.
INTERNET SOFTWARE & SERVICES--3.42%
- 200,000 250,413 450,413 Google Inc. - Class A
500,000 1,150,000 1,000,000 2,650,000 VeriSign, Inc.
- 1,250,000 3,250,000 4,500,000 Yahoo! Inc.
INVESTMENT BANKING & BROKERAGE--1.47%
- 500,000 250,000 750,000 Goldman Sachs Group, Inc. (The)
- 250,000 - 250,000 Lehman Brothers Holdings Inc.
- 400,000 267,400 667,400 Merrill Lynch & Co., Inc.
IT CONSULTING & OTHER SERVICES--0.39%
- 900,000 - 900,000 Accenture Ltd. - Class A (Bermuda)
500,000 - - 500,000 Acxiom Corp.
600,000 - - 600,000 Perot Systems Corp.-Class A
LIFE & HEALTH INSURANCE--0.31%
- - 725,450 725,450 AFLAC Inc.
MANAGED HEALTH CARE--2.79%
- 750,000 826,800 1,576,800 Aetna Inc.
- - 479,300 479,300 PacifiCare Health Systems, Inc.
- 400,000 463,100 863,100 UnitedHealth Group Inc.
- 175,000 126,600 301,600 WellPoint, Inc.
METAL & GLASS CONTAINERS--0.10%
375,000 - - 375,000 Owens-Illinois, Inc.
MOVIES & ENTERTAINMENT--0.86%
- - 187,900 187,900 DreamWorks Animation SKG, Inc. - Class A
750,000 - - 750,000 Regal Entertainment Group-Class A
- - 838,064 838,064 Viacom Inc.-Class B
- 1,150,000 - 1,150,000 Walt Disney Co. (The)
OFFICE SERVICES & SUPPLIES--0.14%
380,000 - - 380,000 Mine Safety Appliances Co.
OIL & GAS DRILLING--1.24%
525,000 - 1,062,000 1,587,000 ENSCO International Inc.
- - 850,000 850,000 GlobalSantaFe Corp. (Cayman Islands)
- - 1,300,000 1,300,000 Patterson-UTI Energy, Inc.
225,000 - - 225,000 Rowan Cos., Inc.
OIL & GAS EQUIPMENT & SERVICES--1.39%
- - 840,000 840,000 Baker Hughes Inc.
175,000 700,000 - 875,000 BJ Services Co.
- 500,000 - 500,000 National-Oilwell Varco Inc.
- - 625,000 625,000 Weatherford International Ltd. (Bermuda)
MARKET VALUE
------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
HOUSEHOLD PRODUCTS--0.56%
Clorox Co. (The) $ - $ 20,572,500 $ - $ 20,572,500
Procter & Gamble (The) - - 32,490,000 32,490,000
20,572,500 32,490,000 53,062,500
HOUSEWARES & SPECIALTIES--0.33%
Fortune Brands, Inc. - 31,717,500 - 31,717,500
HYPERMARKETS & SUPER CENTERS--0.31%
Wal-Mart Stores, Inc. - - 28,915,676 28,915,676
INDUSTRIAL CONGLOMERATES--2.30%
General Electric Co. - - 54,300,000 54,300,000
Textron Inc. 18,837,500 22,605,000 - 41,442,500
Tyco International Ltd. (Bermuda) - 82,971,500 39,137,500 122,109,000
18,837,500 105,576,500 93,437,500 217,851,500
INDUSTRIAL GASES--0.84%
Airgas, Inc. 5,238,880 - - 5,238,880
Air Products & Chemicals, Inc. - - 35,238,000 35,238,000
Praxair, Inc. - - 39,402,762 39,402,762
5,238,880 - 74,640,762 79,879,642
INDUSTRIAL MACHINERY--2.84%
Danaher Corp. - 17,720,500 50,630,000 68,350,500
Dover Corp. 10,908,000 - - 10,908,000
Eaton Corp. - - 29,325,000 29,325,000
Illinois Tool Works Inc. - - 30,451,806 30,451,806
Ingersoll-Rand Co. Ltd.-Class A (Bermuda) - - 84,557,000 84,557,000
Parker Hannifin Corp. - - 35,964,000 35,964,000
Pentair, Inc. 9,945,000 - - 9,945,000
20,853,000 17,720,500 230,927,806 269,501,306
INTEGRATED OIL & GAS--2.25%
Chevron Corp. - - 25,376,000 25,376,000
ConocoPhillips - 20,970,000 52,425,000 73,395,000
Exxon Mobil Corp. - - 85,545,000 85,545,000
Occidental Petroleum Corp. - - 28,593,600 28,593,600
- 20,970,000 191,939,600 212,909,600
INTERNET SOFTWARE & SERVICES--3.42%
Google Inc. - Class A (a)(b) - 44,000,000 55,090,860 99,090,860
VeriSign, Inc. (a) 13,230,000 30,429,000 26,460,000 70,119,000
Yahoo! Inc. (a) - 43,137,500 112,157,500 155,295,000
13,230,000 117,566,500 193,708,360 324,504,860
INVESTMENT BANKING & BROKERAGE--1.47%
Goldman Sachs Group, Inc. (The) (b) - 53,395,000 26,697,500 80,092,500
Lehman Brothers Holdings Inc. - 22,930,000 - 22,930,000
Merrill Lynch & Co., Inc. - 21,572,000 14,420,882 35,992,882
- 97,897,000 41,118,382 139,015,382
IT CONSULTING & OTHER SERVICES--0.39%
Accenture Ltd. - Class A (Bermuda) (a) - 19,530,000 - 19,530,000
Acxiom Corp. 9,500,000 - - 9,500,000
Perot Systems Corp.-Class A (a) 7,578,000 - - 7,578,000
17,078,000 19,530,000 - 36,608,000
LIFE & HEALTH INSURANCE--0.31%
AFLAC Inc. - - 29,489,542 29,489,542
MANAGED HEALTH CARE--2.79%
Aetna Inc. - 55,027,500 60,662,316 115,689,816
PacifiCare Health Systems, Inc. (a) - - 28,642,968 28,642,968
UnitedHealth Group Inc. - 37,804,000 43,767,581 81,571,581
WellPoint, Inc. (a) - 22,356,250 16,173,150 38,529,400
- 115,187,750 149,246,015 264,433,765
METAL & GLASS CONTAINERS--0.10%
Owens-Illinois, Inc. (a) 9,195,000 - - 9,195,000
MOVIES & ENTERTAINMENT--0.86%
DreamWorks Animation SKG, Inc. - Class A (a) - - 7,046,250 7,046,250
Regal Entertainment Group-Class A 15,217,500 - - 15,217,500
Viacom Inc.-Class B - - 29,013,776 29,013,776
Walt Disney Co. (The) - 30,360,000 - 30,360,000
15,217,500 30,360,000 36,060,026 81,637,526
OFFICE SERVICES & SUPPLIES--0.14%
Mine Safety Appliances Co. 13,566,000 - - 13,566,000
OIL & GAS DRILLING--1.24%
ENSCO International Inc. 17,115,000 - 34,621,200 51,736,200
GlobalSantaFe Corp. (Cayman Islands) - - 28,560,000 28,560,000
Patterson-UTI Energy, Inc. - - 31,161,000 31,161,000
Rowan Cos., Inc. 5,969,250 - - 5,969,250
23,084,250 - 94,342,200 117,426,450
OIL & GAS EQUIPMENT & SERVICES--1.39%
Baker Hughes Inc. - - 37,060,800 37,060,800
BJ Services Co. 8,531,250 34,125,000 - 42,656,250
National-Oilwell Varco Inc. (a) - 19,870,000 - 19,870,000
Weatherford International Ltd. (Bermuda) (a) - - 32,593,750 32,593,750
8,531,250 53,995,000 69,654,550 132,180,800
SHARES
- -------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
OIL & GAS EXPLORATION & PRODUCTION--1.63%
- - 400,000 400,000 Apache Corp.
- - 565,500 565,500 Burlington Resources Inc.
- - 1,130,000 1,130,000 Devon Energy Corp.
- - 300,000 300,000 Newfield Exploration Co.
- - 1,066,666 1,066,666 XTO Energy, Inc.
OIL & GAS REFINING, MARKETING & TRANSPORTATION--0.94%
- 450,000 850,000 1,300,000 Valero Energy Corp.
OTHER DIVERSIFIED FINANCIAL SERVICES--0.55%
- - 1,116,000 1,116,000 Citigroup Inc.
PACKAGED FOODS & MEATS--0.55%
- - 500,000 500,000 Hershey Co. (The)
- - 451,700 451,700 Kellogg Co.
PAPER PRODUCTS--0.04%
371,500 - - 371,500 Sappi Ltd.-ADR (South Africa)
PERSONAL PRODUCTS--1.06%
- 900,000 1,042,000 1,942,000 Gillette Co. (The)
PHARMACEUTICALS--4.38%
500,000 - - 500,000 Endo Pharmaceuticals Holdings Inc.
400,000 - - 400,000 Impax Laboratories, Inc.
937,500 - - 937,500 IVAX Corp.
- 850,000 1,696,100 2,546,100 Johnson & Johnson
542,200 - 1,323,600 1,865,800 Medicis Pharmaceutical Corp.-Class A
720,000 - - 720,000 MGI Pharma, Inc.
- - 1,293,200 1,293,200 Pfizer Inc.
- 400,000 - 400,000 Sepracor Inc.
- 700,000 - 700,000 Shire Pharmaceuticals Group PLC - ADR (United Kingdom)
- - 1,410,700 1,410,700 Teva Pharmaceutical Industries Ltd.-ADR (Israel)
636,900 - - 636,900 Valeant Pharmaceuticals International
PUBLISHING--0.11%
325,000 - - 325,000 Dow Jones & Co., Inc.
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.14%
375,000 - - 375,000 CB Richard Ellis Group, Inc.-Class A
REGIONAL BANKS--0.35%
800,000 - - 800,000 Amegy Bancorp., Inc
700,000 - - 700,000 North Fork Bancorp., Inc.
RESTAURANTS--1.50%
- - 554,200 554,200 Brinker International, Inc.
- 500,000 1,000,000 1,500,000 McDonald's Corp.
500,000 - - 500,000 RARE Hospitality International, Inc.
650,000 - - 650,000 Ruby Tuesday, Inc.
- - 700,000 700,000 Starbucks Corp.
- 350,000 - 350,000 Yum! Brands, Inc.
SEMICONDUCTOR EQUIPMENT--0.86%
- - 1,583,600 1,583,600 Applied Materials, Inc.
540,600 - 500,000 1,040,600 KLA-Tencor Corp.
750,000 - - 750,000 Novellus Systems, Inc.
SEMICONDUCTORS--5.25%
775,000 - - 775,000 Altera Corp.
1,124,900 - - 1,124,900 AMIS Holdings, Inc.
- 1,100,000 1,750,000 2,850,000 Analog Devices, Inc.
875,000 - - 875,000 ATI Technologies Inc. (Canada)
475,000 - - 475,000 Broadcom Corp.-Class A
850,000 - - 850,000 Integrated Circuit Systems, Inc.
- - 1,450,000 1,450,000 Linear Technology Corp.
- - 750,000 750,000 Marvell Technology Group Ltd. (Bermuda)
700,000 - 806,985 1,506,985 Maxim Integrated Products, Inc.
1,000,000 950,000 3,000,052 4,950,052 Microchip Technology Inc.
875,000 - - 875,000 Micron Technology, Inc.
- 1,750,000 - 1,750,000 National Semiconductor Corp.
750,000 - - 750,000 Semtech Corp.
SOFT DRINKS--0.49%
625,000 - - 625,000 Coca-Cola Enterprises Inc.
- - 600,000 600,000 PepsiCo, Inc
SPECIALIZED FINANCE--0.45%
50,000 125,000 41,200 216,200 Chicago Mercantile Exchange Holdings Inc.
MARKET VALUE
------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
OIL & GAS EXPLORATION & PRODUCTION--1.63%
Apache Corp. $ - $ - $ 22,516,000 $ 22,516,000
Burlington Resources Inc. - - 27,488,955 27,488,955
Devon Energy Corp. - - 51,042,100 51,042,100
Newfield Exploration Co. (a) - - 21,309,000 21,309,000
XTO Energy, Inc. - - 32,181,313 32,181,313
- - 154,537,368 154,537,368
OIL & GAS REFINING, MARKETING & TRANSPORTATION--
0.94%
Valero Energy Corp. - 30,838,500 58,250,500 89,089,000
OTHER DIVERSIFIED FINANCIAL SERVICES--0.55%
Citigroup Inc. - - 52,407,360 52,407,360
PACKAGED FOODS & MEATS--0.55%
Hershey Co. (The) - - 31,950,000 31,950,000
Kellogg Co. - - 20,303,915 20,303,915
- - 52,253,915 52,253,915
PAPER PRODUCTS--0.04%
Sappi Ltd.-ADR (South Africa) 3,707,570 - - 3,707,570
PERSONAL PRODUCTS--1.06%
Gillette Co. (The) - 46,476,000 53,808,880 100,284,880
PHARMACEUTICALS--4.38%
Endo Pharmaceuticals Holdings Inc. (a) 9,925,000 - - 9,925,000
Impax Laboratories, Inc. (a) 6,508,000 - - 6,508,000
IVAX Corp. (a) 17,718,750 - - 17,718,750
Johnson & Johnson - 58,335,500 116,403,343 174,738,843
Medicis Pharmaceutical Corp.-Class A 15,235,820 - 37,193,160 52,428,980
MGI Pharma, Inc. (a) 15,876,000 - - 15,876,000
Pfizer Inc. - - 35,136,244 35,136,244
Sepracor Inc. (a)(b) - 23,968,000 - 23,968,000
Shire Pharmaceuticals Group PLC - ADR
(United Kingdom) - 21,756,000 - 21,756,000
Teva Pharmaceutical Industries Ltd.-ADR (Israel) - - 44,070,268 44,070,268
Valeant Pharmaceuticals International 13,215,675 - - 13,215,675
78,479,245 104,059,500 232,803,015 415,341,760
PUBLISHING--0.11%
Dow Jones & Co., Inc. 10,868,000 - - 10,868,000
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.14%
CB Richard Ellis Group, Inc.-Class A (a) 13,031,250 - - 13,031,250
REGIONAL BANKS--0.35%
Amegy Bancorp., Inc 13,280,000 - - 13,280,000
North Fork Bancorp., Inc. 19,705,000 - - 19,705,000
32,985,000 - - 32,985,000
RESTAURANTS--1.50%
Brinker International, Inc. (a) - - 18,731,960 18,731,960
McDonald's Corp. - 14,655,000 29,310,000 43,965,000
RARE Hospitality International, Inc. (a) 13,910,000 - - 13,910,000
Ruby Tuesday, Inc. 14,625,000 - - 14,625,000
Starbucks Corp. (a) - - 34,664,000 34,664,000
Yum! Brands, Inc. - 16,436,000 - 16,436,000
28,535,000 31,091,000 82,705,960 142,331,960
SEMICONDUCTOR EQUIPMENT--0.86%
Applied Materials, Inc. (a) - - 23,548,132 23,548,132
KLA-Tencor Corp. 21,094,212 - 19,510,000 40,604,212
Novellus Systems, Inc. (a) 17,572,500 - - 17,572,500
38,666,712 - 43,058,132 81,724,844
SEMICONDUCTORS--5.25%
Altera Corp. (a) 16,065,750 - - 16,065,750
AMIS Holdings, Inc. (a) 12,666,374 - 12,666,374
Analog Devices, Inc. - 37,521,000 59,692,500 97,213,500
ATI Technologies Inc. (Canada) (a) 12,950,000 - - 12,950,000
Broadcom Corp.-Class A (a) 14,207,250 - - 14,207,250
Integrated Circuit Systems, Inc. (a) 15,529,500 - - 15,529,500
Linear Technology Corp. - - 51,823,000 51,823,000
Marvell Technology Group Ltd. (Bermuda) (a) - - 25,110,000 25,110,000
Maxim Integrated Products, Inc. 26,180,000 - 30,181,239 56,361,239
Microchip Technology Inc. 28,480,000 27,056,000 85,441,481 140,977,481
Micron Technology, Inc. (a) 8,496,250 - - 8,496,250
National Semiconductor Corp. - 33,390,000 - 33,390,000
Semtech Corp. (a) 12,667,500 - 12,667,500
147,242,624 97,967,000 252,248,220 497,457,844
SOFT DRINKS--0.49%
Coca-Cola Enterprises Inc. 12,687,500 - - 12,687,500
PepsiCo, Inc - - 33,384,000 33,384,000
12,687,500 - 33,384,000 46,071,500
SPECIALIZED FINANCE--0.45%
Chicago Mercantile Exchange Holdings Inc. 9,776,000 24,440,000 8,055,424 42,271,424
SHARES
- -----------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
SPECIALTY CHEMICALS--1.14%
- 650,000 800,000 1,450,000 Ecolab Inc.
393,300 - - 393,300 Nalco Holding Co.
225,000 - 1,000,000 1,225,000 Rohm & Haas Co.
SPECIALTY STORES--2.04%
400,000 - 1,200,000 1,600,000 Bed Bath & Beyond Inc.
750,000 - - 750,000 Linens 'n Things, Inc.
- - 1,163,800 1,163,800 Office Depot, Inc.
550,000 - - 550,000 PETCO Animal Supplies, Inc.
1,125,000 - 2,895,000 4,020,000 Staples, Inc.
STEEL--0.68%
- - 600,000 600,000 Nucor Corp.
- - 796,900 796,900 United States Steel Corp.
SYSTEMS SOFTWARE--3.60%
- - 474,400 474,400 Adobe Systems Inc.
302,100 - - 302,100 Internet Security Systems, Inc.
600,000 248,600 1,000,000 1,848,600 McAfee Inc.
- - 5,000,000 5,000,000 Microsoft Corp.
- 3,500,000 4,438,800 7,938,800 Oracle Corp.
833,000 - - 833,000 RSA Security Inc.
- 2,000,000 - 2,000,000 VERITAS Software Corp.
TECHNOLOGY DISTRIBUTORS--0.72%
450,000 - 800,000 1,250,000 CDW Corp.
THRIFTS & MORTGAGE FINANCE--0.24%
400,000 - - 400,000 Independence Community Bank Corp.
500,000 - - 500,000 New York Community Bancorp., Inc.
TRADING COMPANIES & DISTRIBUTORS--0.26%
- - 1,021,100 1,021,100 UAP Holding Corp.
428,000 - - 428,000 WESCO International, Inc.
WIRELESS TELECOMMUNICATION SERVICES--0.45%
- - 987,200 987,200 Nextel Communications, Inc.-Class A
- - 1,266,600 1,266,600 Syniverse Holdings Inc.
Total Common Stocks & Other Equity Interests (Cost
$7,757,601,619)
NUMBER OF CONTRACTS
PUT OPTIONS PURCHASED--0.00%
INTERNET SOFTWARE & SERVICES--0.00%
- - 2,504 2,504 Google Inc.-Class A $180, May-05
- - 16,250 16,250 Yahoo! Inc. $30, May-05
Total Put Options Purchased (Cost $2,939,040)
SHARES
MONEY MARKET FUNDS--1.98%
28,814,361 21,046,502 43,885,756 93,746,619 Liquid Assets Portfolio-Institutional Class
28,814,361 21,046,502 43,885,756 93,746,619 STIC Prime Portfolio-Institutional Class
Total Money Market Funds (Cost $187,493,238)
TOTAL INVESTMENTS--99.83% (excluding investments
purchased with cash collateral from securities loaned)
(Cost $7,948,033,897)
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES
LOANED
MONEY MARKET FUNDS--1.12%
4,312,476 - 2 4,312,478 Liquid Assets Portfolio-Institutional Class
4,312,476 58,849,525 38,996,778 102,158,779 STIC Prime Portfolio-Institutional Class
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $106,471,257)
TOTAL INVESTMENTS--100.95% (Cost $8,054,505,154)
OTHER ASSETS LESS LIABILITIES--(0.94%)
ADJUSTMENTS---(0.01%)
NET ASSETS--100.00%
MARKET VALUE
------------------------------------------------------------------------
AIM
AIM AIM AIM CONSTELLATION FUND
AGGRESSIVE GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND COMBINING
SPECIALTY CHEMICALS--1.14%
Ecolab Inc. $ - $ 21,261,500 $ 26,168,000 $ 47,429,500
Nalco Holding Co. (a) 7,079,400 - - 7,079,400
Rohm & Haas Co. 9,823,500 - 43,660,000 53,483,500
16,902,900 21,261,500 69,828,000 107,992,400
SPECIALTY STORES--2.04%
Bed Bath & Beyond Inc. (a) 14,884,000 - 44,652,000 59,536,000
Linens 'n Things, Inc. (a) 17,497,500 - - 17,497,500
Office Depot, Inc. (a) - - 22,787,204 22,787,204
PETCO Animal Supplies, Inc. (a) 17,215,000 - - 17,215,000
Staples, Inc. 21,453,750 - 55,207,650 76,661,400
71,050,250 - 122,646,854 193,697,104
STEEL--0.68%
Nucor Corp. - - 30,660,000 30,660,000
United States Steel Corp. - - 34,075,444 34,075,444
- - 64,735,444 64,735,444
SYSTEMS SOFTWARE--3.60%
Adobe Systems Inc. - - 28,212,568 28,212,568
Internet Security Systems, Inc. (a) 5,875,845 - - 5,875,845
McAfee Inc. (a) 12,546,000 5,198,226 20,910,000 38,654,226
Microsoft Corp. - - 126,500,000 126,500,000
Oracle Corp. (a) - 40,460,000 51,312,528 91,772,528
RSA Security Inc. (a) 8,946,420 - - 8,946,420
VERITAS Software Corp. (a) - 41,180,000 - 41,180,000
27,368,265 86,838,226 226,935,096 341,141,587
TECHNOLOGY DISTRIBUTORS--0.72%
CDW Corp. 24,610,500 - 43,752,000 68,362,500
THRIFTS & MORTGAGE FINANCE--0.24%
Independence Community Bank Corp. 14,272,000 - - 14,272,000
New York Community Bancorp., Inc. (b) 8,850,000 - - 8,850,000
23,122,000 - - 23,122,000
TRADING COMPANIES & DISTRIBUTORS--0.26%
UAP Holding Corp. (a) - - 14,693,629 14,693,629
WESCO International, Inc. (a) 10,349,040 - - 10,349,040
10,349,040 - 14,693,629 25,042,669
WIRELESS TELECOMMUNICATION SERVICES--0.45%
Nextel Communications, Inc.-Class A (a) - - 27,631,728 27,631,728
Syniverse Holdings Inc. (a) - - 15,325,860 15,325,860
- - 42,957,588 42,957,588
Total Common Stocks & Other Equity Interests (Cost
$7,757,601,619) 1,672,412,425 2,017,861,938 5,582,904,568 9,273,178,931
PUT OPTIONS PURCHASED--0.00%
INTERNET SOFTWARE & SERVICES--0.00%
Google Inc.-Class A $180, May-05 - - 37,560 37,560
Yahoo! Inc. $30, May-05 (a) - - 121,875 121,875
- - 159,435 159,435
Total Put Options Purchased
(Cost $2,939,040) - - 159,435 159,435
MONEY MARKET FUNDS--1.98%
Liquid Assets Portfolio-Institutional Class (g) 28,814,361 21,046,502 43,885,756 93,746,619
STIC Prime Portfolio-Institutional Class (g) 28,814,361 21,046,502 43,885,756 93,746,619
Total Money Market Funds (Cost $187,493,238) 57,628,722 42,093,004 87,771,512 187,493,238
TOTAL INVESTMENTS--99.83% (excluding investments
purchased with cash collateral
from securities loaned) (Cost $7,948,033,897) 2,059,954,942 5,670,835,515 9,460,831,604
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED
MONEY MARKET FUNDS--1.12%
Liquid Assets Portfolio-Institutional Class (g)(h) 4,312,476 - 2 4,312,478
STIC Prime Portfolio-Institutional Class (g)(h) 4,312,476 58,849,525 38,996,778 102,158,779
Total Money Market Funds (purchased with cash
collateral from
securities loaned) (Cost $106,471,257) 8,624,952 58,849,525 38,996,780 106,471,257
TOTAL INVESTMENTS--100.95% (Cost $8,054,505,154) 1,738,666,099 2,118,804,467 5,709,832,295 9,567,302,861
OTHER ASSETS LESS LIABILITIES--(0.94%) (8,222,318) (62,915,799) (18,379,168) (89,517,285)
ADJUSTMENTS---(0.01%) - - - (986,000)
NET ASSETS--100.00% $ 1,730,443,781 $ 2,055,888,668 $5,691,453,127 $ 9,476,799,576
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Pro Forma Combining Schedule of Investments:
* As of April 30, 2005, all of the securities held by the AIM
Aggressive Growth Fund and AIM Weingarten Fund would comply with the
compliance guidelines and/or investment restrictions of the AIM
Constellation Fund.
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) The Investment Company Act of 1940 defines affiliates as those
companies in which a fund holds 5% or more of the outstanding voting
securities. The Fund has not owned enough of the outstanding voting
securities of the issuer to have control (as defined in the
Investment Company Act of 1940) of that issuer. The market value of
this security at April 30, 2005 represented 6% of the Fund's Net
Assets.
(d) A portion of this security is subject to call options written.
(e) Each unit represents one common share with paired trust share.
(f) Each unit represents one common shares and one Class B share.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor.
(h) The security has been segregated to satisfy the forward commitment
to return the cash collateral received in securities lending
transactions upon the borrower's return of the securities loaned.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Pro Forma Combining Schedule of Investments:
* As of April 30, 2005, all of the securities held by the AIM
Aggressive Growth Fund and AIM Weingarten Fund would comply with the
compliance guidelines and/or investment restrictions of the AIM
Constellation Fund.
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) The Investment Company Act of 1940 defines affiliates as those
companies in which a fund holds 5% or more of the outstanding voting
securities. The Fund has not owned enough of the outstanding voting
securities of the issuer to have control (as defined in the
Investment Company Act of 1940) of that issuer.
The market value of this security at April 30, 2005 represented 6%
of the Fund's Net Assets.
(d) A portion of this security is subject to call options written.
(e) Each unit represents one common share with paired trust share.
(f) Each unit represents one common shares and one Class B share.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor.
(h) The security has been segregated to satisfy the forward commitment
to return the cash collateral received in securities lending
transactions upon the borrower's return of the securities loaned.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF AIM AGGRESSIVE GROWTH FUND AND AIM WEINGARTEN FUND
INTO AIM CONSTELLATION FUND
APRIL 30, 2005
(UNAUDITED)
AIM
AIM CONSTELLATION
AGGRESSIVE AIM AIM FUND
GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINING
-------------- --------------- --------------- ------------ -----------------
ASSETS:
Investments, at market value* $1,672,412,425 $ 2,017,861,938 $ 5,576,912,643 $ -- $ 9,267,187,006
(cost $1,672,089,105 - AIM Aggressive Growth Fund)
(cost $1,688,052,756 - AIM Weingarten Fund)
(cost $4,394,419,464 - AIM Constellation Fund)
(cost $7,754,561,325 - Pro Forma Combining)
Investments in affiliates 66,253,674 100,942,529 $ 132,919,652 -- 300,115,855
(cost $ 66,253,674 - AIM Aggressive Growth Fund)
(cost $100,942,529 - AIM Weingarten Fund)
(cost $132,747,626 - AIM Constellation Fund)
(cost $299,943,829 - Pro Forma Combining)
Total Investments 1,738,666,099 2,118,804,467 5,709,832,295 -- 9,567,302,861
(cost $1,738,342,779 - AIM Aggressive Growth Fund)
(cost $1,788,995,285 - AIM Weingarten Fund)
(cost $4,527,167,090 - AIM Constellation Fund)
(cost $8,054,505,154 - Pro Forma Combining)
Cash 430,787 -- -- -- 430,787
Receivables for:
Investments sold 51,570,142 21,581,790 101,291,425 -- 174,443,357
Fund shares sold 645,511 584,850 1,449,469 -- 2,679,830
Dividends 884,416 968,339 2,539,653 -- 4,392,408
Investment for trustee deferred compensation
and retirement plans 122,564 211,894 381,376 -- 715,834
Other assets 37,058 128,376 120,475 -- 285,909
-------------- --------------- --------------- ------------ ----------------
Total assets 1,792,356,577 2,142,279,716 5,815,614,693 -- 9,750,250,986
============== =============== =============== ============ ================
LIABILITIES:
Payables for:
Investments purchased 45,868,921 18,939,872 62,326,885 -- 127,135,678
Fund shares reacquired 3,945,753 5,562,588 15,717,121 -- 25,225,462
Options contracts written, at market value 1,039,500 -- -- -- 1,039,500
(premiums received of $894,670 - AIM
Aggressive Growth Fund)
Trustee deferred compensation and retirement plans 277,955 497,176 999,652 -- 1,774,783
Collateral upon return of securities loaned 8,624,952 58,849,525 38,996,780 -- 106,471,257
Accrued distribution fees 527,070 740,478 1,682,958 -- 2,950,506
Accrued trustees' and officer's fees and benefits 3,991 4,782 8,930 -- 17,703
Accrued transfer agent fees 1,365,362 1,462,644 3,747,717 6,575,723
Accrued operating expenses 259,292 333,983 681,523 986,000 2,260,798
-------------- --------------- --------------- ------------ ----------------
Total liabilities 61,912,796 86,391,048 124,161,566 986,000 273,451,410
-------------- --------------- --------------- ------------ ----------------
Net assets applicable to shares outstanding $1,730,443,781 $ 2,055,888,668 $ 5,691,453,127 $ (986,000)$ 9,476,799,576
============== =============== =============== ============ ================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,042,444,909 $ 4,883,168,381 $ 6,382,754,251 $ -- $ 13,308,367,541
Undistributed net investment income (loss) (7,810,218) (5,875,139) 1,640,148 (986,000) (13,031,209)
Undistributed net realized gain (loss) from investment
securities, foreign currencies
and option contracts (304,369,400) (3,151,213,756) (1,875,606,477) -- (5,331,189,633)
Unrealized appreciation of investment securities,
foreign currencies and options contracts 178,490 329,809,182 1,182,665,205 -- 1,512,652,877
$1,730,443,781 $ 2,055,888,668 $ 5,691,453,127 $ (986,000)$ 9,476,799,576
NET ASSETS:
Class A $1,436,493,212 $ 1,618,532,928 $ 4,875,650,421 $ (786,489)$ 7,929,890,072
Class B $ 225,604,269 $ 366,723,117 $ 542,849,216 $ (164,407)$ 1,135,012,195
Class C $ 61,741,279 $ 67,313,497 $ 135,737,907 $ (32,985)$ 264,759,698
Class R $ 2,893,402 $ 1,612,837 $ 7,273,813 $ (986)$ 11,779,066
Institutional Class $ 3,711,619 $ 1,706,289 $ 129,941,770 $ (1,133)$ 135,358,545
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM AGGRESSIVE GROWTH FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM WEINGARTEN FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM CONSTELLATION FUND):
Class A 149,077,981 133,066,083 229,513,312 143,804,558 373,317,870
Class B 24,708,549 32,959,977 27,345,549 29,837,239 57,182,788
Class C 6,762,746 6,044,504 6,839,787 6,501,091 13,340,878
Class R 302,664 133,457 343,228 212,646 555,874
Institutional Class 378,464 132,105 5,639,934 235,173 5,875,107
Class A:
Net asset value per share $ 9.64 $ 12.16 $ 21.24 $ -- $ 21.24
Offering price per share:
(Net asset value of $9.64 / 94.50% - AIM
Aggressive Growth Fund)
(Net asset value of $12.16 / 94.50% - AIM
Weingarten Fund)
(Net asset value of $21.24 / 94.50% - AIM
Constellation Fund)
$ 10.20 $ 12.87 $ 22.48 $ -- $ 22.48
Class B:
Net asset value and offering price per share $ 9.13 $ 11.13 $ 19.85 $ -- $ 19.85
Class C:
Net asset value and offering price per share $ 9.13 $ 11.14 $ 19.85 $ -- $ 19.85
Class R:
Net asset value and offering price per share $ 9.56 $ 12.09 $ 21.19 $ -- $ 21.19
Institutional Class:
Net asset value and offering price per share $ 9.81 $ 12.92 $ 23.04 $ -- $ 23.04
- -----------
* At April 30, 2005, securities with an aggregate market value of
$8,607,138, $57,096,353 and $38,055,509 were on loan to brokers for Aim
Aggressive Growth Fund, AIM Weingarten Fund and AIM Constellation Fund,
respectively.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF AIM AGGRESSIVE GROWTH FUND AND AIM WEINGARTEN FUND
INTO AIM CONSTELLATION FUND
FOR THE YEAR ENDED APRIL 30, 2005
(UNAUDITED)
AIM
AIM CONSTELLATION
AGGRESSIVE AIM AIM FUND
GROWTH WEINGARTEN CONSTELLATION PRO FORMA
FUND FUND FUND ADJUSTMENTS COMBINING
------------- -------------- -------------- ------------- ----------------
INVESTMENT INCOME:
Dividends $ 9,912,163 $ 20,574,461 $ 70,313,702 $ -- $ 100,800,326
(net of foreign withholding tax of $20,918 - AIM
Weingarten Fund)
(net of foreign withholding tax of $246,242 - AIM
Constellation Fund)
(net of foreign withholding tax of $267,160 -
Pro Forma Combining)
Dividends from affiliated money market funds 2,056,423 293,585 2,292,201 -- 4,642,209
(includes securities lending income of $341,706,
after compensation to counterparties of
$3,455,884 - AIM Aggressive Growth Fund)
(includes securities lending income of $84,224,
after compensation to counterparties of
$780,172 - AIM Weingarten Fund)
(includes securities lending income of $194,470,
after compensation to counterparties of
$6,241,837 - AIM Constellation Fund)
(includes securities lending income of $620,400,
after compensation to counterparties of
$10,477,893 - Pro Forma Combining)
Interest -- -- 10,823 -- 10,823
Total investment income 11,968,586 20,868,046 72,616,726 -- 105,453,358
EXPENSES:
Advisory fees 12,708,260 15,480,547 41,679,797 (774,999) $ 69,093,605
Administrative services fees 448,872 501,335 688,803 (818,621) 820,389
Custodian fees 159,833 196,987 568,402 -- 925,222
Distribution Fees:
Class A 4,166,728 5,600,358 17,051,932 833,346 27,652,364
Class B 2,495,858 4,452,370 6,215,076 -- 13,163,304
Class C 709,893 795,630 1,643,588 -- 3,149,111
Class R 13,997 7,437 31,640 -- 53,074
Transfer agent fees- Class A, B, C and R 7,975,664 9,120,157 23,322,481 (1,910,178) 38,508,124
Transfer agent fees- Institutional Class 1,123 1,814 117,573 -- 120,510
Trustees' and officer's fees and benefits 75,627 88,054 220,366 (25,390) 358,657
Other 865,996 1,394,496 2,268,720 (137,122) 4,392,090
------------- -------------- -------------- ------------- ---------------
Total expenses 29,621,851 37,639,185 93,808,378 (2,832,964) 158,236,450
============= ============== ============== ============= ===============
Less: Fees waived, expenses reimbursed and
expense offset arrangements (276,467) (416,669) (1,589,032) (1,921,612) (4,203,780)
Net expenses 29,345,384 37,222,516 92,219,346 (4,754,576) 154,032,670
------------- -------------- -------------- ------------- ---------------
Net investment income (loss) (17,376,798) (16,354,470) (19,602,620) 4,754,576 (48,579,312)
============= ============== ============== ============= ===============
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS
WRITTEN:
Net realized gain from:
Investment securities 448,731,557 265,873,795 642,638,553 -- 1,357,243,905
(includes gains from securites sold to affiliates
of $5,155,524 - AIM Aggressive Growth Fund)
(includes gains from securites sold to affiliates
of $1,697 - AIM Weingarten Fund)
(includes gains from securites sold to affiliates
of $14,158,978 - AIM Constellation Fund)
(includes gains from securites sold to affiliates
of $19,316,199 - Pro Forma Combining)
Foreign currencies -- 24 (97,714) -- (97,690)
Option contracts written 3,188,726 1,212,461 524,530 -- 4,925,717
451,920,283 267,086,280 643,065,369 -- 1,362,071,932
Change in net unrealized appreciation
(depreciation) of:
Investment securities (377,732,069) (189,554,015) (523,582,173) -- (1,090,868,257)
Foreign currencies -- (19) 1,150 -- 1,131
Options contracts written 144,830 -- -- 144,830
(377,587,239) (189,554,034) (523,581,023) -- (1,090,722,296)
Net gain from investment securities 74,333,044 77,532,246 119,484,346 -- 271,349,636
------------- -------------- -------------- ------------- ---------------
Net increase in net assets resulting from operations $ 56,956,246 $ 61,177,776 $ 99,881,726 $ 4,754,576 $ 222,770,324
============= ============== ============== ============= ===============
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS.
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF AIM AGGRESSIVE GROWTH FUND AND AIM WEINGARTEN FUND
INTO AIM CONSTELLATION FUND
APRIL 30, 2005
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
between AIM Aggressive Growth Fund and AIM Constellation Fund and the Plan of
Reorganization between AIM Weingarten Fund and AIM Constellation Fund
(collectively, the "Plans") and the consummation of the transactions
contemplated therein to be accounted for as a tax-free reorganization of
investment companies. The Plans would be accomplished by an exchange of shares
of AIM Constellation Fund for the net assets of AIM Aggressive Growth Fund and
AIM Weingarten Fund and the distribution of AIM Constellation Fund shares to AIM
Aggressive Growth Fund and AIM Weingarten Fund shareholders. If the Plans were
to have taken place at April 30, 2005, AIM Aggressive Growth Fund - Class A
shareholders would have received 67,651,287 shares of AIM Constellation Fund -
Class A shares, AIM Aggressive Growth Fund - Class B shareholders would have
received 11,363,118 shares of AIM Constellation Fund - Class B shares, AIM
Aggressive Growth Fund - Class C shareholders would have received 3,110,093
shares of AIM Constellation Fund - Class C shares, AIM Aggressive Growth Fund -
Class R shareholders would have received 136,530 shares of AIM Constellation
Fund - Class R shares and AIM Aggressive Growth Fund - Institutional Class
shareholders would have received 161,120 shares of AIM Constellation Fund -
Institutional Class shares. AIM Weingarten Fund - Class A shareholders would
have received 76,153,271 shares of AIM Constellation Fund - Class A shares, AIM
Weingarten Fund - Class B shareholders would have received 18,474,121 shares of
AIM Constellation Fund - Class B shares, AIM Weingarten Fund - Class C
shareholders would have received 3,390,998 shares of AIM Constellation Fund -
Class C shares, AIM Weingarten Fund - Class R shareholders would have received
76,116 shares of AIM Constellation Fund - Class R shares and AIM Weingarten Fund
- - Institutional Class shareholders would have received 74,053 shares of AIM
Constellation Fund - Institutional Class shares.
The preparation of pro forma combined 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 pro forma combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Certain expenses have been adjusted to reflect the
expected expenses of the combined entity. The merger adjustments represent those
adjustments needed to present the results of operations of the pro forma
combined AIM Constellation Fund as if the proposed merger had taken effect on
April 30, 2005. Actual results could differ from those estimates.
The pro forma financial statements should be read in conjunction with the
historical financial statements of AIM Aggressive Growth Fund, AIM Weingarten
Fund and AIM Constellation Fund.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Upon the closing date of the merger transaction of both AIM Aggressive
Growth Fund and AIM Weingarten Fund, the advisory fee payable by AIM
Constellation Fund will be permanently changed to 0.80% of the first $150
million, plus 0.625% of the Fund's average daily net assets in excess of $150
million. The pro forma combined advisory fees were adjusted to reflect the
advisory fee rates in effect for AIM Aggressive Growth Fund, the new proposed
advisory agreement under the reorganized fund. The advisory fees based on pro
forma combined assets for the year ended April 30, 2005 were $69,093,605.
Correspondingly, advisory fee waivers have been adjusted to reflect the
contractual agreement by the advisor to waive advisory fees for the period
January 1, 2005 through December 31, 2009 as part of its settlement with the
Attorney General of New York. The advisory fees will not exceed the following
annual rates applied to the average daily net assets of the Fund: 0.695% of the
first $250 million; 0.615% of the next $4 billion; 0.595% of the next $750
million; 0.57% of the next $2.5 billion; 0.545% of the next $2.5 billion and
0.52% of the excess over $10 billion.
NOTE 2 - PRO FORMA ADJUSTMENTS - (CONTINUED)
(b) Pursuant to the master administrative services agreement for AIM
Constellation Fund, fees paid on pro forma combined assets for the year ended
April 30, 2005 were $820,389. The administrative services fees were adjusted to
reflect the fees in effect under the administrative services agreement for the
AIM Constellation Fund.
(c) Pursuant to the terms of the master distribution agreement for Class A
shares of the AIM Constellation Fund, the Fund pays AIM Distributors, Inc. a fee
calculated at 0.30% of the average daily net assets of Class A shares. The Class
A distribution fees on the pro forma combined assets for the year ended April
30, 2005 were $27,652,364 after the reorganization of Class A shares of AIM
Aggressive Growth Fund and AIM Weingarten Fund into Class A shares of AIM
Constellation Fund. Effective July 1, 2005, the master distribution agreement
for Class A shares was permanently reduced to 0.25%.
(d) Transfer agency fees were restated to reflect the pro forma combined number
of open accounts under the terms of the transfer agency agreement of AIM
Constellation Fund. The effect of this restatement is to reduce transfer agency
fees on a pro forma basis by $1,910,178 for Class A, Class B, Class C and Class
R shares.
(e) Trustees' and Officer's fees and benefits were reduced by $25,390 to
eliminate the effects of duplicative fixed costs of retainer and meeting
expenses.
(f) Other expenses were reduced by $137,122 to eliminate the effects of
duplicative fixed costs of professional services fees and production of reports
to shareholders.
NOTE 3 - REORGANIZATION COSTS
AIM Aggressive Growth Fund and AIM Weingarten Fund are expected to incur an
estimated $2,450,000 in reorganization costs. These costs represent the non
recurring expenses of AIM Aggressive Growth Fund and AIM Weingarten Fund
carrying out their obligations under the Plans and consist of management's
estimate of professional services fees, printing costs and mailing charges
related to the proposed reorganization. The reorganization costs related to AIM
Aggressive Growth Fund are estimated to be $957,000 of which 75% will be paid by
AIM and 25% by the shareholders of AIM Aggressive Growth Fund. The
reorganization costs related to AIM Weingarten Fund are estimated to be
$1,493,000 of which 50% will be paid by AIM and 50% by the shareholders of AIM
Weingarten Fund. Accrued operating expenses and Undistributed net investment
income (loss) on the Pro Forma Statement of Assets and Liabilities have been
adjusted accordingly.
APPENDIX VI
PRO FORMA COMBINING SCHEDULE OF INVESTMENTS
OF AIM BLUE CHIP INTO AIM LARGE CAP GROWTH FUND
APRIL 30, 2005
(UNAUDITED)
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
COMMON STOCKS & OTHER EQUITY
INTERESTS--99.32%
AEROSPACE & DEFENSE--2.02%
- 142,000 142,000 Boeing Co. (The) $ - $ 8,451,840 $ 8,451,840
- 55,000 55,000 General Dynamics Corp. - 5,777,750 5,777,750
- 105,000 105,000 Precision Castparts Corp. - 7,734,300 7,734,300
- 170,000 170,000 Rockwell Collins, Inc. - 7,799,600 7,799,600
240,000 56,200 296,200 United Technologies Corp. 24,412,800 5,716,664 30,129,464
24,412,800 35,480,154 59,892,954
AIR FREIGHT & LOGISTICS--0.80%
225,000 55,000 280,000 FedEx Corp. 19,113,750 4,672,250 23,786,000
ALUMINUM--0.38%
385,000 - 385,000 Alcoa Inc. 11,172,700 - 11,172,700
APPAREL RETAIL--0.49%
- 170,000 170,000 Abercrombie & Fitch Co.-Class A - 9,171,500 9,171,500
- 210,000 210,000 Chico's FAS, Inc. (a)(b) - 5,382,300 5,382,300
- 14,553,800 14,553,800
APPAREL, ACCESSORIES & LUXURY
GOODS--0.18%
- 196,000 196,000 Coach, Inc. (a) - 5,252,800 5,252,800
APPLICATION SOFTWARE--1.14%
950,000 - 950,000 Amdocs Ltd. (a) 25,374,500 - 25,374,500
- 264,000 264,000 Autodesk, Inc. - 8,403,120 8,403,120
25,374,500 8,403,120 33,777,620
ASSET MANAGEMENT & CUSTODY
BANKS--0.52%
225,000 - 225,000 Franklin Resources, Inc. 15,453,000 - 15,453,000
BIOTECHNOLOGY--1.71%
475,000 - 475,000 Amgen Inc. (a) 27,649,750 - 27,649,750
325,000 - 325,000 Genentech, Inc. (a)(c) 23,055,500 - 23,055,500
50,705,250 - 50,705,250
COMMUNICATIONS
EQUIPMENT--3.17%
2,500,000 493,440 2,993,440 Cisco Systems, Inc. (a) 43,200,000 8,526,643 51,726,643
- 260,000 260,000 Motorola, Inc. - 3,988,400 3,988,400
1,100,000 - 1,100,000 QUALCOMM Inc. (b) 38,379,000 - 38,379,000
81,579,000 12,515,043 94,094,043
COMPUTER & ELECTRONICS
RETAIL--0.59%
350,000 - 350,000 Best Buy Co., Inc. 17,619,000 - 17,619,000
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
COMPUTER HARDWARE--3.55%
- 208,000 208,000 Apple Computer, Inc. (a) $ - $ 7,500,480 $ 7,500,480
1,250,000 896,600 2,146,600 Dell Inc. (a) 43,537,500 31,228,578 74,766,078
235,000 - 235,000 International Business 17,949,300 - 17,949,300
Machines Corp.
- 162,000 162,000 NCR Corp. (a) - 5,346,000 5,346,000
61,486,800 44,075,058 105,561,858
COMPUTER STORAGE &
PERIPHERALS--1.33%
2,600,000 - 2,600,000 EMC Corp. (a) 34,112,000 - 34,112,000
- 310,000 310,000 Seagate Technology (a) - 5,449,800 5,449,800
34,112,000 5,449,800 39,561,800
CONSTRUCTION & FARM MACHINERY
& HEAVY TRUCKS--0.18%
- 80,000 80,000 PACCAR Inc. - 5,432,000 5,432,000
CONSUMER FINANCE--2.45%
600,000 - 600,000 American Express Co. 31,620,000 - 31,620,000
465,000 401,000 866,000 SLM Corp. 22,152,600 19,103,640 41,256,240
53,772,600 19,103,640 72,876,240
DATA PROCESSING & OUTSOURCED
SERVICES--0.58%
400,000 - 400,000 Automatic Data Processing, 17,376,000 - 17,376,000
Inc.
DEPARTMENT STORES--1.76%
365,000 124,000 489,000 J.C. Penney Co., Inc. 17,304,650 5,878,840 23,183,490
350,000 223,000 573,000 Nordstrom, Inc. 17,790,500 11,335,090 29,125,590
35,095,150 17,213,930 52,309,080
DIVERSIFIED BANKS--2.24%
760,000 - 760,000 Bank of America Corp. 34,230,400 - 34,230,400
410,000 - 410,000 U.S. Bancorp 11,439,000 - 11,439,000
350,000 - 350,000 Wells Fargo & Co. 20,979,000 - 20,979,000
66,648,400 - 66,648,400
DIVERSIFIED CHEMICALS--0.73%
475,000 - 475,000 Dow Chemical Co. (The) 21,816,750 - 21,816,750
DIVERSIFIED COMMERCIAL
SERVICES--0.52%
770,000 - 770,000 Cendant Corp. 15,330,700 - 15,330,700
DIVERSIFIED METALS &
MINING--0.16%
- 95,000 95,000 Southern Peru Copper Corp. (b) - 4,858,300 4,858,300
ELECTRIC UTILITIES--0.77%
560,000 - 560,000 FPL Group, Inc. 22,859,200 - 22,859,200
ELECTRICAL COMPONENTS &
EQUIPMENT--1.00%
160,000 - 160,000 Cooper Industries, Ltd.-Class A 10,185,600 - 10,185,600
230,000 191,000 421,000 Rockwell Automation, Inc. 10,632,900 8,829,930 19,462,830
20,818,500 8,829,930 29,648,430
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
FERTILIZERS & AGRICULTURAL
CHEMICALS--0.40%
- 204,000 204,000 MONSANTO CO. $ - $ 11,958,480 $ 11,958,480
FOOTWEAR--1.38%
335,000 199,000 534,000 Nike, Inc.-Class B 25,731,350 15,285,190 41,016,540
HEALTH CARE EQUIPMENT--3.95%
175,000 100,000 275,000 Bard (C.R.), Inc. (b) 12,454,750 7,117,000 19,571,750
225,000 287,000 512,000 Becton, Dickinson & Co. 13,167,000 16,795,240 29,962,240
470,000 - 470,000 Medtronic, Inc. 24,769,000 - 24,769,000
350,000 - 350,000 Varian Medical Systems, Inc. (a) 11,809,000 - 11,809,000
375,000 - 375,000 Waters Corp. (a) 14,861,250 - 14,861,250
200,000 - 200,000 Zimmer Holdings, Inc. (a) 16,284,000 - 16,284,000
93,345,000 23,912,240 117,257,240
HEALTH CARE FACILITIES--1.04%
275,000 280,000 555,000 HCA Inc. (b) 15,356,000 15,635,200 30,991,200
HEALTH CARE SERVICES--0.96%
134,061 - 134,061 Express Scripts, Inc. (a) 12,017,228 - 12,017,228
- 125,000 125,000 Medco Health Solutions, Inc. (a) - 6,371,250 6,371,250
- 95,000 95,000 Quest Diagnostics Inc. - 10,051,000 10,051,000
12,017,228 16,422,250 28,439,478
HEALTH CARE SUPPLIES--0.70%
- 213,700 213,700 Alcon, Inc. (Switzerland) (a) - 20,728,900 20,728,900
HOME IMPROVEMENT RETAIL--1.58%
1,100,000 225,000 1,325,000 Home Depot, Inc. (The) 38,907,000 7,958,250 46,865,250
HOMEBUILDING--0.46%
- 240,000 240,000 D.R. Horton, Inc. (b) - 7,320,000 7,320,000
- 9,000 9,000 NVR, Inc. (a)(b) - 6,465,150 6,465,150
- 13,785,150 13,785,150
HOTELS, RESORTS & CRUISE
LINES--1.10%
315,000 - 315,000 Carnival Corp. (d) 15,397,200 - 15,397,200
- 81,000 81,000 Marriott International, - 5,082,750 5,082,750
Inc.-Class A
225,000 - 225,000 Starwood Hotels & Resorts (d) 12,226,500 - 12,226,500
Worldwide, Inc.
27,623,700 5,082,750 32,706,450
HOUSEHOLD PRODUCTS--2.64%
200,000 130,000 330,000 Clorox Co. (The) (b) 12,660,000 8,229,000 20,889,000
850,000 212,000 1,062,000 Procter & Gamble Co. (The) 46,027,500 11,479,800 57,507,300
58,687,500 19,708,800 78,396,300
HOUSEHOLD SPECIALTIES--1.00%
250,000 103,000 353,000 Fortune Brands, Inc. 21,145,000 8,711,740 29,856,740
HYPERMARKETS & SUPER
CENTERS--2.24%
400,000 140,000 540,000 Costco Wholesale Corp. (b) 16,232,000 5,681,200 21,913,200
950,000 - 950,000 Wal-Mart Stores, Inc. 44,783,000 - 44,783,000
61,015,000 5,681,200 66,696,200
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
INDUSTRIAL
CONGLOMERATES--3.95%
1,940,000 - 1,940,000 General Electric Co. $ 70,228,000 $ - $ 70,228,000
1,300,000 207,000 1,507,000 Tyco International Ltd. 40,703,000 6,481,170 47,184,170
110,931,000 6,481,170 117,412,170
INDUSTRIAL GASES--0.39%
200,000 - 200,000 Air Products & Chemicals, 11,746,000 - 11,746,000
Inc.
INDUSTRIAL MACHINERY--0.77%
453,000 - 453,000 Danaher Corp. 22,935,390 - 22,935,390
INTEGRATED OIL & GAS--4.23%
- 143,000 143,000 BP PLC-ADR (United Kingdom) - 8,708,700 8,708,700
- 221,000 221,000 Chevron Corp. - 11,492,000 11,492,000
- 149,000 149,000 ConocoPhillips - 15,622,650 15,622,650
1,575,000 - 1,575,000 Exxon Mobil Corp. 89,822,250 - 89,822,250
89,822,250 35,823,350 125,645,600
INTEGRATED TELECOMMUNICATION
SERVICES--0.58%
725,000 - 725,000 SBC Communications Inc. 17,255,000 - 17,255,000
INTERNET RETAIL--0.32%
300,000 - 300,000 eBay Inc. (a) 9,519,000 - 9,519,000
INTERNET SOFTWARE &
SERVICES--1.27%
575,000 200,000 775,000 VeriSign, Inc. (a) 15,214,500 5,292,000 20,506,500
500,000 - 500,000 Yahoo! Inc. (a) 17,255,000 - 17,255,000
32,469,500 5,292,000 37,761,500
INVESTMENT BANKING &
BROKERAGE--3.53%
- 71,000 71,000 Bear Stearns Cos. Inc. (The) - 6,720,860 6,720,860
400,000 106,000 506,000 Goldman Sachs Group, Inc. 42,716,000 11,319,740 54,035,740
(The)
- 130,000 130,000 Lehman Brothers Holdings Inc. - 11,923,600 11,923,600
600,000 - 600,000 Merrill Lynch & Co., Inc. 32,358,000 - 32,358,000
75,074,000 29,964,200 105,038,200
IT CONSULTING & OTHER
SERVICES--0.85%
750,000 409,000 1,159,000 Accenture Ltd.-Class A (a) 16,275,000 8,875,300 25,150,300
MANAGED HEALTH CARE--4.15%
- 248,000 248,000 Aetna Inc. - 18,195,760 18,195,760
475,000 267,000 742,000 UnitedHealth Group Inc. 44,892,250 25,234,170 70,126,420
200,000 75,000 275,000 WellPoint Inc. (a) 25,550,000 9,581,250 35,131,250
70,442,250 53,011,180 123,453,430
MOVIES & ENTERTAINMENT--0.78%
875,000 - 875,000 Walt Disney Co. (The) 23,100,000 - 23,100,000
MULTI-LINE INSURANCE--0.58%
616,400 - 616,400 Genworth Financial Inc.-Class 17,228,380 - 17,228,380
A
MULTI-UTILITIES & UNREGULATED
POWER--0.66%
260,000 - 260,000 Dominion Resources, Inc. 19,604,000 - 19,604,000
\
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
OIL & GAS DRILLING--0.92%
425,000 - 425,000 ENSCO International Inc. $ 13,855,000 $ - $ 13,855,000
400,000 - 400,000 GlobalSantaFe Corp. 13,440,000 - 13,440,000
27,295,000 - 27,295,000
OIL & GAS EQUIPMENT &
SERVICES--1.41%
325,000 - 325,000 BJ Services Co. 15,843,750 - 15,843,750
380,000 - 380,000 Schlumberger Ltd. 25,995,800 - 25,995,800
41,839,550 - 41,839,550
OIL & GAS EXPLORATION &
PRODUCTION--0.46
- 100,000 100,000 Apache Corp. - 5,629,000 5,629,000
- 175,000 175,000 Devon Energy Corp. - 7,904,750 7,904,750
- 13,533,750 13,533,750
OIL & GAS REFINING, MARKETING
& TRANSPORTATION--1.12%
255,000 229,000 484,000 Valero Energy Corp. 17,475,150 15,693,370 33,168,520
OTHER DIVERSIFIED FINANCIAL
SERVICES--3.19%
1,300,000 - 1,300,000 Citigroup Inc. 61,048,000 - 61,048,000
950,000 - 950,000 JPMorgan Chase & Co. 33,715,500 - 33,715,500
94,763,500 - 94,763,500
PACKAGED FOODS & MEATS--0.28%
- 130,000 130,000 Hershey Co. (The) - 8,307,000 8,307,000
PERSONAL PRODUCTS--1.83%
550,000 506,000 1,056,000 Gillette Co. (The) 28,402,000 26,129,840 54,531,840
PHARMACEUTICALS--6.91%
190,000 - 190,000 Allergan, Inc. 13,374,100 - 13,374,100
- 128,000 128,000 GlaxoSmithKline PLC-ADR - 6,470,400 6,470,400
(United Kingdom)
1,100,000 491,000 1,591,000 Johnson & Johnson 75,493,000 33,697,330 109,190,330
1,455,000 - 1,455,000 Pfizer Inc. 39,532,350 - 39,532,350
- 130,000 130,000 Sanofi-Aventis-ADR (France) - 5,768,100 5,768,100
- 203,000 203,000 Shire Pharmaceuticals Group (b) - 6,309,240 6,309,240
PLC-ADR (United Kingdom)
550,000 - 550,000 Wyeth 24,717,000 - 24,717,000
153,116,450 52,245,070 205,361,520
PROPERTY & CASUALTY
INSURANCE--1.02%
415,000 126,000 541,000 Allstate Corp. (The) 23,306,400 7,076,160 30,382,560
RAILROADS--1.10%
225,000 - 225,000 Burlington Northern Santa Fe 10,856,250 - 10,856,250
Corp.
290,000 - 290,000 Canadian National Railway Co. 16,590,900 - 16,590,900
(Canada)
- 170,000 170,000 Norfolk Southern Corp. - 5,338,000 5,338,000
27,447,150 5,338,000 32,785,150
RESTAURANTS--2.38%
- 265,000 265,000 Darden Restaurants, Inc. - 7,950,000 7,950,000
850,000 250,000 1,100,000 McDonald's Corp. 24,913,500 7,327,500 32,241,000
300,000 - 300,000 Starbucks Corp. (a) 14,856,000 - 14,856,000
- 337,000 337,000 Yum! Brands, Inc. - 15,825,520 15,825,520
39,769,500 31,103,020 70,872,520
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
SEMICONDUCTOR EQUIPMENT--0.56%
425,000 - 425,000 KLA-Tencor Corp. (b) $ 16,583,500 $ - $ 16,583,500
SEMICONDUCTORS--3.57%
475,000 - 475,000 Analog Devices, Inc. 16,202,250 - 16,202,250
1,535,000 149,000 1,684,000 Intel Corp. 36,103,200 3,504,480 39,607,680
450,000 - 450,000 Linear Technology Corp. 16,083,000 - 16,083,000
300,000 - 300,000 Microchip Technology Inc. 8,544,000 - 8,544,000
- 283,000 283,000 National Semiconductor Corp. - 5,399,640 5,399,640
750,000 - 750,000 Xilinx, Inc. (b) 20,205,000 - 20,205,000
97,137,450 8,904,120 106,041,570
SOFT DRINKS--0.83%
300,000 146,000 446,000 PepsiCo, Inc. 16,692,000 8,123,440 24,815,440
SPECIALTY STORES--1.30%
360,000 - 360,000 Bed Bath & Beyond Inc. (a) 13,395,600 - 13,395,600
525,000 796,000 1,321,000 Staples, Inc. 10,011,750 15,179,720 25,191,470
23,407,350 15,179,720 38,587,070
STEEL--0.79%
- 184,000 184,000 Nucor Corp. (b) - 9,402,400 9,402,400
225,000 102,000 327,000 United States Steel Corp. 9,621,000 4,361,520 13,982,520
9,621,000 13,763,920 23,384,920
SYSTEMS SOFTWARE--4.79%
- 239,000 239,000 Adobe Systems Inc. - 14,213,330 14,213,330
2,300,000 429,280 2,729,280 Microsoft Corp. 58,190,000 10,860,784 69,050,784
3,300,000 389,000 3,689,000 Oracle Corp. (a) 38,148,000 4,496,840 42,644,840
875,000 - 875,000 Symantec Corp. (a) 16,432,500 - 16,432,500
112,770,500 29,570,954 142,341,454
THRIFTS & MORTGAGE
FINANCE--0.47%
- 389,000 389,000 Countrywide Financial Corp. - 14,077,910 14,077,910
WIRELESS TELECOMMUNICATION
SERVICES--0.62%
700,000 - 700,000 Vodafone Group PLC-ADR 18,298,000 - 18,298,000
(United Kingdom)
TOTAL COMMON STOCKS & OTHER
EQUITY INTEREST (COST
$2,453,996,650) 2,212,900,148 739,203,449 2,952,103,597
MONEY MARKET FUNDS--0.65%
728,931 8,940,682 9,669,613 Liquid Assets (e) 728,931 8,940,682 9,669,613
Portfolio-Institutional Class
728,931 8,940,682 9,669,613 STIC Prime (e) 728,931 8,940,682 9,669,613
Portfolio-Institutional Class
Total Money Market Funds
(Cost $19,339,226) 1,457,862 17,881,364 19,339,226
TOTAL INVESTMENTS--99.98%
(EXCLUDING INVESTMENTS
PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED) (COST $2,473,335,876) 2,214,358,010 757,084,813 2,971,442,823
SHARES MARKET VALUE
- ------------------------------------- -----------------------------------------------
AIM AIM LARGE CAP AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA BLUE CHIP GROWTH PRO FORMA
FUND FUND COMBINING FUND FUND COMBINING
INVESTMENTS PURCHASED WITH
CASH COLLATERAL FROM
SECURITIES LOANED
MONEY MARKET FUNDS--2.06%
27,735,550 33,327,138 61,062,688 STIC Prime
Portfolio-Institutional Class (e)(f) $ 27,735,550 $ 33,327,138 $ 61,062,688
Total Money Market Funds
(purchased with cash
collateral from securities
loaned) (Cost $61,062,688) 27,735,550 33,327,138 61,062,688
TOTAL INVESTMENTS--102.03%
(Cost $2,534,398,564) 2,242,093,560 790,411,951 3,032,505,511
OTHER ASSETS LESS
LIABILITIES--(2.02%) (21,162,361) (38,818,675) (59,981,036)
ADJUSTMENTS--(0.01%) - - (350,000)
NET ASSETS--100.00% $ 2,220,931,199 $ 751,593,276 $ 2,972,174,475
Investment Abbreviations:
ADR American Depositary Receipt
Notes to Pro Forma Combining Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at April 30, 2005.
(c) A portion of this security is subject to call options written.
(d) Consists of more than one class of securities traded together as a
unit. In addition to the security listed, each unit includes common,
preferred or trust shares of the issuer.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor.
(f) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned.
See accompanying Notes to Pro Forma Combining Financial Statements which are an
integral part of the financial statements.
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES
OF AIM BLUE CHIP INTO AIM LARGE CAP GROWTH FUND
APRIL 30, 2005
(UNAUDITED)
AIM
AIM LARGE CAP
AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
--------------- --------------- ------------ ---------------
ASSETS:
Investments, at market value* $ 2,212,900,148 $ 739,203,449 $ -- $ 2,952,103,597
(cost $1,784,461,037 - AIM Blue Chip Fund)
(cost $669,535,613 - AIM Large Cap Growth Fund)
(cost $2,453,996,650 - Pro forma combination)
Investments in affiliated money market funds 29,193,412 51,208,502 -- 80,401,914
(cost $29,193,412 - AIM Blue Chip Fund)
(cost $51,208,502 - AIM Large Cap Growth Fund)
(cost $80,401,914 - Pro forma combination)
Total investments (cost $2,534,398,564) 2,242,093,560 790,411,951 3,032,505,511
Receivables for:
Investments sold 15,164,479 -- -- 15,164,479
Fund shares sold 1,042,706 1,098,975 -- 2,141,681
Dividends 2,212,152 708,237 -- 2,920,389
Investment for trustee deferred compensation and retirement
plans 132,704 157,296 -- 290,000
Other assets 80,139 103,576 -- 183,715
--------------- --------------- ------------ ---------------
Total assets 2,260,725,740 792,480,035 -- 3,053,205,775
=============== =============== ============ ===============
LIABILITIES:
PAYABLES FOR:
Investments purchased 1,375,000 5,587,618 -- 6,962,618
Fund shares reacquired 7,325,367 999,519 -- 8,324,886
Options written, at market value (premiums received $139,114) 232,500 -- -- 232,500
Trustee deferred compensation and retirement plans 279,087 201,036 -- 480,123
Collateral upon return of securities loaned 27,735,550 33,327,138 -- 61,062,688
Accrued distribution fees 1,203,930 247,691 -- 1,451,621
Accrued trustees' and officer's fees and benefits 4,909 2,315 -- 7,224
Accrued transfer agent fees 1,377,934 486,221 -- 1,864,155
Accrued operating expenses 260,264 35,221 350,000 645,485
Total liabilities 39,794,541 40,886,759 350,000 81,031,300
--------------- --------------- ------------ ---------------
Net assets applicable to shares outstanding $ 2,220,931,199 $ 751,593,276 $ (350,000) $ 2,972,174,475
=============== =============== ============ ===============
NET ASSETS CONSIST OF:
SHARES OF BENEFICIAL INTEREST 3,350,918,043 $ 2,297,925,258 -- 5,648,843,301
Undistributed net investment income 6,173,924 (88,320) (350,000) 5,735,604
Undistributed net realized gain (loss) from investment
securities and option contracts (1,564,506,493) (1,615,911,498) -- (3,180,417,991)
Unrealized appreciation of investment securities and
option contracts 428,345,725 69,667,836 -- 498,013,561
--------------- --------------- ------------ ---------------
$ 2,220,931,199 $ 751,593,276 $ (350,000) $ 2,972,174,475
--------------- --------------- ------------ ---------------
NET ASSETS:
Class A $ 1,084,894,105 $ 186,431,217 $ (170,970) $ 1,271,154,352
Class B $ 862,550,699 $ 105,857,250 $ (135,931) $ 968,272,018
Class C $ 179,232,106 $ 47,817,195 $ (28,245) $ 227,021,056
Class R $ 6,521,732 $ 2,131,582 $ (1,028) $ 8,652,286
Investor Class $ 27,844,659 $ 350,468,858 $ (4,388) $ 378,309,129
Institutional Class $ 59,887,898 $ 58,887,174 $ (9,438) $ 118,765,634
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM BLUE CHIP FUND):
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE
(AIM LARGE CAP GROWTH FUND):
Class A 98,831,301 20,166,877 117,423,887 137,590,764
Class B 82,968,000 11,921,117 97,154,422 109,075,539
Class C 17,240,922 5,382,267 20,188,890 25,571,157
Class R 596,503 231,509 707,790 939,299
Investor Class 2,530,825 37,721,028 2,996,199 40,717,227
Institutional Class 5,340,504 6,332,814 6,436,302 12,769,116
Class A:
Net asset value per share $ 10.98 $ 9.24 $ -- $ 9.24
Offering price per share:
(Net asset value of $10.98 / 94.50% - AIM Blue Chip Fund)
(Net asset value of $9.24 / 94.50% - AIM Large Cap
Growth Fund)
$ 11.62 $ 9.78 $ -- $ 9.78
Class B:
Net asset value and offering price per share $ 10.40 $ 8.88 $ -- $ 8.88
Class C:
Net asset value and offering price per share $ 10.40 $ 8.88 $ -- $ 8.88
Class R:
Net asset value and offering price per share $ 10.93 $ 9.21 $ -- $ 9.21
Investor Class:
Net asset value and offering price per share $ 11.00 $ 9.29 $ -- $ 9.29
Institutional Class:
Net asset value and offering price per share $ 11.21 $ 9.30 $ -- $ 9.30
=============== =============== ============ ===============
- -----
* At April 30, 2005, securities with an aggregate market value of
$26,790,416 were on loan to brokers - AIM Blue Chip Fund.
* At April 30, 2005, securities with an aggregate market value of
$32,769,431 were on loan to brokers - AIM Large Cap Growth Fund.
* At April 30, 2005, securities with an aggregate market value of
$59,559,847 were on loan to brokers - Pro forma combination.
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THE FINANCIAL STATEMENTS..
PRO FORMA COMBINING STATEMENT OF OPERATIONS
OF AIM BLUE CHIP INTO AIM LARGE CAP GROWTH FUND
FOR THE YEAR ENDED APRIL 30, 2005
(UNAUDITED)
AIM AIM LARGE CAP
AIM LARGE CAP GROWTH FUND
BLUE CHIP GROWTH PRO FORMA
FUND FUND ADJUSTMENTS COMBINING
------------- ------------- -------------- ----------------
Investment Income:
Dividends $ 45,129,256 $ 8,495,385 $ -- $ 53,624,641
(net of foreign withholding tax of $47,667 -
AIM Blue Chip Fund)
(net of foreign withholding tax of $4,858 -
AIM Large Cap Growth Fund)
(net of foreign withholding tax of $52,525 -
Pro forma combination)
Dividends from affiliated money market funds 351,013 256,454 -- 607,467
(includes security lending income of $14,693 after rebates
of $237,999 - AIM Blue Chip Fund)
(includes security lending income of $19,610 after rebates
of $244,138 - AIM Large Cap Growth Fund)
(includes security lending income of $34,303 after rebates
of $482,137 - Pro forma combination)
Interest 8,471 -- -- 8,471
------------- ------------- ------------- -------------
Total investment income 45,488,740 8,751,839 -- 54,240,579
============= ============= ============= =============
EXPENSES:
Advisory fees 16,746,410 5,735,227 (955,871) 21,525,766
Administrative services fees 539,225 225,880 (163,882) 601,223
Custodian fees 208,716 62,618 -- 271,334
Distribution fees:
Class A 4,435,054 643,305 -- 5,078,359
Class B 10,445,402 1,162,198 -- 11,607,600
Class C 2,257,571 504,701 -- 2,762,272
Class R 31,265 13,716 -- 44,981
Investor Class 80,859 814,645 (42,177) 853,327
Transfer agent fees - Class A, B, C, R & Investor 9,990,406 2,547,847 (139,805) 12,398,448
Transfer agent fees - Institutional Class 2,957 9,609 -- 12,566
Trustees' and officer's fees and benefits 94,789 36,307 (12,695) 118,401
Other 1,310,332 540,646 (92,117) 1,758,861
Total expenses 46,142,986 12,296,699 (1,406,547) 57,033,138
Less: Fee waived, expenses reimbursed and expense offset arrangement (420,901) (410,844) 138,968 (692,778)
Net expenses 45,722,085 11,885,855 (1,267,580) 56,340,360
------------- ------------- ------------- -------------
Net investment income (loss) (233,345) (3,134,016) 1,267,580 (2,099,781)
============= ============= ============= =============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
OPTION CONTRACTS AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 183,846,710 46,733,049 -- 230,579,759
(includes gains (losses) from securities sold to affiliates
of $(21,024) - AIM Blue Chip Fund)
(includes gains from securities sold to affiliates
of $304,187 - AIM Large Cap Growth Fund)
(includes gains from securities sold to affiliates
of $283,163 - Pro forma combination)
Option contracts written 1,315,993 -- -- 1,315,993
Future contracts 121,194 -- -- 121,194
185,283,897 46,733,049 -- 232,016,946
Change in net unrealized appreciation (depreciation) of:
Investment securities (180,718,634) (35,464,972) -- (216,183,606)
Option contracts written (93,386) -- -- (93,386)
(180,812,020) (35,464,972) -- (216,276,992)
Net gain (loss) from investment securities, option contracts and
future contracts 4,471,877 11,268,077 -- 15,739,954
------------- ------------- ------------- -------------
Net increase (decrease) in net assets resulting from operations $ 4,238,532 $ 8,134,061 $ 1,267,580 $ 13,640,173
============= ============= ============= =============
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THE FINANCIAL STATEMENTS..
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
OF AIM BLUE CHIP FUND INTO AIM LARGE CAP GROWTH FUND
APRIL 30, 2005
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed Agreement and Plan of Reorganization
(the "Agreement and Plan") between AIM Large Cap Growth Fund and AIM Blue Chip
Fund and the consummation of the transactions contemplated therein to be
accounted for as a tax-free reorganization of investment companies. The
Agreement and Plan would be accomplished by an exchange of shares of AIM Large
Cap Growth Fund for the net assets of AIM Blue Chip Fund and the distribution of
AIM Large Cap Growth Fund shares to AIM Blue Chip Fund shareholders. If the
Agreement and Plan were to have taken place at April 30, 2005, AIM Blue Chip
Fund - Class A shareholders would have received 117,423,887 shares of AIM Large
Cap Growth Fund - Class A shares, AIM Blue Chip Fund - Class B shareholders
would have received 97,154,422 shares of AIM Large Cap Growth Fund - Class B
shares, AIM Blue Chip Fund - Class C shareholders would have received 20,188,890
shares of AIM Large Cap Growth Fund - Class C shares, AIM Blue Chip Fund - Class
R shareholders would have received 707,790 shares of AIM Large Cap Growth Fund -
Class R shares, AIM Blue Chip - Investor Class shareholders would have received
2,996,199 shares of AIM Large Cap Growth Fund - Investor Class shares and AIM
Blue Chip - Institutional Class Shareholders would have received 6,436,302
shares of AIM Large Cap Growth Fund - Institutional Class Shares.
The preparation of pro forma combined 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 pro forma combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Certain expense have been adjusted to reflect the expected
expenses of the combined entity. The merger adjustments represent those
adjustments needed to present the results of operations of the pro forma
combined AIM Large Cap Growth Fund as if the merger had taken effect on April
30, 2005. Actual results could differ from those estimates.
The pro forma financial statements should be read in conjunction with the
historical financial statements of AIM Blue Chip Fund and AIM Large Cap Growth
Fund.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Upon the closing date of the merger transaction of AIM Blue Chip Fund, the
advisory fee payable by AIM Large Cap Growth Fund will be permanently
changed to 0.75% of the first $350 million, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. Under the terms of the
investment advisory agreement of AIM Blue Chip Fund, the advisory fees
based on pro forma combined assets for the year ended April 30, 2005 were
$21,525,766. The advisory fees were adjusted to reflect the advisory fee
rates in effect for AIM Blue Chip Fund, the new proposed advisory
agreement under the reorganized Fund. Correspondingly, the pro forma
combined advisory fees have been adjusted to reflect the fee waivers by
the advisor in effect for AIM Large Cap Growth Fund for the period January
1, 2005 through December 31, 2009 as part of its settlement with the
Attorney General of New York. The advisory fees will not exceed the
following annual rates applied to the average daily net assets of the
Fund: 0.695% of the first $250 million; 0.67% of the next $250 million;
0.645% of the next $500 million; 0.62% of the next $1.5 billion; 0.595% of
the next $2.5 billion; 0.57% of the next $2.5 billion; 0.545% of the next
$2.5 billion and 0.52% of the excess over $10 billion.
(b) Pursuant to the master administrative services agreement for AIM Large Cap
Growth Fund, fees paid on pro forma combined assets for the year ended
April 30, 2005 were $601,223. The administrative
NOTE 2 - PRO FORMA ADJUSTMENTS - (CONTINUED)
services fees were adjusted to reflect the fees in effect under the
administrative services agreement for the AIM Large Cap Growth Fund.
(c) Pursuant to the terms of the master distribution agreement for Class A
shares of the AIM Large Cap Growth Fund, the Fund pays AIM Distributors,
Inc. a fee calculated at 0.35% of the average daily net assets of Class A
shares. The Class A distribution fees on the pro forma combined assets for
the year
(d) ended April 30, 2005 were $5,078,359 after the reorganization of Class A
shares of AIM Blue Chip Fund into Class A shares of AIM Large Cap Growth
Fund. The distribution fees were adjusted to reflect the distribution rate
paid in accordance with AIM Large Cap Growth Fund's Class A distribution
agreement. The Fund, pursuant to the Investor Class Plan, pays AIM
Distributors, Inc. for its allocated share of expenses incurred for the
period, up to a maximum annual rate of 0.25% of average daily net assets
of the Investor Class shares. The distribution fees were adjusted to
include the allocated share of expenses of the AIM Blue Chip Investor
Class shares. Effective July 1, 2005, the master distribution agreement
for Class A shares was permanently reduced to 0.25%.
(e) Transfer agency fees were restated to reflect the pro forma combined
number of open accounts under the terms of the transfer agency agreement
of AIM Large Cap Growth Fund. The effect of this restatement is to reduce
transfer agency fees on a pro forma basis by $139,805 for Class A, Class
B, Class C, Class R and Investor Class shares.
(f) Trustees' and Officer's fees and benefits were reduced by $12,695 to
eliminate the effects of duplicative fixed costs of retainer and meeting
expenses.
(g) Other expenses were reduced by $92,117 to eliminate the effects of
duplicative fixed costs of production of reports to shareholders and
professional service fees.
NOTE 3 - MERGER COSTS
AIM Blue Chip Fund is expected to incur an estimated $1,398,000 in
reorganization costs. These costs represent the estimated non recurring expense
of AIM Blue Chip Fund carrying out their obligations under the Plans and consist
of management's estimate of professional services fees, printing costs and
mailing charges related to the proposed reorganizations. The reorganization
costs related to AIM Blue Chip Fund are estimated to be $1,398,000 and 25% of
these costs will be paid by the shareholders of AIM Blue Chip Fund and the
remaining 75% will be paid by AIM. Accrued operating expenses and Undistributed
net investment income on the Pro Forma Statement of Assets & Liabilities have
been adjusted accordingly.
PART C
OTHER INFORMATION
Item 15. Indemnification
Indemnification provisions for officers, directors, and
employees of the Registrant are set forth in Article
VIII of the Registrant's Agreement and Declaration of
Trust and Article VIII of its Bylaws, and are hereby
incorporated by reference. See Item 16(1) and (2)
below. Under the Agreement and Declaration of Trust
dated July 29, 2003, (i) Trustees or officers, when
acting in such capacity, shall not be personally liable
for any act, omission or obligation of the Registrant
or any Trustee or officer except by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office with the Trust; (ii) every Trustee, officer,
employee or agent of the Registrant shall be
indemnified to the fullest extent permitted under the
Delaware Statutory Trust act, the Registrant's Bylaws
and other applicable law; (iii) in case any shareholder
or former shareholder of the Registrant shall be held
to be personally liable solely by reason of his being
or having been a shareholder of the Registrant or any
portfolio or class and not because of his acts or
omissions or for some other reason, the shareholder or
former shareholder (or his heirs, executors,
administrators or other legal representatives, or, in
the case of a corporation or other entity, its
corporate or general successor) shall be entitled, out
of the assets belonging to the applicable portfolio (or
allocable to the applicable class), to be held harmless
from and indemnified against all loss and expense
arising from such liability in accordance with the
Bylaws and applicable law. The Registrant, on behalf of
the affected portfolio (or class), shall upon request
by the shareholder, assume the defense of any such
claim made against the shareholder for any act or
obligation of that portfolio (or class). The
Registrant, A I M Advisors, Inc. ("AIM") and other
investment companies managed by AIM, their respective
officers, trustees, directors and employees are insured
under a joint Mutual Fund and Investment Advisory
Professional and Directors and Officers Liability
Policy also maintains liability insurance policies
covering its directors and officers.
A I M Advisors, Inc. ("AIM"), the Registrant and other
investment companies managed by AIM, their respective
officers, trustees, directors and employees (the
"Insured Parties") are insured under a joint Mutual
Fund & Investment Advisory Professional and Directors &
Officers Liability Policy, issued by ICI Mutual
Insurance Company and certain other domestic insurers,
with limits up to $60,000,000 (plus an additional
$20,000,000 limit that applies to independent
directors/trustees only).
Section 16 of the Master Investment Advisory Agreement
between the Registrant and AIM provides that in the
absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or
duties hereunder on the part of AIM or any of its
officers, directors or employees, that AIM shall not be
subject to liability to the Registrant or to any series
of the Registrant, or to any shareholder of any series
of the Registrant for any act or omission in the course
of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase,
holding or sale of any security. Any liability of AIM
to any series of the Registrant shall not automatically
impart liability on the part of AIM to any other series
of the Registrant. No series of the Registrant shall be
liable for the obligations of any other series of the
Registrant.
C-1
Section 10 of the Sub-Advisory Agreement between AIM
and A I M Capital Management Inc. and Section 11 of the
Sub-Advisory Agreement between AIM and H.S. Dent
Advisors, Inc., (collectively, the "Sub-Advisory
Agreements") provide that the Sub-advisors shall not be
liable for any costs or liabilities arising from any
error of judgment or mistake of law or any loss
suffered by any series of the Registrant or the
Registrant in connection with the matters to which the
Sub-Advisory Agreements relate except a loss resulting
from willful misfeasance, bad faith or gross negligence
on the part of the Sub-advisors in the performance by
the Sub-advisors of their duties or from reckless
disregard by the Sub-advisors of their obligations and
duties under the Sub-Advisory Agreements.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such trustees, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act
will be governed by the final adjudication of such
issue.
Item 16. Exhibits
1 - Amended and Restated Agreement and Declaration of Trust of Registrant, dated September 14,
2005 is filed herewith.
2 - Amended and Restated By-Laws of Registrant, adopted effective September 14, 2005 is
filed herewith.
3 - Voting Trust Agreements -- None.
4 - (a) Form of Plan of Reorganization of Registrant on behalf of AIM Aggressive Growth
Fund and AIM Constellation Fund is attached as Appendix I to the Combined Proxy
Statement Prospectus relating to AIM Aggressive Growth Fund contained in this
Registration Statement.
- (b) Form of Plan of Reorganization of Registrant on behalf of AIM Weingarten Fund
and AIM Constellation Fund is attached as Appendix I to the Combined Proxy Statement
Prospectus relating to AIM Weingarten Fund contained in this Registration Statement.
- (c) Form of Plan of Reorganization of Registrant on behalf of AIM Blue Chip Fund and
AIM Large Cap Growth is attached as Appendix I to the Combined Proxy Statement
Prospectus relating to AIM Blue Chip Fund contained in this Registration Statement.
C-2
- (d) Form of Agreement and Plan of Reorganization by and among the Registrant on
behalf of AIM Charter Fund, AIM Funds Group on behalf of AIM Premier Equity Fund and
A I M Advisors, Inc., is attached as Appendix I to the Combined Proxy Statement
Prospectus relating to AIM Premier Equity Fund contained in this Registration
Statement.
5 - Articles II, VI, VII, VIII and IX of the Amended and Restated Agreement Declaration of
Trust, as amended, and Articles IV, V and VI of the Amended and Restated By-Laws define
rights of holders of shares.
6 (a) - (a) Master Investment Advisory Agreement, dated June 21, 2000, between Registrant and
A I M Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 67 on
Form N-1A, filed on February 23, 2001.
- (b) Amendment No. 1, dated December 28, 2001, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 71 on Form N-1A, filed on April 26, 2002.
- (c) Amendment No. 2, dated August 29, 2002, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No.75 on Form N-1A, filed on February 24, 2003.
- (d) Amendment No. 3, dated May 2, 2003, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A, filed on July 7, 2003.
- (e) Amendment No. 4, dated July 1, 2004, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 80 on Form N-1A, filed on September 29, 2004.
- (f) Amendment No. 5, dated September 15, 2004, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 80 on Form N-1A, filed on September 29, 2004.
- (g) Amendment No. 6, dated March 15, 2005, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
- (h) Amendment No. 7, dated July 18, 2005, to Master Investment Advisory Agreement,
dated June 21, 2000, between Registrant and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
7 (a) - (a) Amended and Restated Master Distribution Agreement, dated as of August 18, 2003,
between Registrant (all classes of shares except Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
C-3
- (b) Amendment No. 1 to the Amended and Restated Master Distribution Agreement, dated as
of October 29, 2003, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
78 on Form N-1A, filed on February 24, 2004.
- (c) Amendment No. 2 to the Amended and Restated Master Distribution Agreement, dated as
of November 4, 2003, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
78 on Form N-1A, filed on February 24, 2004.
- (d) Amendment No. 3 to the Amended and Restated Master Distribution Agreement, dated as
of November 20, 2003, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
78 on Form N-1A, filed on February 24, 2004.
- (e) Amendment No. 4 to the Amended and Restated Master Distribution Agreement, dated as
of November 24, 2003, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
78 on Form N-1A, filed on February 24, 2004.
- (f) Amendment No. 5 to the Amended and Restated Master Distribution Agreement, dated as
of November 25, 2003, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
78 on Form N-1A, filed on February 24, 2004.
- (g) Amendment No. 6 to the Amended and Restated Master Distribution Agreement, dated as
of January 6, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
80 on Form N-1A, filed on September 29, 2004.
- (h) Amendment No. 7 to the Amended and Restated Master Distribution Agreement dated as
of March 31, 2004, between Registrant (all classes of shares except Class B Shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 80 on
Form N-1A, filed on September 29, 2004.
- (i) Amendment No. 8 to the Amended and Restated Master Distribution Agreement, dated as
of April 30, 2004, between Registrant (all classes of shares except Class B Shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 80 on
Form N-1A, filed on September 29, 2004.
- (j) Amendment No. 9 to the Amended and Restated Master Distribution Agreement, dated as
of September 14, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
80 on Form N-1A, filed on September 29, 2004.
C-4
- (k) Amendment No. 10 to the Amended and Restated Master Distribution Agreement, dated as
of September 15, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
81 on Form N-1A, filed on December 23, 2004.
- (l) Amendment No. 11 to the Amended and Restated Master Distribution Agreement, dated as
of October 15, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
81 on Form N-1A, filed on December 23, 2004.
- (m) Amendment No. 12 to the Amended and Restated Master Distribution Agreement, dated as
of November 30, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
81 on Form N-1A, filed on December 23, 2004.
- (n) Amendment No. 13 to the Amended and Restated Master Distribution Agreement, dated as
of December 30, 2004, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
82 on Form N-1A, filed on February 25, 2005.
- (o) Amendment No. 14 to the Amended and Restated Master Distribution Agreement, dated as
of February 23, 2005, between Registrant (all classes of shares except Class B Shares)
and A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No.
83 on Form N-1A, filed on March 1, 2005.
- (p) Amendment No. 15 to the Amended and Restated Master Distribution Agreement, dated
March 15, 2005, between Registrant (all classes of shares except Class B Shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 83 on
Form N-1A, filed on March 1, 2005.
- (q) Amendment No. 16 to the Amended and Restated Master Distribution Agreement dated
April 25, 2005, between Registrant (all classes of shares except Class B shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on
Form N-1A, filed on August 23, 2005.
- (r) Amendment No. 17 to the Amended and Restated Master Distribution Agreement dated
July 13, 2005, between Registrant (all classes of shares except Class B shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on
Form N-1A, filed on August 23, 2005.
- (s) Amendment No. 18 to the Amended and Restated Master Distribution Agreement dated
July 18, 2005, between Registrant (all classes of shares except Class B shares) and
A I M Distributors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on
Form N-1A, filed on August 23, 2005.
- (t) Form of Amendment No. 19 to the Amended and Restated Master Distribution Agreement
dated October 22, 2005, between Registrant (all classes of shares except Class B
shares) and A I M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 85 on Form N-1A, filed on August 23, 2005.
C-5
- (u) Form of Amendment No. 20 to the Amended and Restated Master Distribution Agreement
dated October 25, 2005, between Registrant (all classes of shares except Class B
shares) and A I M Distributors, Inc. incorporated herein by reference to Registrant's
PEA No. 85 on Form N-1A, filed on August 23, 2005.
(b) - (a) Amended and Restated Master Distribution Agreement, dated as of August 18, 2003,
between Registrant (Class B Shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A, filed on February 24, 2004.
- (b) Amendment No. 1 to the Amended and Restated Master Distribution Agreement, dated
as of October 1, 2003, between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (c) Amendment No. 2 to the Amended and Restated Master Distribution Agreement, dated
as of October 29, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (d) Amendment No. 3 to the Amended and Restated Master Distribution Agreement, dated
as of November 3, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (e) Amendment No. 4 to the Amended and Restated Master Distribution Agreement, dated
as of November 4, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (f) Amendment No. 5 to the Amended and Restated Master Distribution Agreement, dated
as of November 20, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (g) Amendment No. 6 to the Amended and Restated Master Distribution Agreement, dated
as of November 24, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (h) Amendment No. 7 to the Amended and Restated Master Distribution Agreement, dated
as of November 25, 2003, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (i) Amendment No. 8 to the Amended and Restated Master Distribution Agreement, dated as
of March 31, 2004, between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (j) Amendment No. 9 to the Amended and Restated Master Distribution Agreement, dated
as of April 30, 2004, between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
C-6
- (k) Amendment No. 10 to the Amended and Restated Master Distribution Agreement, dated
as of September 15, 2004, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (l) Amendment No. 11 to the Amended and Restated Master Distribution Agreement, dated
as of October 15, 2004, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (m) Amendment No. 12 to the Amended and Restated Master Distribution Agreement, dated
as of December 30, 2004, between Registrant (Class B Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's PEA No. 82 on Form N-1A, filed on
February 25, 2005.
- (n) Amendment No. 13 to the Amended and Restated Master Distribution Agreement, dated
as of March 15, 2005, between Registrant (Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (o) Amendment No. 14 to the Amended and Restated Master Distribution Agreement, dated
as of April 29, 2005, between Registrant (Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (p) Amendment No. 15 to the Amended and Restated Master Distribution Agreement, dated
July 18, 2005, between Registrant (Class B shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
(c) - Form of Selected Dealer Agreement between A I M Distributors, Inc. and selected dealers
incorporated herein by reference to Registrant's PEA No. 68 on Form N-1A, filed on
October 12, 2001.
(d) - Form of Bank Selling Group Agreement between A I M Distributors, Inc. and banks
incorporated herein by reference to Registrant's PEA No. 55 on Form N-1A, filed on
December 11, 1998.
8 (a) - Form of AIM Funds Retirement Plan for Eligible Directors/Trustees, as restated October
1, 2001incorporated herein by reference to Registrant's PEA No. 70 on Form N-1A, filed
on December 28, 2001.
(b) - Form of AIM Funds Director Deferred Compensation Agreement as amended March 7, 2000,
September 28, 2001, and September 26, 2002 incorporated herein by reference to
Registrant's PEA No. 75 on Form N-1A, filed on February 24, 2003.
9 (a) - (a) Master Custodian Contract, dated May 1, 2000, between Registrant and State Street
Bank and Trust Company incorporated herein by reference to Registrant's PEA No. 67 on
Form N-1A, filed on February 23, 2001.
C-7
- (b) Amendment, dated May 1, 2000 to the Custodian Contract, dated May 1, 2000, between
Registrant and State Street Bank and Trust Company incorporated herein by reference to
Registrant's PEA No. 67 on Form N-1A, filed on February 23, 2001.
- (c) Amendment, dated June 29, 2001, to the Master Custodian Contract, dated May 1, 2000,
between Registrant and State Street Bank and Trust Company incorporated herein by
reference to Registrant's PEA No. 70 on Form N-1A, filed on December 28, 2001.
- (d) Amendment, dated April 2, 2002, to the Custodian Contract dated May 1, 2002 between
Registrant and State Street Bank and Trust Company incorporated herein by reference to
Registrant's PEA No. 72 on Form N-1A, filed on May 22, 2002.
- (e) Amendment, dated September 8, 2004, to the Custodian Contract dated May 1, 2002
between Registrant and State Street Bank and Trust Company incorporated herein by
reference to Registrant's PEA No. 81 on Form N-1A, filed on December 23, 2004.
(b) - (a) Subcustodian Agreement, dated September 9, 1994, between Registrant, Texas
Commerce Bank National Association, State Street Bank and Trust Company and A I M Fund
Services, Inc. (now known as AIM Investment Services, Inc.) incorporated herein by
reference to Registrant's PEA No. 44 on Form N-1A, filed on February 24, 1995.
- (b) Amendment No. 1, dated October 2, 1998, to Subcustodian Agreement between
Registrant, Chase Bank of Texas, N.A. (formerly Texas Commerce Bank), State Street and
Trust Company and A I M Fund Services, Inc. (now known as AIM Investment Services,
Inc.)incorporated herein by reference to Registrant's PEA No. 62 on Form N-1A, filed on
January 6, 2000.
- (c) Amendment No. 2, dated March 15, 2002, to the Subcustodian Agreement, dated
September 9, 1994, as amended October 2, 1998 among JPMorgan Chase Bank (formerly known
as Chase Bank of Texas, N.A.), State Street Bank and Trust Company and A I M Fund
Services, Inc. (now known as AIM Investment Services, Inc.)incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A, filed on March 3, 2003.
(c) - Subcustodian Agreement, dated January 20, 1993, between State Street Bank and Trust
Company and The Bank of New York incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on February 24, 2004.
(d) - Foreign Assets Delegation Agreement, dated May 31, 2002, between A I M Advisors, Inc.
and Registrant incorporated herein by reference to Registrant's PEA No. 70 on Form
N-1A, filed on December 28, 2001
10(a) - (a) Amended and Restated Master Distribution Plan dated as of August 18, 2003,
between Registrant (Class A Shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A, filed on February 24, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
C-8
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 82 on Form N-1A, filed on
February 25, 2005.
- (l) Amendment No. 11, dated January 1, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 82 on Form N-1A, filed on
February 25, 2005.
- (m) Amendment No. 12, dated March 15, 2005, to the Amended and Restated Master
Distribution Plan, between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
C-9
- (n) Amendment No. 13, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan, between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (o) Amendment No. 14, dated July 1, 2005, to the Amended and Restated Master
Distribution Plan, between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (p) Amendment No. 15, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan, between Registrant (Class A Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
(b) - (a) Amended and Restated Master Distribution Plan dated as of August 18, 2003,
between Registrant (Class B Shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A, filed on February 24, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
C-10
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 82 on Form N-1A, filed on
February 25, 2005.
- (l) Amendment No. 11, dated March 15, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (m) Amendment No. 12, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (n) Amendment No. 13, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class B Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
(c) - (a) Amended and Restated Master Distribution Plan dated as of August 18, 2003,
between Registrant (Class C Shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A, filed on February 24, 2004.
- (b) Amendment No. 1, dated October 29, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (c) Amendment No. 2, dated November 4, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (d) Amendment No. 3, dated November 20, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (e) Amendment No. 4, dated November 24, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
C-11
- (f) Amendment No. 5, dated November 25, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (g) Amendment No. 6, dated March 31, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (h) Amendment No. 7, dated April 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (i) Amendment No. 8, dated September 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (j) Amendment No. 9, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (k) Amendment No. 10, dated December 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 82 on Form N-1A, filed on
February 25, 2005.
- (l) Amendment No. 11, dated March 15, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (m) Amendment No. 12, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (n) Amendment No. 13, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class C Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
(d) - (a) Amended and Restated Master Distribution Plan dated as of August 18, 2003,
between Registrant (Class R Shares) and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A, filed on February 24, 2004.
- (b) Amendment No. 1, dated November 4, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
C-12
- (c) Amendment No. 2, dated November 24, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (d) Amendment No. 3, dated November 25, 2003, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 78 on Form N-1A, filed on
February 24, 2004.
- (e) Amendment No. 4, dated April 30, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (f) Amendment No. 5, dated September 14, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (g) Amendment No. 6, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 81 on Form N-1A, filed on
December 23, 2004.
- (h) Amendment No. 7, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
- (i) Amendment No. 8, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan between Registrant (Class R Shares) and A I M Distribution, Inc.
incorporated herein by reference to Registrant's PEA No. 85 on Form N-1A, filed on
August 23, 2005.
(e) - (a) Amended and Restated Master Distribution Plan (Compensation) between Registrant
(Investor Class Shares) and A I M Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (b) Amendment No. 1, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan (Compensation) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 81 on Form N-1A, filed on December 23, 2004.
- (c) Amendment No. 2, dated November 30, 2004, to the Amended and Restated Master
Distribution Plan (Compensation) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 81 on Form N-1A, filed on December 23, 2004.
C-13
- (d) Amendment No. 3, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan (Compensation) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
- (e) Amendment No. 4, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan (Compensation) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
(f) - (a) Amended and Restated Master Distribution Plan (Reimbursement) between Registrant
(Investor Class Shares) and A I M Distributors, Inc., effective July 1,
2004incorporated herein by reference to Registrant's PEA No. 80 on Form N-1A, filed on
September 29, 2004.
- (b) Amendment No. 1, dated October 15, 2004, to the Amended and Restated Master
Distribution Plan (Reimbursement) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 81 on Form N-1A, filed on December 23, 2004.
- (c) Amendment No. 2, dated April 29, 2005, to the Amended and Restated Master
Distribution Plan (Reimbursement) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 83 on Form N-1A, filed on March 1, 2005.
- (d) Amendment No. 3, dated July 18, 2005, to the Amended and Restated Master
Distribution Plan (Reimbursement) between Registrant (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004incorporated herein by reference to
Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
(g) - Form of Master Related Agreement to Amended and Restated Master Distribution Plan
(Class A Shares) incorporated herein by reference to Registrant's PEA No. 85 on Form
N-1A, filed on August 23, 2005.
(h) - Form of Master Related Agreement to Amended and Restated Master Distribution Plan
(Class C Shares)incorporated herein by reference to Registrant's PEA No. 78 on Form
N-1A, filed on February 24, 2004.
(i) - Form of Master Related Agreement to Amended and Restated Master Distribution Plan
(Class R Shares)incorporated herein by reference to Registrant's PEA No. 78 on Form
N-1A, filed on February 24, 2004.
(j) - Form of Master Related Agreement to Amended and Restated Master Distribution Plan
(Compensation) (Investor Class Shares)incorporated herein by reference to Registrant's
PEA No. 80 on Form N-1A, filed on September 29, 2004.
C-14
(k) - Form of Master Related Agreement to Amended and Restated Master Distribution Plan
(Reimbursement) (Investor Class Shares)incorporated herein by reference to Registrant's
PEA No. 80 on Form N-1A, filed on September 29, 2004.
(l) - Eighth Amended and Restated Multiple Class Plan of The AIM Family of Funds(R) effective
December 12, 2001 as amended and restated August 4, 2005incorporated herein by
reference to Registrant's PEA No. 85 on Form N-1A, filed on August 23, 2005.
13(a) - Transfer Agency and Service Agreement, dated July 1, 2004, between Registrant and AIM
Investment Services, Inc. incorporated herein by reference to Registrant's PEA No. 80
on Form N-1A, filed on September 29, 2004.
(b) - Shareholder Sub-Accounting Services Agreement between Registrant, First Data Investor
Services Group (formerly The Shareholder Services Group, Inc.), Financial Data Services
Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc., dated October 1, 1993incorporated
herein by reference to Registrant's PEA No. 40 on Form N-1A, filed on February 26, 1992.
(c) - (a) Amended and Restated Master Administrative Services Agreement, dated July 1,
2004, between Registrant and A I M Advisors, Inc. incorporated herein by reference to
Registrant's PEA No. 81 on Form N-1A, filed on December 23, 2004.
- (b) Amendment No. 1 dated September 15, 2004, to the Amended and Restated Master
Administrative Services Agreement dated July 1, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 81 on Form
N-1A, filed on December 23, 2004.
- (c) Amendment No. 2 dated December 2, 2004, to the Amended and Restated Master
Administrative Services Agreement dated July 1, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 81 on Form
N-1A, filed on December 23, 2004.
- (d) Amendment No. 3 dated March 15, 2005, to the Amended and Restated Master
Administrative Services Agreement dated July 1, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on Form
N-1A, filed on August 23, 2005.
- (e) Amendment No. 4 dated July 18, 2005, to the Amended and Restated Master
Administrative Services Agreement dated July 1, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on Form
N-1A, filed on August 23, 2005.
(d) - Memorandum of Agreement, regarding securities lending, dated October 29, 2003, between
Registrant, on behalf of all Funds, and A I M Advisors, Inc. incorporated herein by
reference to Registrant's PEA No. 80 on Form N-1A, filed on September 29, 2004.
(e) - Memorandum of Agreement, dated July 1, 2005, between Registrant, on behalf of AIM
Diversified Dividend Fund, AIM Large Cap Basic Value Fund, AIM Large Cap Growth Fund,
and A I M Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 82 on
Form N-1A, filed on February 25, 2005.
C-15
(f) - Memorandum of Agreement, dated May 5, 2005, between Registrant, on behalf of each Fund,
and A I M Advisors, Inc. incorporated herein by reference to Registrant's PEA No. 85 on
Form N-1A, filed on August 23, 2005.
(g) - Second Amended and Restated Interfund Loan Agreement, dated April 30, 2004, between
Registrant and A I M Advisors, Inc. incorporated herein by reference to Registrant's
PEA No. 82 on Form N-1A, filed on February 25, 2005.
(h) - Expense Reimbursement Agreement Related to DST Transfer Agent System Conversion dated
June 30, 2003incorporated herein by reference to Registrant's PEA No. 79 on Form N-1A,
filed on March 1, 2004.
14(a) - Consent of Ernst & Young, LLP is filed herewith.
(b) - Consent of PricewaterhouseCoopers LLP is filed herewith.
15 - Omitted Financial Statements -- None.
16 - Powers of Attorney for Baker, Bayley, Bunch, Crockett, Dowden, Dunn, Fields,
Frischling, Graham, Lewis, Mathai-Davis, Pennock, Quigley, Soll, Stickel and Williamson
are filed herewith.
17 - Forms of Proxies relating to the Special Meeting of Shareholders of AIM Aggressive
Growth Fund, AIM Blue Chip Fund, AIM Premier Equity Fund and AIM Weingarten Fund are
filed herewith.
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered through
the use of a prospectus which is a part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act [17 CRF 203.145c], the
reoffering prospectus will contain the information
called for by the applicable registration form for
reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other
items of the applicable form.
(b) The undersigned Registrant agrees that every
prospectus that is filed under paragraph (a) above will
be filed as a part of an amendment to the registration
statement and will not be used until the amendment is
effective, and that, in determining any liability under
the 1933 Act, each post-effective amendment shall be
deemed to be a new registration statement for the
securities offered therein, and the offering of the
securities at that time shall be deemed to be the
initial bona fide offering of them.
(c) The undersigned Registrant undertakes to file an
opinion of counsel supporting the tax matters and
consequences to shareholders discussed in the
prospectus in a post-effective amendment to this
registration statement.
C-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, State of Texas, on the 16th day of November, 2005.
REGISTRANT: AIM EQUITY FUNDS
By: /s/ Robert H. Graham
--------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- -------------------------- --------------------------- -----------------
/s/ Robert H. Graham Trustee & President November 16, 2005
- -------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ Bob R. Baker* Trustee November 16, 2005
- --------------------------
(Bob R. Baker)
/s/ Frank S. Bayley* Trustee November 16, 2005
- --------------------------
(Frank S. Bayley)
/s/ James T. Bunch* Trustee November 16, 2005
- --------------------------
(James T. Bunch)
/s/ Bruce L. Crockett* Chair & Trustee November 16, 2005
- --------------------------
(Bruce L. Crockett)
/s/ Albert R. Dowden* Trustee November 16, 2005
- --------------------------
(Albert R. Dowden)
/s/ Edward K. Dunn, Jr.* Trustee November 16, 2005
- --------------------------
(Edward K. Dunn, Jr.)
/s/ Jack M. Fields* Trustee November 16, 2005
- --------------------------
(Jack M. Fields)
/s/ Carl Frischling* Trustee November 16, 2005
- --------------------------
(Carl Frischling)
/s/ Gerald J. Lewis* Trustee November 16, 2005
- --------------------------
(Gerald J. Lewis)
/s/ Prema Mathai-Davis* Trustee November 16, 2005
- --------------------------
(Prema Mathai-Davis)
/s/ Lewis F. Pennock* Trustee November 16, 2005
- --------------------------
(Lewis F. Pennock)
/s/ Ruth H. Quigley* Trustee November 16, 2005
- --------------------------
(Ruth H. Quigley)
/s/ Larry Soll* Trustee November 16, 2005
- --------------------------
(Larry Soll)
/s/ Raymond Stickel, Jr.* Trustee November 16, 2005
- --------------------------
(Raymond Stickel, Jr.)
/s/ Mark H. Williamson* Trustee & November 16, 2005
- -------------------------- Executive Vice President
(Mark H. Williamson)
/s/ Sidney M. Dilgren Vice President & Treasurer November 16, 2005
- -------------------------- (Principal Financial and
(Sidney M. Dilgren) Accounting Officer)
*By /s/ Robert H. Graham
-------------------------
Robert H. Graham
Attorney-in-Fact
* Robert H. Graham, pursuant to powers of attorney filed herewith.
INDEX
<Table>
<Caption>
Exhibit Number Description
- -------------- -----------
1 Amended and Restated Agreement and Declaration of Trust of Registrant, dated September
14, 2005
2 Amended and Restated By-Laws of Registrant adopted effective September 14, 2005
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll, LLP as to the
legality of the securities being registered
14(a) Consent of Ernst & Young LLP
14(b) Consent of PricewaterhouseCoopers LLP
16 Powers of Attorney for Baker, Bayley, Bunch, Crockett, Dowden, Dunn, Fields,
Frischling, Graham, Lewis, Mathai-Davis, Pennock, Quigley, Soll, Stickel and Williamson
17 Forms of Proxies
</Table>