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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-1424
--------------------------------------------------------------------------
AIM Equity Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 10/31
-------------
Date of reporting period: 10/31/05
------------
Item 1. Schedule of Investments.
AIM AGGRESSIVE GROWTH FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM AGGRESSIVE GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES of domestic mid-capitalization You have recently received or should
companies; the Growth subset measures shortly receive a proxy requesting your
o Class B shares are not available as an the performance of Russell Midcap vote on a proposed merger of AIM
investment for retirement plans companies with higher price/book ratios Aggressive Fund into AIM Constellation
maintained pursuant to Section 401 of and higher forecasted growth values. Fund. We encourage you to read the proxy
the Internal Revenue Code, including materials carefully and to vote
401(k) plans, money purchase pension o The unmanaged MSCI WORLD INDEX is a promptly. The ways in which you may cast
plans and profit sharing plans. Plans group of global securities tracked by your proxy ballot are detailed in the
that have existing accounts invested in Morgan Stanley Capital International. proxy materials.
Class B shares prior to September 30,
2003, will continue to be allowed to o The unmanaged LIPPER MID-CAP GROWTH The Fund provides a complete list of its
make additional purchases. FUND INDEX represents an average of the holdings four times in each fiscal year,
performance of the 30 largest at the quarter-ends. For the second and
o Class R shares are available only to mid-capitalization growth funds tracked fourth quarters, the lists appear in the
certain retirement plans. Please see the by Lipper, Inc., an independent mutual Fund's semiannual and annual reports to
prospectus for more information. fund performance monitor. shareholders. For the first and third
quarters, the Fund files the lists with
PRINCIPAL RISKS OF INVESTING IN THE FUND o The Fund is not managed to track the the Securities and Exchange Commission
performance of any particular index, (SEC) on Form N-Q. The most recent list
o Investing in smaller companies including the indexes defined here, and of portfolio holdings is available at
involves greater risk than investing in consequently, the performance of the AIMinvestments.com. From our home page,
more established companies, such as Fund may deviate significantly from the click on Products & Performance, then
business risk, significant stock price performance of the indexes. Mutual Funds, then Fund Overview. Select
fluctuations and illiquidity. your Fund from the drop-down menu and
o A direct investment cannot be made in click on Complete Quarterly Holdings.
o The Fund may invest up to 25% of its an index. Unless otherwise indicated, Shareholders can also look up the Fund's
assets in the securities of non-U.S. index results include reinvested Forms N-Q on the SEC's Web site at
issuers. International investing dividends, and they do not reflect sales sec.gov. And copies of the Fund's Forms
presents certain risks not associated charges. N-Q may be reviewed and copied at the
with investing solely in the United SEC's Public Reference Room at 450 Fifth
States. These include risks relating to OTHER INFORMATION Street, N.W., Washington, D.C.
fluctuations in the value of the U.S. 20549-0102. You can obtain information
dollar relative to the values of other o Industry classifications used in this on the operation of the Public Reference
currencies, the custody arrangements report are generally according to the Room, including information about
made for the Fund's foreign holdings, Global Industry Classification Standard, duplicating fee charges, by calling
differences in accounting, political which was developed by and is the 202-942-8090 or 800-732-0330, or by
risks and the lesser degree of public exclusive property and a service mark of electronic request at the following
information required to be provided by Morgan Stanley Capital International e-mail address: publicinfo@sec.gov. The
non-U.S. companies. Inc. and Standard & Poor's. SEC file numbers for the Fund are
811-01424 and 2-25469. The Fund's most
ABOUT INDEXES USED IN THIS REPORT o The returns shown in the Management's recent portfolio holdings, as filed on
Discussion of Fund Performance are based Form N-Q, are also available at
o The unmanaged Standard & Poor's on net asset values calculated for AIMinvestments.com.
Composite Index of 500 Stocks (the S&P shareholder transactions. Generally
500--Registered Trademark-- INDEX) is accepted accounting principles require A description of the policies and
an index of common stocks frequently adjustments to be made to the net assets procedures that the Fund uses to
used as a general measure of U.S. stock of the Fund at period end for financial determine how to vote proxies relating
market performance. reporting purposes, and as such, the net to portfolio securities is available
asset values for shareholder without charge, upon request, from our
o The unmanaged RUSSELL transactions and the returns based on Client Services department at
MIDCAP--Registered Trademark-- GROWTH those net asset values may differ from 800-959-4246 or on the AIM Web site,
INDEX is a subset of the RUSSELL the net asset values and returns AIMinvestments.com. On the home page,
MIDCAP--Registered Trademark-- INDEX, reported in the Financial Highlights. scroll down and click on AIM Funds Proxy
which represents the performance of the Policy. The information is also
stocks available on the Securities and Exchange
Commission's Web site, sec.gov.
Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2005, is available at our Web
site. Go to AIMinvestments.com, access
the About Us tab, click on Required
Notices and then click on Proxy Voting
Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
================================================================================ Class A Shares AAGFX
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND Class B Shares AAGBX
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES Class C Shares AAGCX
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class R Shares ARRGX
================================================================================ ========================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM AGGRESSIVE GROWTH FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
[GRAHAM equity investors. Domestically, the broad-based S&P 500
PHOTO] Index returned 8.72%. Globally, Morgan Stanley's MSCI World
Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
ROBERT H. GRAHAM the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
[WILLIAMSON Domestically, energy sector performance far outpaced that of
PHOTO] the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
MARK H. WILLIAMSON to the performance of natural resources and commodities. One
could make a strong argument for global diversification of a
stock portfolio using the performance data for the fiscal
year ended October 31, 2005. Of course, your financial
advisor is the person most qualified to help you decide
whether such diversification is appropriate for you.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM AGGRESSIVE GROWTH FUND
DEAR AIM FUNDS SHAREHOLDERS:
As independent Chair of the Board of Trustees of the AIM
[CROCKETT Funds, I'm writing to report on the work being done by your
PHOTO] Board.
At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
BRUCE L. CROCKETT (AIM) that save shareholders approximately $20.8 million
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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM AGGRESSIVE GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
statements and earnings reports, the
company's business model and management
===================================================================================== team, the competitive environment and
market opportunities.
PERFORMANCE SUMMARY
We construct the portfolio by
On September 16, 2005, changes were made ======================================== focusing on stocks rather than
to your Fund's management team with the FUND VS. INDEXES industries or sectors. While there are
intention of improving long-term no formal sector guidelines or
performance. The new team consists of TOTAL RETURNS, 10/31/04--10/31/05, constraints, internal controls and
Lanny H. Sachnowitz (lead), Kirk L. EXCLUDING APPLICABLE SALES CHARGES. IF proprietary software help us monitor
Anderson and James G. Birdsall, who are SALES CHARGES WERE INCLUDED, RETURNS risk levels and sector concentration.
assisted by the Large/Multi-cap Growth WOULD BE LOWER.
Team. Our goal is to produce consistent, Our sell process is designed to
strong risk-adjusted returns for Class A Shares 7.59% identify deterioration in the underlying
long-term investors. reasons a stock was initially purchased
Class B Shares 6.78 and avoid the risk of capital loss.
For the year ended October 31, 2005, Conditions that may cause us to reduce
you Fund recorded positive returns, Class C Shares 6.78 or sell a position include:
although it lagged its benchmarks, as
illustrated by the table. Class R Shares 7.33 o deterioration in business prospects
The Fund's holdings in consumer S&P 500 Index o worsening competitive position
staples detracted from its performance (Broad Market Index) 8.72
relative to the S&P 500 Index while its o slowing earnings growth
holdings in several sectors, especially Russell Midcap Growth Index
consumer discretionary, health care and (Style-specific Index) 15.91 o extended valuation
consumer staples,
Lipper Mid-Cap Growth Fund Index o more attractive investment
opportunities
(Peer Group Index) 14.19
MARKET CONDITIONS AND YOUR FUND
SOURCE: LIPPER, INC.
======================================== When we assumed management of the Fund,
major stock market indexes had been
adversely affected its returns in fluctuating within a relatively narrow
comparison to the Russell Midcap Growth range for several months. Many key
Index. market benchmarks, such as the S&P 500
Index, recorded most of their gains for
For long-term performance, please see the year during the first two months of
pages 6 and 7. the reporting period, following the
resolution of the U.S. presidential
===================================================================================== election. Although corporate earnings
were generally solid, concerns about
HOW WE INVEST Quantitative analysis helps us narrow rising oil prices and interest rates
our investment universe down to a restrained index performance for the
We believe a growth investment strategy manageable list of potential remainder of the reporting period.
is an essential component of a investments. We focus on the level,
diversified portfolio. growth rate and sustainability of
earnings, revenue and cash flow, ranking
Our investment process combines investment candidates on absolute and
quantitative and fundamental analysis to relative attractiveness.
uncover companies exhibiting long-term,
sustainable earnings and cash flow Fundamental analysis seeks to define
growth that is not yet reflected in a company's key drivers of success and
investor expectations or equity to assess their durability. We carefully
valuations. review financial
(continued)
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
BY SECTOR 1. Health Care Equipment 7.3% 1. ENSCO International Inc. 1.9%
[PIE CHART] 2. Data Processing & Outsourced 2. Cytyc Corp. 1.6
Services 5.2
Information Technology 24.8% 3. Analog Devices, Inc. 1.6
Health Care 21.0% 3. Semiconductors 5.2
Consumer Discretionary 15.1% 4. Affiliated Computer Services,
Industrials 13.3% 4. Aerospace & Defense 4.2 Inc.-Class A 1.5
Financials 10.5%
Energy 5.9% 5. Application Software 3.9 5. Textron Inc. 1.5
Money Market Funds Plus
Other Assets Less Liabilities 4.1% TOTAL NET ASSETS $1.5 BILLION 6. Amdocs Ltd. 1.4
Consumer Staples 2.1%
Materials 1.9% TOTAL NUMBER OF HOLDINGS* 118 7. Precision Castparts Corp. 1.4
Utilities 0.8%
Telecommunications Services 0.5% 8. Alliance Data Systems Corp. 1.3
9. Lamar Advertising Co.--Class A 1.3
10. Office Depot, 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>
3
AIM AGGRESSIVE GROWTH FUND
<Table>
After assuming management of your stock that performed well for the Fund THE VIEWS AND OPINIONS EXPRESSED IN
Fund, we began restructuring the was CAREMARK RX, a pharmaceutical MANAGEMENT'S DISCUSSION OF FUND
portfolio. We reduced the number of services company which provides drug PERFORMANCE ARE THOSE OF A I M ADVISORS,
portfolio holdings and increased our benefit services to more than 2,000 INC. THESE VIEWS AND OPINIONS ARE
weightings in stocks we believe have the health plan sponsors throughout the SUBJECT TO CHANGE AT ANY TIME BASED ON
greatest potential for growth. We United States. The company reported FACTORS SUCH AS MARKET AND ECONOMIC
increased the Fund's weighting most record earnings for the third quarter of CONDITIONS. THESE VIEWS AND OPINIONS MAY
significantly in the information 2005 and raised its earnings estimates NOT BE RELIED UPON AS INVESTMENT ADVICE
technology, energy and health care for the remainder of the year. We sold OR RECOMMENDATIONS, OR AS AN OFFER FOR A
sectors while reducing the weighting in the stock and took profits. PARTICULAR SECURITY. THE INFORMATION IS
the consumer discretionary sector. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
Please keep in mind that our sector We reduced the Fund's exposure to OF ANY MARKET, COUNTRY, INDUSTRY,
weightings are primarily a byproduct of consumer discretionary stocks, which SECURITY OR THE FUND. STATEMENTS OF FACT
our stock selection process, which is include many retailers, as we were ARE FROM SOURCES CONSIDERED RELIABLE,
based on an analysis of individual concerned that rising fuel costs might BUT A I M ADVISORS, INC. MAKES NO
companies. adversely affect consumer spending. REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH
Within the information technology While maintaining the Fund's focus on HISTORICAL PERFORMANCE IS NO GUARANTEE
sector, we increased our holdings in mid-cap stocks, we slightly increased OF FUTURE RESULTS, THESE INSIGHTS MAY
semiconductor stocks. These stocks have the Fund's exposure to large-cap stocks HELP YOU UNDERSTAND OUR INVESTMENT
performed well in recent months as while modestly reducing its weighting in MANAGEMENT PHILOSOPHY.
semiconductor inventories have continued small-cap stocks. Large-cap growth
to decline from previously high levels. stocks have generally been out of favor See important Fund and index
Additionally, demand for cell phones and with investors for several years; we disclosures inside front cover.
computers, particularly laptops, has believe they could be poised for a
been greater than expected, which has rebound. LANNY H. SACHNOWITZ,
benefited semiconductor stocks. [SACHNOWITZ senior portfolio manager,
Stocks that detracted from Fund PHOTO] is lead portfolio manager
Our focus in the energy sector was on performance included SIRVA, a global of AIM Aggressive Growth
oil and gas equipment and services, relocation services company, and KINETIC Fund. He joined AIM in
exploration and production and drilling CONCEPTS, which makes beds and related 1987 as a money market
companies--firms directly or indirectly equipment for medical use. Sirva has trader and research
involved in efforts to increase fuel experienced accounting problems that may analyst. In 1990, Mr.
supplies. With oil and gas production result in a restatement of its financial Sachnowitz's trading responsibilities
barely able to keep up with worldwide results for the fourth quarter of 2004. were expanded to include head of equity
demand, we believe these companies are The company also reported that it will trading. He was named a portfolio
in a favorable position to experience incur significant expenses because of manager in 1991. Mr. Sachnowitz received
earnings growth. internal and external audits. We sold a B.S. in finance from the University of
the stock because of deteriorating Southern California and an M.B.A. from
Energy was the best-performing sector company fundamentals. the University of Houston.
in many market indexes for the year, as
oil and gas prices soared because of Kinetic Concepts would have reported KIRK L. ANDERSON,
increased demand for fuel, particularly a profit for the third quarter of 2005 [ANDERSON portfolio manager, is
from the developing economies of China had it not incurred costs related to a PHOTO] portfolio manager of AIM
and India. Energy also contributed legal settlement. We continued to hold Aggressive Growth Fund.
positively to Fund performance. An the stock because we considered this a Mr. Anderson joined AIM in
energy stock that enhanced Fund returns non-recurring event. 1994 in the fund services
was ENSCO, the portfolio's largest area. He moved to
holding at the close of the reporting IN CLOSING portfolio administration in 1995, became
period. ENSCO, which provides contract an analyst in 1997, and was named a
drilling services for the oil industry, At the close of the reporting period, we portfolio manager in 2003. Mr. Anderson
reported record earnings for the third believe your Fund was positioned to earned a B.A. in political science from
quarter of 2005. potentially take advantage of moderating Texas A&M University and an M.S. in
economic growth, stemming from higher finance from the University of Houston.
In the health care sector, we interest rates and fuel costs and a
increased the portfolio's exposure to possible decline in consumer spending. JAMES G. BIRDSALL,
health care facilities and health care We also believe our rigorous investment [BIRDSALL portfolio manager, is a
services. We believe these industries process has the potential to identify PHOTO] portfolio manager of AIM
could benefit from an aging population, mid-cap growth stocks that are likely to Aggressive Growth Fund. He
which is expected to require increasing appreciate in value in a variety of has been associated with
medical attention. economic and market environments. We are AIM Investments since 1995
encouraged by the improvement in the and assumed his current
Although the Fund's health care performance of growth stocks over the position in 1999. Mr. Birdsall received
holdings generally underperformed those past year, and we hope this trend will his B.B.A. with a concentration in
of the Russell Midcap Growth Index, it continue. Regardless of market finance from Stephen F. Austin State
was the sector contributing the most to conditions, we will strive to help our University before earning his M.B.A.
Fund performance. Health care was one of investors meet their financial goals. We with a concentration in finance and
the better-performing sectors for the thank you for your investment in AIM international business from the
year, as demand for medical products and Aggressive Growth Fund. University of St. Thomas.
services tends to remain constant
regardless of economic trends. A health Assisted by the Large/Multi-Cap
care Growth Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE,PLEASE SEE PAGES 6
AND 7.
</Table>
4
AIM AGGRESSIVE GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE mate the expenses that you paid over the The hypothetical account values and
period. Simply divide your account value expenses may not be used to estimate the
As a shareholder of the Fund, you incur by $1,000 (for example, an $8,600 actual ending account balance or
two types of costs: (1) transaction account value divided by $1,000 = 8.6), expenses you paid for the period. You
costs, which may include sales charges then multiply the result by the number may use this information to compare the
(loads) on purchase payments; contingent in the table under the heading entitled ongoing costs of investing in the Fund
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to and other funds. To do so, compare this
and redemption fees, if any; and (2) estimate the expenses you paid on your 5% hypothetical example with the 5%
ongoing costs, including management 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
example is intended to help you HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
understand your ongoing costs (in COMPARISON PURPOSES the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period an assumed rate of return of 5% per year any. Therefore, the hypothetical
May 1, 2005, through October 31, 2005. before expenses, which is not the Fund's information is useful in comparing
actual return. The Fund's actual ongoing costs only, and will not help
cumulative total returns at net asset you determine the relative total costs
ACTUAL EXPENSES value after expenses for the six months of owning different funds. In addition,
ended October 31, 2005, appear in the if these transactional costs were
The table below provides information table "Cumulative Total Returns" on Page included, your costs would have been
about actual account values and actual 7. higher.
expenses. You may use the information in
this table, together with the amount you
invested, to esti-
================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
A $1,000.00 $1,073.60 $ 6.74 $1,018.70 $ 6.56 1.29%
B 1,000.00 1,070.10 10.64 1,014.92 10.36 2.04
C 1,000.00 1,070.10 10.64 1,014.92 10.36 2.04
R 1,000.00 1,072.20 8.04 1,017.44 7.83 1.54
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
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 October 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
================================================================================================================================
[ARROW For More Information Visit
BUTTON AIMinvestments.com
IMAGE]
5
AIM AGGRESSIVE GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 5/1/84, INDEX DATA FROM 4/30/84
[MOUNTAIN CHART]
================================================================================
<Table>
AIM Aggressive Growth Fund S&P 500
Date Class A Shares Index
4/30/84 $ 9450 $ 10000
5/84 9138 9446
6/84 9393 9652
7/84 9147 9532
8/84 10175 10585
9/84 9727 10587
10/84 9584 10628
11/84 9375 10509
12/84 9642 10786
1/85 10937 11626
2/85 11163 11769
3/85 10625 11776
4/85 10596 11766
5/85 10923 12445
6/85 10999 12640
7/85 11336 12622
8/85 11075 12500
9/85 10419 12123
10/85 10680 12682
11/85 11500 13552
12/85 12166 14208
1/86 12330 14288
2/86 12949 15355
3/86 13414 16212
4/86 13710 16030
5/86 13997 16882
6/86 13601 17167
7/86 12205 16208
8/86 12755 17409
9/86 11516 15970
10/86 12467 16891
11/86 12696 17302
12/86 12211 16860
1/87 13796 19130
2/87 15279 19886
3/87 15248 20460
4/87 14511 20278
5/87 14340 20454
6/87 13856 21487
7/87 14007 22576
8/87 15007 23417
9/87 14289 22904
10/87 10038 17972
11/87 9059 16491
12/87 10805 17745
1/88 10871 18491
2/88 11978 19349
3/88 12229 18752
4/88 12470 18960
5/88 12065 19121
6/88 13369 19998
7/88 12635 19922
8/88 12208 19247
9/88 12373 20066
10/88 12099 20624
11/88 11508 20330
12/88 12187 20684
1/89 12726 22197
2/89 12705 21646
3/89 12759 22150
4/89 13630 23299
5/89 14642 24238
6/89 13487 24101
7/89 14060 26276
8/89 14566 26788
9/89 14808 26679
10/89 14280 26060
11/89 14642 26589
12/89 14733 27227
1/90 13370 25400
2/90 13846 25727
3/90 14467 26408
4/90 14057 25750
5/90 15951 28256
6/90 16006 28065
7/90 15221 27975
8/90 13216 25450
9/90 11876 24213
10/90 11410 24111
11/90 12817 25666
12/90 13776 26380
1/91 15334 27526
2/91 16671 29492
3/91 17927 30206
4/91 17892 30278
5/91 18578 31579
6/91 17090 30134
7/91 18775 31537
8/91 19937 32282
9/91 20774 31742
10/91 21333 32167
11/91 19799 30875
12/91 22581 34400
1/92 24507 33760
2/92 24367 34197
3/92 23059 33532
4/92 21878 34516
5/92 21414 34685
6/92 20177 34169
7/92 20949 35564
8/92 20317 34837
9/92 21680 35247
10/92 23382 35368
11/92 26066 36569
12/92 27398 37017
1/93 28316 37326
2/93 26940 37835
3/93 28109 38633
4/93 27325 37699
5/93 29336 38705
6/93 30269 38818
7/93 30965 38662
8/93 32770 40125
9/93 34664 39818
10/93 35285 40641
11/93 34307 40253
12/93 36177 40740
1/94 37628 42124
2/94 38264 40981
3/94 36442 39198
4/94 37138 39700
5/94 36117 40349
6/94 35023 39362
7/94 35968 40653
8/94 39015 42316
9/94 40244 41282
10/94 41974 42208
11/94 40539 40673
12/94 42387 41275
1/95 41205 42345
2/95 43632 43993
3/95 46193 45289
4/95 47094 46622
5/95 47805 48483
6/95 52657 49607
7/95 59213 51251
8/95 59213 51379
9/95 61137 53546
10/95 59377 53355
11/95 60914 55694
12/95 59989 56767
1/96 58591 58697
2/96 62944 59243
3/96 64581 59814
4/96 72343 60695
5/96 76329 62257
6/96 71719 62495
7/96 62467 59735
8/96 67565 60997
9/96 72402 64427
10/96 68138 66203
11/96 69187 71203
12/96 68585 69792
1/97 69895 74150
2/97 64010 74733
3/97 59062 71668
4/97 58229 75942
5/97 67319 80585
6/97 71594 84168
7/97 77078 90863
8/97 79082 85777
9/97 85566 90472
10/97 79962 87454
11/97 76731 91499
12/97 76985 93069
1/98 74636 94097
2/98 81981 100880
3/98 85498 106042
4/98 86652 107128
5/98 80716 105289
6/98 83533 109563
7/98 77368 108405
8/98 60139 92743
9/98 64487 98689
10/98 66885 106704
11/98 73186 113169
12/98 80819 119686
1/99 81135 124689
2/99 72680 120814
3/99 75420 125646
4/99 78143 130512
5/99 79636 127433
6/99 86452 134486
7/99 87222 130305
8/99 86515 129660
9/99 89189 126110
10/99 93434 134087
11/99 101535 136813
12/99 117151 144859
1/00 114726 137582
2/00 153125 134981
3/00 149419 148177
4/00 139871 143721
5/00 126332 140774
6/00 142300 144241
7/00 134872 141988
8/00 154496 150803
9/00 145288 142843
10/00 137878 142237
11/00 111667 131032
12/00 120679 131675
1/01 121536 136344
2/01 102734 123919
3/01 91865 116073
4/01 101603 125086
5/01 102172 125926
6/01 103878 122862
7/01 99245 121652
8/01 91405 114044
9/01 78270 104835
10/01 82050 106836
11/01 86875 115029
12/01 89333 116037
1/02 87350 114344
2/02 84232 112139
3/02 90279 116357
4/02 89052 109305
5/02 86407 108503
6/02 79788 100777
7/02 70804 92923
8/02 69855 93532
9/02 65978 83377
10/02 68908 90707
11/02 71554 96041
12/02 69099 90402
1/03 67586 88038
2/03 65788 86715
3/03 66736 87555
4/03 70233 94763
5/03 73541 99751
6/03 75239 101025
7/03 76940 102808
8/03 81102 104809
9/03 78742 103699
10/03 84979 109562
11/03 86772 110525
12/03 88004 116317
1/04 90459 118452
2/04 91780 120098
3/04 90926 118286
4/04 88844 116432
5/04 91109 118026
6/04 92904 120321
7/04 86290 116339
8/04 84020 116805
9/04 87230 118070
10/04 90920 119874
11/04 94129 124723
12/04 98384 128966
1/05 95363 125822
2/05 96212 128469
3/05 95548 126196
4/05 91105 123804
5/05 95260 127740
6/05 97812 127923
7/05 102820 132678
8/05 101402 131468
9/05 100459 132532
10/05 97800 130322
================================================================================
Source: Lipper, Inc.
<Table>
The data shown in the chart include This chart, which is a logarithmic
reinvested distributions, applicable chart, presents the fluctuations in the
sales charges, Fund expenses and value of the Fund and its indexes. We
management fees. Index results include believe that a logarithmic chart is more
reinvested dividends, but they do not effective than other types of charts in
reflect sales charges. Performance of an illustrating changes in value during the
index of funds reflects fund expenses early years shown in the chart. The
and management fees; performance of a vertical axis, the one that indicates
market index does not. Performance shown the dollar value of an investment, is
in the chart and table(s) does not constructed with each segment
reflect deduction of taxes a shareholder representing a percent change in the
would pay on Fund distributions or sale value of the investment. In this chart,
of Fund shares. Performance of the each segment represents a doubling, or
indexes does not reflect the effects of 100% change, in the value of the
taxes. investment. In other words, the space
between $10,000 and $20,000 is the same
size as the space between $20,000 and
$40,000, the space between $20,000 and
$40,000 is the same as that between
$40,000 and $80,000, and so on.
</Table>
6
AIM AGGRESSIVE GROWTH FUND
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 7.36%
Inception (5/1/84) 11.19% CLASS A SHARES Class B Shares 7.01
10 Years 4.52 Inception (5/1/84) 11.37% Class C Shares 7.01
5 Years -7.69 10 Years 4.50 Class R Shares 7.22
1 Year 1.67 5 Years -8.16
1 Year 8.80 ========================================
CLASS B SHARES
Inception (3/1/99) 3.68% CLASS B SHARES
5 Years -7.63 Inception (3/1/99) 4.16%
1 Year 1.78 5 Years -8.10
1 Year 9.35
CLASS C SHARES
Inception (3/1/99) 3.68% CLASS C SHARES
5 Years -7.32 Inception (3/1/99) 4.16%
1 Year 5.78 5 Years -7.80
1 Year 13.35
CLASS R SHARES
10 Years 4.84% CLASS R SHARES
5 Years -6.89 10 Years 4.82%
1 Year 7.33 5 Years -7.37
1 Year 14.83
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE NET ASSET VALUE AND THE EFFECT OF THE END SALES CHARGE; RETURNS SHOWN ARE AT
3, 2002. RETURNS SINCE THAT DATE ARE MAXIMUM SALES CHARGE UNLESS OTHERWISE NET ASSET VALUE AND DO NOT REFLECT A
HISTORICAL RETURNS. ALL OTHER RETURNS STATED. INVESTMENT RETURN AND PRINCIPAL 0.75% CDSC THAT MAY BE IMPOSED ON A
ARE BLENDED RETURNS OF HISTORICAL CLASS VALUE WILL FLUCTUATE SO THAT YOU MAY TOTAL REDEMPTION OF RETIREMENT PLAN
R SHARE PERFORMANCE AND RESTATED CLASS A HAVE A GAIN OR LOSS WHEN YOU SELL ASSETS WITHIN THE FIRST YEAR.
SHARE PERFORMANCE (FOR PERIODS PRIOR TO SHARES.
THE INCEPTION DATE OF CLASS R SHARES) AT HAD THE ADVISOR NOT WAIVED FEES AND/OR
NET ASSET VALUE, ADJUSTED TO REFLECT THE CLASS A SHARE PERFORMANCE REFLECTS THE REIMBURSED EXPENSES IN THE PAST, CLASS A
HIGHER RULE 12b-1 FEES APPLICABLE TO MAXIMUM 5.50% SALES CHARGE, AND CLASS B AND CLASS R SHARE PERFORMANCE WOULD HAVE
CLASS R SHARES. AND CLASS C SHARE PERFORMANCE REFLECTS BEEN LOWER.
THE APPLICABLE CONTINGENT DEFERRED SALES
THE PERFORMANCE DATA QUOTED REPRESENT CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE PERFORMANCE OF THE FUND'S SHARE
PAST PERFORMANCE AND CANNOT GUARANTEE THE CDSC ON CLASS B SHARES DECLINES FROM CLASSES WILL DIFFER DUE TO DIFFERENT
COMPARABLE FUTURE RESULTS; CURRENT 5% BEGINNING AT THE TIME OF PURCHASE TO SALES CHARGE STRUCTURES AND CLASS
PERFORMANCE MAY BE LOWER OR HIGHER. 0% AT THE BEGINNING OF THE SEVENTH YEAR. EXPENSES.
PLEASE VISIT AIMinvestments.com FOR THE THE CDSC ON CLASS C SHARES IS 1% FOR THE
MOST RECENT MONTH-END PERFORMANCE. FIRST YEAR AFTER PURCHASE. CLASS R
PERFORMANCE FIGURES REFLECT REINVESTED SHARES DO NOT HAVE A FRONT-
DISTRIBUTIONS, CHANGES IN
7
AIM AGGRESSIVE GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Equity o The quality of services to be provided o Overall performance of AIM. The Board
Funds (the "Board") oversees the by AIM. The Board reviewed the considered the overall performance of
management of AIM Aggressive Growth Fund credentials and experience of the AIM in providing investment advisory and
(the "Fund") and, as required by law, officers and employees of AIM who will portfolio administrative services to the
determines annually whether to approve provide investment advisory services to Fund and concluded that such performance
the continuance of the Fund's advisory the Fund. In reviewing the was satisfactory.
agreement with A I M Advisors, Inc. qualifications of AIM to provide
("AIM"). Based upon the recommendation investment advisory services, the Board o Fees relative to those of clients of
of the Investments Committee of the reviewed the qualifications of AIM's AIM with comparable investment
Board, which is comprised solely of investment personnel and considered such strategies. The Board reviewed the
independent trustees, at a meeting held issues as AIM's portfolio and product advisory fee rate for the Fund under the
on June 30, 2005, the Board, including review process, various back office Advisory Agreement. The Board noted that
all of the independent trustees, support functions provided by AIM and this rate (i) was the same as the
approved the continuance of the advisory AIM's equity and fixed income trading advisory fee rates for a variable
agreement (the "Advisory Agreement") operations. Based on the review of these insurance fund advised by AIM and
between the Fund and AIM for another and other factors, the Board concluded offered to insurance company separate
year, effective July 1, 2005. that the quality of services to be accounts with investment strategies
provided by AIM was appropriate and that comparable to those of the Fund; and
The Board considered the factors AIM currently is providing satisfactory (ii) was higher than the sub-advisory
discussed below in evaluating the services in accordance with the terms of fee rates for four unaffiliated mutual
fairness and reasonableness of the the Advisory Agreement. funds for which an AIM affiliate serves
Advisory Agreement at the meeting on as sub-advisor, although the total
June 30, 2005 and as part of the Board's o The performance of the Fund relative management fees paid by such
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed unaffiliated mutual funds were higher
deliberations, the Board and the the performance of the Fund during the than the advisory fee rate for the Fund.
independent trustees did not identify past one, three and five calendar years The Board noted that AIM has agreed to
any particular factor that was against the performance of funds advised waive advisory fees of the Fund, as
controlling, and each trustee attributed by other advisors with investment discussed below. Based on this review,
different weights to the various strategies comparable to those of the the Board concluded that the advisory
factors. Fund. The Board noted that the Fund's fee rate for the Fund under the Advisory
performance in such periods was below Agreement was fair and reasonable.
One of the responsibilities of the the median performance of such
Senior Officer of the Fund, who is comparable funds. The Board noted that o Fees relative to those of comparable
independent of AIM and AIM's affiliates, AIM has recently made changes to the funds with other advisors. The Board
is to manage the process by which the Fund's portfolio management team, which reviewed the advisory fee rate for the
Fund's proposed management fees are appear to be producing encouraging early Fund under the Advisory Agreement. The
negotiated to ensure that they are results but need more time to be Board compared effective contractual
negotiated in a manner which is at arm's evaluated before a conclusion can be advisory fee rates at a common asset
length and reasonable. To that end, the made that the changes have addressed the level and noted that the Fund's rate was
Senior Officer must either supervise a Fund's under-performance. Based on this below the median rate of the funds
competitive bidding process or prepare review, the Board concluded that no advised by other advisors with
an independent written evaluation. The changes should be made to the Fund and investment strategies comparable to
Senior Officer has recommended an that it was not necessary to change the those of the Fund that the Board
independent written evaluation in lieu Fund's portfolio management team at this reviewed. The Board noted that AIM has
of a competitive bidding process and, time. agreed to waive advisory fees of the
upon the direction of the Board, has Fund, as discussed below. Based on this
prepared such an independent written o The performance of the Fund relative review, the Board concluded that the
evaluation. Such written evaluation also to indices. The Board reviewed the advisory fee rate for the Fund under the
considered certain of the factors performance of the Fund during the past Advisory Agreement was fair and
discussed below. In addition, as one, three and five calendar years reasonable.
discussed below, the Senior Officer made against the performance of the Lipper
certain recommendations to the Board in Mid-Cap Growth Index. The Board noted o Expense limitations and fee waivers.
connection with such written evaluation. that the Fund's performance was below The Board noted that AIM has
the performance of such Index for the contractually agreed to waive advisory
The discussion below serves as a one year period, comparable to such fees of the Fund through June 30, 2006
summary of the Senior Officer's Index for the three year period, and to the extent necessary so that the
independent written evaluation and above such Index for the five year advisory fees payable by the Fund do not
recommendations to the Board in period. The Board noted that AIM has exceed a specified maximum advisory fee
connection therewith, as well as a recently made changes to the Fund's rate, which maximum rate includes
discussion of the material factors and portfolio management team, which appear breakpoints and is based on net asset
the conclusions with respect thereto to be producing encouraging early levels. The Board considered the
that formed the basis for the Board's results but need more time to be contractual nature of this fee waiver
approval of the Advisory Agreement. evaluated before a conclusion can be and noted that it remains in effect
After consideration of all of the made that the changes have addressed the until June 30, 2006. The Board
factors below and based on its informed Fund's under-performance. Based on this considered the effect this fee waiver
business judgment, the Board determined review, the Board concluded that no would have on the Fund's estimated
that the Advisory Agreement is in the changes should be made to the Fund and expenses and concluded that the levels
best interests of the Fund and its that it was not necessary to change the of fee waivers/expense limitations for
shareholders and that the compensation Fund's portfolio management team at this the Fund were fair and reasonable.
to AIM under the Advisory Agreement is time.
fair and reasonable and would have been o Breakpoints and economies of scale.
obtained through arm's length o Meeting with the Fund's portfolio The Board reviewed the structure of the
negotiations. managers and investment personnel. With Fund's advisory fee under the Advisory
respect to the Fund, the Board is Agreement, noting that it includes one
o The nature and extent of the advisory meeting periodically with such Fund's breakpoint. The Board reviewed the level
services to be provided by AIM. The portfolio managers and/or other of the Fund's advisory fees, and noted
Board reviewed the services to be investment personnel and believes that that such fees, as a percentage of the
provided by AIM under the Advisory such individuals are competent and able Fund's net assets, have decreased as net
Agreement. Based on such review, the to continue to carry out their assets increased because the Advisory
Board concluded that the range of responsibilities under the Advisory Agreement includes a breakpoint. The
services to be provided by AIM under the Agreement. Board noted that AIM has contractually
Advisory Agreement was appropriate and agreed to waive advisory fees of the
that AIM currently is providing services Fund through June 30, 2006 to the extent
in accordance with the terms of the necessary so
Advisory Agreement.
(continued)
8
AIM AGGRESSIVE GROWTH FUND
that the advisory fees payable by the o Profitability of AIM and its o Other factors and current trends. In
Fund do not exceed a specified maximum affiliates. The Board reviewed determining whether to continue the
advisory fee rate, which maximum rate information concerning the profitability Advisory Agreement for the Fund, the
includes breakpoints and is based on net of AIM's (and its affiliates') Board considered the fact that AIM,
asset levels. The Board concluded that investment advisory and other activities along with others in the mutual fund
the Fund's fee levels under the Advisory and its financial condition. The Board industry, is subject to regulatory
Agreement therefore reflect economies of considered the overall profitability of inquiries and litigation related to a
scale and that it was not necessary to AIM, as well as the profitability of AIM wide range of issues. The Board also
change the advisory fee breakpoints in in connection with managing the Fund. considered the governance and compliance
the Fund's advisory fee schedule. The Board noted that AIM's operations reforms being undertaken by AIM and its
remain profitable, although increased affiliates, including maintaining an
o Investments in affiliated money market expenses in recent years have reduced internal controls committee and
funds. The Board also took into account AIM's profitability. Based on the review retaining an independent compliance
the fact that uninvested cash and cash of the profitability of AIM's and its consultant, and the fact that AIM has
collateral from securities lending affiliates' investment advisory and undertaken to cause the Fund to operate
arrangements (collectively, "cash other activities and its financial in accordance with certain governance
balances") of the Fund may be invested condition, the Board concluded that the policies and practices. The Board
in money market funds advised by AIM compensation to be paid by the Fund to concluded that these actions indicated a
pursuant to the terms of an SEC AIM under its Advisory Agreement was not good faith effort on the part of AIM to
exemptive order. The Board found that excessive. adhere to the highest ethical standards,
the Fund may realize certain benefits and determined that the current
upon investing cash balances in AIM o Benefits of soft dollars to AIM. The regulatory and litigation environment to
advised money market funds, including a Board considered the benefits realized which AIM is subject should not prevent
higher net return, increased liquidity, by AIM as a result of brokerage the Board from continuing the Advisory
increased diversification or decreased transactions executed through "soft Agreement for the Fund.
transaction costs. The Board also found dollar" arrangements. Under these
that the Fund will not receive reduced arrangements, brokerage commissions paid
services if it invests its cash balances by the Fund and/or other funds advised
in such money market funds. The Board by AIM are used to pay for research and
noted that, to the extent the Fund execution services. This research is
invests in affiliated money market used by AIM in making investment
funds, AIM has voluntarily agreed to decisions for the Fund. The Board
waive a portion of the advisory fees it concluded that such arrangements were
receives from the Fund attributable to appropriate.
such investment. The Board further
determined that the proposed securities o AIM's financial soundness in light of
lending program and related procedures the Fund's needs. The Board considered
with respect to the lending Fund is in whether AIM is financially sound and has
the best interests of the lending Fund the resources necessary to perform its
and its respective shareholders. The obligations under the Advisory
Board therefore concluded that the Agreement, and concluded that AIM has
investment of cash collateral received the financial resources necessary to
in connection with the securities fulfill its obligations under the
lending program in the money market Advisory Agreement.
funds according to the procedures is in
the best interests of the lending Fund o Historical relationship between the
and its respective shareholders. Fund and AIM. In determining whether to
continue the Advisory Agreement for the
o Independent written evaluation and Fund, the Board also considered the
recommendations of the Fund's Senior prior relationship between AIM and the
Officer. The Board noted that, upon Fund, as well as the Board's knowledge
their direction, the Senior Officer of of AIM's operations, and concluded that
the Fund, who is independent of AIM and it was beneficial to maintain the
AIM's affiliates, had prepared an current relationship, in part, because
independent written evaluation in order of such knowledge. The Board also
to assist the Board in determining the reviewed the general nature of the
reasonableness of the proposed non-investment advisory services
management fees of the AIM Funds, currently performed by AIM and its
including the Fund. The Board noted that affiliates, such as administrative,
the Senior Officer's written evaluation transfer agency and distribution
had been relied upon by the Board in services, and the fees received by AIM
this regard in lieu of a competitive and its affiliates for performing such
bidding process. In determining whether services. In addition to reviewing such
to continue the Advisory Agreement for services, the trustees also considered
the Fund, the Board considered the the organizational structure employed by
Senior Officer's written evaluation and AIM and its affiliates to provide those
the recommendation made by the Senior services. Based on the review of these
Officer to the Board that the Board and other factors, the Board concluded
consider implementing a process to that AIM and its affiliates were
assist them in more closely monitoring qualified to continue to provide
the performance of the AIM Funds. The non-investment advisory services to the
Board concluded that it would be Fund, including administrative, transfer
advisable to implement such a process as agency and distribution services, and
soon as reasonably practicable. that AIM and its affiliates currently
are providing satisfactory
non-investment advisory services.
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM AGGRESSIVE GROWTH FUND
========================================
INSTITUTIONAL CLASS SHARES PLEASE NOTE THAT PAST PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been For periods ended 10/31/05 MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview Inception (3/15/02) 2.87% REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 1 Year 8.20 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered 6 Months* 7.65 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans ======================================== OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. FULL REPORT FOR INFORMATION ON
AVERAGE ANNUAL TOTAL RETURNS COMPARATIVE BENCHMARKS. PLEASE CONSULT
For periods ended 9/30/05, most recent YOUR FUND PROSPECTUS FOR MORE
calendar quarter-end INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL
Inception (3/15/02) 3.70% 800-451-4246 OR VISIT
1 Year 15.81 AIMINVESTMENTS.COM.
6 Months* 5.45
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASS-
ES DUE TO DIFFERING SALES CHARGES AND
CLASS EXPENSES.
========================================
NASDAQ SYMBOL AAGVX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM AGRO-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
example is based on an investment of PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical informa-
ACTUAL EXPENSES on the Fund's actual expense ratio and tion is useful in comparing ongoing
an assumed rate of return of 5% per year costs only, and will not help you
The table below provides information before expenses, which is not the Fund's determine the relative total costs of
about actual account values and actual actual return. The Fund's actual cumu- owning different funds.
expenses. You may use the information in lative total return after expenses for
this table, together with the amount you the six months ended October 31, 2005,
invested, to estimate the expenses that appears in the table on the front of
you paid over the period. Simply this supplement.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,076.50 $ 3.72 $ 1,021.63 $ 3.62 0.71%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
AIMINVESTMENTS.COM AGRO-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS-95.86%
ADVERTISING-1.30%
Lamar Advertising Co.-Class A(a) 450,000 $ 20,079,000
==========================================================================
AEROSPACE & DEFENSE-4.15%
Engineered Support Systems, Inc. 327,000 13,227,150
- --------------------------------------------------------------------------
L-3 Communications Holdings, Inc. 180,600 14,054,292
- --------------------------------------------------------------------------
Precision Castparts Corp. 450,000 21,312,000
- --------------------------------------------------------------------------
Rockwell Collins, Inc. 340,000 15,578,800
==========================================================================
64,172,242
==========================================================================
AGRICULTURAL PRODUCTS-0.84%
Corn Products International, Inc. 544,800 12,971,688
==========================================================================
APPAREL RETAIL-1.64%
Aeropostale, Inc.(a) 500,000 9,770,000
- --------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 330,200 8,013,954
- --------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 366,190 7,624,076
==========================================================================
25,408,030
==========================================================================
APPLICATION SOFTWARE-3.86%
Amdocs Ltd.(a) 815,000 21,573,050
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 475,000 13,095,750
- --------------------------------------------------------------------------
Cognos, Inc. (Canada)(a)(b) 145,300 5,453,109
- --------------------------------------------------------------------------
Hyperion Solutions Corp.(a) 217,700 10,527,972
- --------------------------------------------------------------------------
TIBCO Software Inc.(a) 1,180,900 8,963,031
==========================================================================
59,612,912
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.42%
Affiliated Managers Group, Inc.(a) 140,000 10,745,000
- --------------------------------------------------------------------------
Legg Mason, Inc. 153,500 16,472,085
- --------------------------------------------------------------------------
Nuveen Investments, Inc.-Class A 250,000 10,117,500
==========================================================================
37,334,585
==========================================================================
AUTOMOTIVE RETAIL-0.76%
Advance Auto Parts, Inc.(a) 315,000 11,812,500
==========================================================================
BIOTECHNOLOGY-0.57%
Neurocrine Biosciences, Inc.(a) 168,200 8,884,324
==========================================================================
BROADCASTING & CABLE TV-0.76%
Univision Communications Inc.-Class A(a) 450,000 11,763,000
==========================================================================
BUILDING PRODUCTS-1.76%
American Standard Cos. Inc. 411,200 15,642,048
- --------------------------------------------------------------------------
Lennox International Inc. 415,000 11,574,350
==========================================================================
27,216,398
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
CASINOS & GAMING-1.38%
GTECH Holdings Corp. 375,000 $ 11,940,000
- --------------------------------------------------------------------------
Wynn Resorts, Ltd.(a)(b) 200,000 9,336,000
==========================================================================
21,276,000
==========================================================================
COMMUNICATIONS EQUIPMENT-1.59%
ADC Telecommunications, Inc.(a) 550,000 9,597,500
- --------------------------------------------------------------------------
F5 Networks, Inc.(a) 136,500 7,102,095
- --------------------------------------------------------------------------
JDS Uniphase Corp.(a) 3,750,000 7,875,000
==========================================================================
24,574,595
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.70%
Network Appliance, Inc.(a) 436,071 11,930,903
- --------------------------------------------------------------------------
QLogic Corp.(a) 475,000 14,326,000
==========================================================================
26,256,903
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.74%
Oshkosh Truck Corp. 275,000 11,979,000
- --------------------------------------------------------------------------
Terex Corp.(a) 270,200 14,852,894
==========================================================================
26,831,894
==========================================================================
CONSUMER ELECTRONICS-0.65%
Harman International Industries, Inc. 100,000 9,986,000
==========================================================================
CONSUMER FINANCE-1.08%
SLM Corp. 299,900 16,653,447
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-5.21%
Affiliated Computer Services, Inc.-Class A(a) 436,200 23,602,783
- --------------------------------------------------------------------------
Alliance Data Systems Corp.(a) 575,000 20,447,000
- --------------------------------------------------------------------------
Hewitt Associates, Inc.-Class A(a) 217,700 5,810,413
- --------------------------------------------------------------------------
Iron Mountain Inc.(a) 415,000 16,185,000
- --------------------------------------------------------------------------
Paychex, Inc. 375,000 14,535,000
==========================================================================
80,580,196
==========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.36%
ChoicePoint Inc.(a) 335,800 14,190,908
- --------------------------------------------------------------------------
CoStar Group Inc.(a) 141,055 6,763,587
==========================================================================
20,954,495
==========================================================================
ELECTRIC UTILITIES-0.75%
DPL Inc. 450,000 11,596,500
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.32%
EnerSys(a) 331,768 4,969,885
==========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.55%
Amphenol Corp.-Class A 400,000 $ 15,988,000
- --------------------------------------------------------------------------
Cogent Inc.(a) 300,000 7,965,000
==========================================================================
23,953,000
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.77%
Jabil Circuit, Inc.(a) 400,000 11,940,000
==========================================================================
GENERAL MERCHANDISE STORES-0.52%
Tuesday Morning Corp. 335,800 8,055,842
==========================================================================
HEALTH CARE DISTRIBUTORS-0.84%
AmerisourceBergen Corp. 170,000 12,965,900
==========================================================================
HEALTH CARE EQUIPMENT-7.29%
Advanced Medical Optics, Inc.(a) 523,800 18,689,184
- --------------------------------------------------------------------------
Beckman Coulter, Inc. 112,245 5,529,189
- --------------------------------------------------------------------------
Biomet, Inc. 443,870 15,459,992
- --------------------------------------------------------------------------
Cytyc Corp.(a) 964,444 24,448,655
- --------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 199,000 11,243,500
- --------------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 180,265 6,471,513
- --------------------------------------------------------------------------
PerkinElmer, Inc. 513,300 11,328,531
- --------------------------------------------------------------------------
Thermo Electron Corp.(a) 300,000 9,057,000
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 229,900 10,474,244
==========================================================================
112,701,808
==========================================================================
HEALTH CARE FACILITIES-3.78%
HealthSouth Corp.(a) 2,229,500 9,096,360
- --------------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 300,000 11,730,000
- --------------------------------------------------------------------------
Manor Care, Inc. 450,000 16,762,500
- --------------------------------------------------------------------------
Triad Hospitals, Inc.(a) 329,600 13,556,448
- --------------------------------------------------------------------------
Universal Health Services, Inc.-Class B 155,000 7,306,700
==========================================================================
58,452,008
==========================================================================
HEALTH CARE SERVICES-3.38%
DaVita, Inc.(a) 218,400 10,740,912
- --------------------------------------------------------------------------
Express Scripts, Inc.(a) 210,000 15,836,100
- --------------------------------------------------------------------------
Lincare Holdings Inc.(a) 230,000 9,395,500
- --------------------------------------------------------------------------
Omnicare, Inc. 300,000 16,230,000
==========================================================================
52,202,512
==========================================================================
HEALTH CARE SUPPLIES-1.23%
Bausch & Lomb Inc. 160,000 11,870,400
- --------------------------------------------------------------------------
Gen-Probe Inc.(a) 173,200 7,073,488
==========================================================================
18,943,888
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.55%
Electronic Arts Inc.(a) 150,000 8,532,000
==========================================================================
HOME FURNISHINGS-0.64%
Tempur-Pedic International Inc.(a) 900,000 9,954,000
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HOTELS, RESORTS & CRUISE LINES-0.69%
Four Seasons Hotel, Inc. (Canada)(b) 200,000 $ 10,726,000
==========================================================================
HOUSEHOLD APPLIANCES-0.45%
Blount International, Inc.(a) 435,475 6,906,633
==========================================================================
INDUSTRIAL CONGLOMERATES-1.52%
Textron Inc. 325,000 23,413,000
==========================================================================
INDUSTRIAL MACHINERY-0.71%
Pentair, Inc. 337,800 10,975,122
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.51%
Valor Communications Group, Inc. 623,600 7,938,428
==========================================================================
INTERNET SOFTWARE & SERVICES-1.35%
VeriSign, Inc.(a) 380,000 8,979,400
- --------------------------------------------------------------------------
Websense, Inc.(a) 200,000 11,816,000
==========================================================================
20,795,400
==========================================================================
INVESTMENT BANKING & BROKERAGE-0.79%
Schwab (Charles) Corp. (The) 800,000 12,160,000
==========================================================================
IT CONSULTING & OTHER SERVICES-0.65%
Perot Systems Corp.-Class A(a) 721,100 9,994,446
==========================================================================
MANAGED HEALTH CARE-1.62%
Health Net, Inc.(a) 275,000 12,881,000
- --------------------------------------------------------------------------
Humana Inc.(a) 275,000 12,207,250
==========================================================================
25,088,250
==========================================================================
METAL & GLASS CONTAINERS-0.86%
Owens-Illinois, Inc.(a) 695,000 13,232,800
==========================================================================
MOVIES & ENTERTAINMENT-0.78%
Regal Entertainment Group-Class A(b) 650,000 11,979,500
==========================================================================
MULTI-LINE INSURANCE-1.70%
Assurant, Inc. 325,000 12,415,000
- --------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 460,000 13,800,000
==========================================================================
26,215,000
==========================================================================
OIL & GAS DRILLING-2.51%
ENSCO International Inc. 650,000 29,633,500
- --------------------------------------------------------------------------
Pride International, Inc.(a) 327,200 9,184,504
==========================================================================
38,818,004
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.20%
BJ Services Co. 465,000 16,158,750
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 285,000 17,803,950
==========================================================================
33,962,700
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.17%
Newfield Exploration Co.(a) 400,000 18,132,000
==========================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-0.51%
Pilgrim's Pride Corp. 250,000 $ 7,870,000
==========================================================================
PHARMACEUTICALS-2.28%
Barr Pharmaceuticals Inc.(a) 225,000 12,926,250
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 505,100 14,900,450
- --------------------------------------------------------------------------
Valeant Pharmaceuticals International 435,500 7,473,180
==========================================================================
35,299,880
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.01%
Safeco Corp. 280,000 15,596,000
==========================================================================
REGIONAL BANKS-0.53%
North Fork Bancorp., Inc. 325,000 8,235,500
==========================================================================
RESTAURANTS-3.59%
CKE Restaurants, Inc.(b) 1,250,000 15,900,000
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 385,000 12,481,700
- --------------------------------------------------------------------------
Outback Steakhouse, Inc. 210,000 7,908,600
- --------------------------------------------------------------------------
Ruby Tuesday, Inc. 327,700 7,179,907
- --------------------------------------------------------------------------
YUM! Brands, Inc. 235,000 11,954,450
==========================================================================
55,424,657
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.95%
KLA-Tencor Corp. 317,000 14,673,930
==========================================================================
SEMICONDUCTORS-5.19%
Altera Corp.(a) 250,000 4,162,500
- --------------------------------------------------------------------------
Analog Devices, Inc. 700,000 24,346,000
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 575,000 13,731,000
- --------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 1,350,000 13,338,000
- --------------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(a) 175,000 8,121,750
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 475,000 16,473,000
==========================================================================
80,172,250
==========================================================================
SOFT DRINKS-0.79%
Coca-Cola Enterprises Inc. 643,500 12,162,150
==========================================================================
SPECIALIZED CONSUMER SERVICES-0.65%
Jackson Hewitt Tax Service Inc. 407,965 10,084,895
==========================================================================
SPECIALTY CHEMICALS-1.08%
Rohm and Haas Co. 385,000 16,759,050
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
SPECIALTY STORES-1.29%
Office Depot, Inc.(a) 725,000 $ 19,959,250
==========================================================================
SYSTEMS SOFTWARE-0.92%
Check Point Software Technologies
Ltd.(Israel)(a) 635,000 14,198,600
==========================================================================
TECHNOLOGY DISTRIBUTORS-0.50%
Ingram Micro Inc.-Class A(a) 425,000 7,692,500
==========================================================================
THRIFTS & MORTGAGE FINANCE-2.95%
Independence Community Bank Corp. 350,000 13,842,500
- --------------------------------------------------------------------------
MGIC Investment Corp. 260,000 15,402,400
- --------------------------------------------------------------------------
Radian Group Inc. 315,000 16,411,500
==========================================================================
45,656,400
==========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.72%
United Rentals, Inc.(a) 470,000 9,197,900
- --------------------------------------------------------------------------
WESCO International, Inc.(a) 438,800 17,442,300
==========================================================================
26,640,200
==========================================================================
Total Common Stocks
(Cost $1,445,053,275) 1,481,398,097
==========================================================================
MONEY MARKET FUNDS-4.22%
Liquid Assets Portfolio-Institutional
Class(c) 32,626,553 32,626,553
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 32,626,553 32,626,553
==========================================================================
Total Money Market Funds
(Cost $65,253,106) 65,253,106
==========================================================================
TOTAL INVESTMENTS-100.08% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,510,306,381) 1,546,651,203
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.88%
Liquid Assets Portfolio-Institutional
Class(c)(d) 22,256,330 22,256,330
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(c)(d) 22,256,329 22,256,329
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $44,512,659) 44,512,659
==========================================================================
TOTAL INVESTMENTS-102.96% (Cost
$1,554,819,040) 1,591,163,862
==========================================================================
OTHER ASSETS LESS LIABILITIES-(2.96%) (45,810,172)
==========================================================================
NET ASSETS-100.00% $1,545,353,690
__________________________________________________________________________
==========================================================================
</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 October 31, 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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,445,053,275)* $1,481,398,097
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $109,765,765) 109,765,765
============================================================
Total investments (cost $1,554,819,040) 1,591,163,862
============================================================
Receivables for:
Investments sold 19,608,558
- ------------------------------------------------------------
Fund shares sold 345,942
- ------------------------------------------------------------
Dividends 511,539
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 156,337
- ------------------------------------------------------------
Other assets 28,962
============================================================
Total assets 1,611,815,200
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 16,844,209
- ------------------------------------------------------------
Fund shares reacquired 3,248,982
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 334,021
- ------------------------------------------------------------
Collateral upon return of securities
loaned 44,512,659
- ------------------------------------------------------------
Accrued distribution fees 513,949
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,559
- ------------------------------------------------------------
Accrued transfer agent fees 725,568
- ------------------------------------------------------------
Accrued operating expenses 278,563
============================================================
Total liabilities 66,461,510
============================================================
Net assets applicable to shares outstanding $1,545,353,690
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,746,635,329
- ------------------------------------------------------------
Undistributed net investment income (loss) (298,978)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (237,327,483)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 36,344,822
============================================================
$1,545,353,690
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,210,468,285
____________________________________________________________
============================================================
Class B $ 255,044,237
____________________________________________________________
============================================================
Class C $ 72,455,143
____________________________________________________________
============================================================
Class R $ 3,357,781
____________________________________________________________
============================================================
Institutional Class $ 4,028,244
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 116,957,310
____________________________________________________________
============================================================
Class B 26,105,163
____________________________________________________________
============================================================
Class C 7,417,106
____________________________________________________________
============================================================
Class R 327,442
____________________________________________________________
============================================================
Institutional Class 381,317
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.35
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.35 divided by
94.50%) $ 10.95
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.77
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.25
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.56
____________________________________________________________
============================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $44,755,348 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends $ 11,224,991
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $132,835, after compensation
to counterparties of $2,337,074) 2,635,471
===========================================================================
Total investment income 13,860,462
===========================================================================
EXPENSES:
Advisory fees 11,357,051
- ---------------------------------------------------------------------------
Administrative services fees 420,767
- ---------------------------------------------------------------------------
Custodian fees 158,143
- ---------------------------------------------------------------------------
Distribution fees:
Class A 3,615,358
- ---------------------------------------------------------------------------
Class B 2,520,126
- ---------------------------------------------------------------------------
Class C 706,001
- ---------------------------------------------------------------------------
Class R 15,961
- ---------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 6,876,414
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional 1,085
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 82,170
- ---------------------------------------------------------------------------
Other 719,326
===========================================================================
Total expenses 26,472,402
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (168,561)
===========================================================================
Net expenses 26,303,841
===========================================================================
Net investment income (loss) (12,443,379)
===========================================================================
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 $7,603,107) 372,362,026
- ---------------------------------------------------------------------------
Option contracts written 3,929,893
===========================================================================
376,291,919
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (236,816,429)
- ---------------------------------------------------------------------------
Option contracts written 150,311
===========================================================================
(236,666,118)
===========================================================================
Net gain from investment securities and option contracts 139,625,801
===========================================================================
Net increase in net assets resulting from operations $ 127,182,422
___________________________________________________________________________
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (12,443,379) $ (21,355,366)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and option
contracts 376,291,919 456,200,097
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts (236,666,118) (288,045,284)
==============================================================================================
Net increase in net assets resulting from operations 127,182,422 146,799,447
==============================================================================================
Share transactions-net:
Class A (537,218,136) (469,733,957)
- ----------------------------------------------------------------------------------------------
Class B (8,644,724) (28,990,427)
- ----------------------------------------------------------------------------------------------
Class C (2,991,067) (14,524,768)
- ----------------------------------------------------------------------------------------------
Class R 326,873 1,554,735
- ----------------------------------------------------------------------------------------------
Institutional Class 3,793,575 (2,730,852)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (544,733,479) (514,425,269)
==============================================================================================
Net increase (decrease) in net assets (417,551,057) (367,625,822)
______________________________________________________________________________________________
==============================================================================================
NET ASSETS:
Beginning of year 1,962,904,747 2,330,530,569
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(298,978) and $(256,874), respectively). $1,545,353,690 $1,962,904,747
______________________________________________________________________________________________
==============================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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
F-6
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
F-7
G. 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.
H. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee 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>
Effective July 18, 2005, AIM 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 1.90%, 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the expense offset arrangements from which the Fund may benefit are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $21,896.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$80,352.
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 year ended
October 31, 2005, AIM was paid $420,767.
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 year ended October 31, 2005, the
Fund paid AISI $6,876,414 for Class A, Class B, Class C and Class R share
classes and $1,085 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. National Association of
Securities Dealers ("NASD") Rules impose a cap on
F-8
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, 2005, the Class A, Class B, Class C and Class R shares paid
$3,615,358, $2,520,126, $706,001 and $15,961, 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, 2005, ADI advised the Fund that it retained $162,925 in
front-end sales commissions from the sale of Class A shares and $5,675,
$128,266, $7,600 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 year ended October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME
- -------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $48,442,076 $ 652,970,432 $ (668,785,955) $ -- $32,626,553 $1,246,054
- -------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 48,442,076 652,970,432 (668,785,955) -- 32,626,553 1,256,582
=========================================================================================================================
Subtotal $96,884,152 $1,305,940,864 $(1,337,571,910) $ -- $65,253,106 $2,502,636
=========================================================================================================================
<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>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME*
- -----------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $127,900,554 $ 147,037,797 $ (252,682,021) $ -- $ 22,256,330 $ 66,000
- -----------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 127,900,554 146,624,089 (252,268,314) -- 22,256,329 66,835
=======================================================================================================================
Subtotal $255,801,108 $ 293,661,886 $ (504,950,335) $ -- $ 44,512,659 $ 132,835
=======================================================================================================================
Total $352,685,260 $1,599,602,750 $(1,842,522,245) $ -- $109,765,765 $2,635,471
_______________________________________________________________________________________________________________________
=======================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ----------------------------
Liquid Assets
Portfolio-
Institutional
Class $ --
- ----------------------------
STIC Prime
Portfolio-
Institutional
Class --
============================
Subtotal $ --
============================
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 year ended October 31, 2005, the Fund
engaged in securities purchases of $34,877,904 and sales of $88,368,504, which
resulted in net realized gains of $7,603,107.
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, 2005, the Fund received credits from these arrangements which
resulted in the reduction of the Fund's total expenses of $66,313.
F-9
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $8,118
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $44,755,348 were
on loan to brokers. The loans were secured by cash collateral of $44,512,659
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $132,835 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of period 16,109 $ 830,758
- --------------------------------------------------------------------------------------
Written 66,186 7,637,829
- --------------------------------------------------------------------------------------
Closed (20,046) (2,827,960)
- --------------------------------------------------------------------------------------
Exercised (24,719) (2,447,993)
- --------------------------------------------------------------------------------------
Expired (37,530) (3,192,634)
======================================================================================
End of period -- $ --
______________________________________________________________________________________
======================================================================================
</Table>
F-10
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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -------------------------------------------------------------------------------
Unrealized appreciation -- investments $ 34,746,273
- -------------------------------------------------------------------------------
Temporary book/tax differences (298,978)
- -------------------------------------------------------------------------------
Capital loss carryforward (235,728,934)
- -------------------------------------------------------------------------------
Shares of beneficial interest 1,746,635,329
===============================================================================
Total net assets $ 1,545,353,690
_______________________________________________________________________________
===============================================================================
</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 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, 2005 to utilizing $220,550,260 of capital loss carryforward in the fiscal
year ended October 31, 2006.
The Fund utilized $374,744,218 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $ 20,238,232
- -----------------------------------------------------------------------------
October 31, 2010 215,490,702
=============================================================================
Total capital loss carryforward $235,728,934
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of July 18, 2005, the date of the
reorganization of AIM Emerging 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 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, 2005 was $3,079,110,431 and $3,740,018,971, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $102,208,377
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (67,462,104)
==============================================================================
Net unrealized appreciation of investment securities $ 34,746,273
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,556,417,589.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies, net operating loss, capital
loss carryforward limitations and re-domestication expenses, on October 31,
2005, undistributed net investment income (loss) was increased by $12,465,964,
undistributed net realized gain (loss) was increased by $98,168,815 and shares
of beneficial interest decreased by $110,634,779. Further, as a result of
capital loss carryforward and tax deferrals acquired in the reorganization of
AIM Emerging Growth Fund into the Fund on July 18, 2005, undistributed net
investment income (loss) was decreased by $58,730, undistributed net realized
gain (loss) was decreased by $120,029,459 and shares of beneficial interest
increased by $120,088,189. In addition, as a result of tax deferrals acquired in
the reorganization of AIM Libra Fund into the Fund on July 18, 2005,
undistributed net investment income (loss) was decreased by $5,959,
undistributed net realized gain (loss) was decreased by $106,017 and shares of
beneficial interest increased by $111,976. These reclassifications had no effect
on the net assets of the Fund.
F-11
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
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,794,593 $ 89,435,219 19,503,343 $ 183,246,538
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,157,174 20,741,914 2,785,031 24,931,760
- --------------------------------------------------------------------------------------------------------------------------
Class C 965,005 9,319,160 1,454,243 13,022,624
- --------------------------------------------------------------------------------------------------------------------------
Class R 153,721 1,577,862 233,461 2,175,865
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 552,039 5,698,586 -- --
==========================================================================================================================
Issued in connection with acquisitions:(b)
Class A 7,577,916 80,805,230 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B 4,434,654 44,753,557 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,554,804 15,684,053 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 355,089 3,625,337 366,882 3,476,875
- --------------------------------------------------------------------------------------------------------------------------
Class B (374,750) (3,625,337) (384,365) (3,476,875)
==========================================================================================================================
Reacquired:
Class A (70,315,679) (711,083,922) (69,860,562) (656,457,370)
- --------------------------------------------------------------------------------------------------------------------------
Class B (7,269,476) (70,514,858) (5,651,768) (50,445,312)
- --------------------------------------------------------------------------------------------------------------------------
Class C (2,890,214) (27,994,280) (3,075,625) (27,547,392)
- --------------------------------------------------------------------------------------------------------------------------
Class R (122,937) (1,250,989) (66,756) (621,130)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (183,863) (1,905,011) (272,069) (2,730,852)
==========================================================================================================================
(54,611,924) $(544,733,479) (54,968,185) $(514,425,269)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 6% of the outstanding shares
of the Fund. ADI has an agreement with this entity to sell 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 July 18, 2005, the Fund acquired all of
the net assets of AIM Emerging Growth Fund and AIM Libra Fund pursuant
to plans of reorganization approved by the Trustees of the Fund on March
22, 2005 and by AIM Emerging Growth Fund and AIM Libra Fund shareholders
on June 28, 2005. The acquisitions were accomplished by a tax-free
exchange of 13,567,374 shares of the Fund for 16,322,924 shares of AIM
Emerging Growth Fund outstanding and 2,044,603 shares of AIM Libra Fund
outstanding as of the close of business on July 15, 2005. AIM Emerging
Growth Fund's net assets at that date of $115,779,369 including
$5,829,867 of unrealized appreciation and AIM Libra Fund's net assets at
that date of $25,463,471 including $522,202 of unrealized appreciation,
were combined with those of the Fund. The aggregate net assets of the
Fund immediately before the acquisition were $1,602,650,129.
F-12
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,
------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.62 $ 8.99 $ 7.30 $ 8.68 $ 18.41
- --------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.06)(a) (0.08)(a) (0.07)(a) (0.09)(a) (0.09)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.79 0.71 1.76 (1.29) (6.34)
==============================================================================================================
Total from investment
operations 0.73 0.63 1.69 (1.38) (6.43)
==============================================================================================================
Less distributions from net
realized gains -- -- -- -- (3.30)
==============================================================================================================
Net asset value, end of period $ 10.35 $ 9.62 $ 8.99 $ 7.30 $ 8.68
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 7.59% 7.01% 23.15% (15.90)% (40.51)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,210,468 $1,640,288 $1,983,600 $1,798,318 $2,516,407
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.35%(c) 1.29% 1.30% 1.32% 1.17%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.36%(c) 1.30% 1.30% 1.32% 1.17%
==============================================================================================================
Ratio of net investment income
(loss) to average net assets (0.57)%(c) (0.86)% (0.96)% (1.00)% (0.79)%
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 183% 115% 78% 68% 89%
______________________________________________________________________________________________________________
==============================================================================================================
</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 $1,446,143,334.
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.15 $ 8.62 $ 7.04 $ 8.45 $ 18.12
- --------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.13)(a) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.75 0.67 1.71 (1.26) (6.20)
========================================================================================================
Total from investment
operations 0.62 0.53 1.58 (1.41) (6.37)
========================================================================================================
Less distributions from net
realized gains -- -- -- -- (3.30)
========================================================================================================
Net asset value, end of period $ 9.77 $ 9.15 $ 8.62 $ 7.04 $ 8.45
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 6.78% 6.15% 22.44% (16.69)% (40.90)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $255,044 $248,425 $262,098 $226,806 $294,303
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 2.10%(c) 2.04% 2.05% 2.07% 1.94%
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.11%(c) 2.05% 2.05% 2.07% 1.94%
========================================================================================================
Ratio of net investment income
(loss) to average net assets (1.32)%(c) (1.61)% (1.71)% (1.75)% (1.55)%
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate 183% 115% 78% 68% 89%
________________________________________________________________________________________________________
========================================================================================================
</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 $252,012,549.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.15(a) $ 8.62 $ 7.04 $ 8.45 $ 18.11
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.14)(a) (0.13)(a) (0.15)(a) (0.17)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 0.67 1.71 (1.26) (6.19)
=============================================================================================================================
Total from investment operations 0.62 0.53 1.58 (1.41) (6.36)
=============================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.30)
=============================================================================================================================
Net asset value, end of period $ 9.77 $ 9.15 $ 8.62 $ 7.04 $ 8.45
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 6.78% 6.15% 22.44% (16.69)% (40.86)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,455 $71,229 $81,079 $72,676 $96,640
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.10%(c) 2.04% 2.05% 2.07% 1.94%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.11%(c) 2.05% 2.05% 2.07% 1.94%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.32)%(c) (1.61)% (1.71)% (1.75)% (1.55)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 183% 115% 78% 68% 89%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $70,600,140.
<Table>
<Caption>
CLASS R
------------------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
-------------------------------- 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) (0.08)(a) (0.10)(a) (0.10)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.78 0.69 1.77 (1.56)
====================================================================================================================
Total from investment operations 0.70 0.59 1.67 (1.60)
====================================================================================================================
Net asset value, end of period $10.25 $ 9.55 $ 8.96 $ 7.29
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 7.33% 6.58% 22.91% (18.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,358 $2,834 $1,164 $ 137
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.60%(c) 1.54% 1.55% 1.62%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.61%(c) 1.55% 1.55% 1.62%(d)
====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.82)%(c) (1.11)% (1.21)% (1.30)%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 183% 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 $3,192,084..
(d) Annualized.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------- 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(a) (0.03)(a) (0.03)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.80 0.71 1.79 (2.19)
==========================================================================================================================
Total from investment operations 0.80 0.68 1.76 (2.21)
==========================================================================================================================
Net asset value, end of period $10.56 $9.76 $ 9.08 $ 7.32
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 8.20% 7.49% 24.04% (23.19)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,028 $ 128 $2,589 $ 138
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.75%(c) 0.72% 0.71% 0.81%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.76%(c) 0.73% 0.71% 0.81%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.03%(c) (0.29)% (0.37)% (0.49)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 183% 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 $3,180,034.
(d) Annualized.
NOTE 15--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 16--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Seller") unanimously approved, on November
14, 2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Selling Fund") a series of Seller, would transfer all of its
assets to AIM Constellation Fund ("Buying 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 February 28, 2006. 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 17 -- LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and
F-15
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
related activity in the AIM Funds, including those formerly advised by IFG. As
part of the settlements, a $325 million fair fund ($110 million of which is
civil penalties) has been created to compensate shareholders harmed by market
timing and related activity in funds formerly advised by IFG. Half of this
amount has already been paid to the fair fund pursuant to the terms of the
settlement with the remainder due December 31, 2005. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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 ss. 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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
F-16
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
- 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 was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of
AIM Aggressive Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Aggressive Growth Fund (one of
the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
As described in Note 16, on November 14, 2005, the Board of Trustees of the Fund
approved a plan of merger for the Fund with AIM Constellation Fund. This merger
is expected to take place in early 2006 upon the approval of the Fund's
shareholders.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets are not subject to the U.S. estate tax for
the fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 5.01%, 4.85%, 6.59% and 6.62%, respectively.
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund FIXED INCOME
AIM Opportunities I Fund
AIM Opportunities II Fund TAXABLE
AIM Opportunities III Fund
AIM Premier Equity Fund AIM Floating Rate Fund
AIM S&P 500 Index Fund AIM High Yield Fund
AIM Select Equity Fund AIM Income Fund
AIM Small Cap Equity Fund AIM Intermediate Government Fund
AIM Small Cap Growth Fund(1) AIM Limited Maturity Treasury Fund
AIM Small Company Growth Fund AIM Money Market Fund
AIM Summit Fund AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money Portfolio
* Domestic equity and income fund TAX-FREE
INTERNATIONAL/GLOBAL EQUITY AIM High Income Municipal Fund(1)
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund(1)
AIM Global Aggressive Growth Fund =======================================================================================
AIM Global Equity Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Global Growth Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Global Value Fund AND READ IT CAREFULLY BEFORE INVESTING.
AIM International Core Equity Fund =======================================================================================
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com AGRO-AR-1 A I M Distributors, Inc.
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
- --------------------------------------------------------------------------------
AIM BLUE CHIP FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENT LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM BLUE CHIP FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
<Caption>
ABOUT SHARE CLASSES o The unmanaged Russell 1000 You have recently received or should
--Registered Trademark--GROWTH INDEX is shortly receive a proxy requesting your
o Class B shares are not available as an a subset of the unmanaged RUSSELL 1000 vote on a proposed merger of AIM Blue
investment for retirement plans INDEX, which represents the performance Chip Fund into AIM Large Cap Growth
maintained pursuant to Section 401 of of the stocks of large-capitalization Fund. We encourage you to read the proxy
the Internal Revenue Code, including 401(k) companies; the Growth subset measures materials carefully and to vote
plans, money purchase pension plans the performance of Russell 1000 promptly. The ways in which you may cast
and profit sharing plans. Plans that had companies with higher price/book ratios your proxy ballot are detailed in the
existing accounts invested in Class B and higher forecasted growth values. proxy materials.
shares prior to September 30, 2003, will
continue to be allowed to make o The unmanaged Standard & Poor's The Fund provides a complete list of its
additional purchases. Composite Index of 500 Stocks (the S&P holdings four times in each fiscal year,
500 --Registered Trademark-- INDEX) is at the quarter-ends. For the second and
an index of common stocks frequently fourth quarters, the lists appear in the
o Class R shares are available only to used as a general measure of U.S. stock Fund's semiannual and annual reports to
certain retirement plans. Please see the market performance. shareholders. For the first and third
prospectus for more information. quarters, the Fund files the lists with
o The Fund is not managed to track the the Securities and Exchange Commission
o Investor Class shares are closed to performance of any particular index, (SEC) on Form N-Q. The most recent list
most investors. For more information on including the indexes defined here, and of portfolio holdings is available at
who may continue to invest in the consequently, the performance of the AIMinvestments.com. From our home page,
Investor Class shares, please see the Fund may deviate significantly from the click on Products & Performance, then
prospectus. performance of the indexes. Mutual Funds, then Fund Overview. Select
your Fund from the drop-down menu and
PRINCIPAL RISKS OF INVESTING IN THE FUND o A direct investment cannot be made in click on Complete Quarterly Holdings.
an index. Unless otherwise indicated, Shareholders can also look up the Fund's
o The Fund may invest up to 25% of its index results include reinvested Forms N-Q on the SEC's Web site at
assets in the securities of non-U.S. dividends, and they do not reflect sales sec.gov. And copies of the Fund's Forms
issuers. International investing charges. Performance of an index of N-Q may be reviewed and copied at the
presents certain risks not associated funds reflects fund expenses; SEC's Public Reference Room at 450 Fifth
with investing solely in the United performance of a market index does not. Street, N.W., Washington, D.C.
States. These include risks relating to 20549-0102. You can obtain information
fluctuations in the value of the U.S. OTHER INFORMATION on the operation of the Public Reference
dollar relative to the values of other Room, including information about
currencies, the custody arrangements o The returns shown in management's duplicating fee charges, by calling
made for the Fund's foreign holdings, discussion of Fund performance are based 202-942-8090 or 800-732-0330, or by
differences in accounting, political on net asset values calculated for electronic request at the following
risks and the lesser degree of public shareholder transactions. Generally e-mail address: publicinfo@sec.gov. The
information required to be provided by accepted accounting principles require SEC file numbers for the Fund are
non-U.S. companies. adjustments to be made to the net assets 811-01424 and 2-25469.
of the Fund at period end for financial
ABOUT INDEXES USED IN THIS REPORT reporting purposes, and as such, the net A description of the policies and
asset values for shareholder procedures that the Fund uses to
o The unmanaged LIPPER LARGE-CAP GROWTH transactions and the returns based on determine how to vote proxies relating
FUND INDEX represents an average of the those net asset values may differ from to portfolio securities is available
performance of the 30 largest the net asset values and returns without charge, upon request, from our
large-capitalization growth funds reported in the Financial Highlights. Client Services department at
tracked by Lipper, Inc., an independent 800-959-4246 or on the AIM Web site,
mutual fund performance monitor. o Industry classifications used in this AIMinvestments.com. On the home page,
report are generally according to the scroll down and click on AIM Funds Proxy
o The unmanaged MSCI WORLD INDEX is a Global Industry Classification Standard, Policy. The information is also
group of global securities tracked by which was developed by and is the available on the Securities and Exchange
Morgan Stanley Capital International. exclusive property and a service mark of Commission's Web site, sec.gov.
Morgan Stanley Capital International
Inc. and Standard & Poor's. Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2005, is available at our Web
site. Go to AIMinvestments.com, access
the About Us tab, click on Required
Notices and then click on Proxy Voting
Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares ABCAX
===================================================================================== Class B Shares ABCBX
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, Class C Shares ABCCX
WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. Class R Shares ABCRX
INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Investor Class Shares BCIVX
===================================================================================== ========================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
</Table>
AIM BLUE CHIP FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
[GRAHAM equity investors. Domestically, the broad-based S&P 500
PHOTO] Index returned 8.72%. Globally, Morgan Stanley's MSCI World
Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
[WILLIAMSON data for the fiscal year ended October 31, 2005. Of course,
PHOTO] your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
MARK H. WILLIAMSON affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President, A I M Advisors, Inc.
AIM Funds
December 15, 2005
A I M Investments is a registered service mark of
A I M Management Group Inc. A I M Advisors, Inc. and
A I M Capital Management, Inc. are the investment advisors.
A I M Distributors, Inc. is the distributor for the retail
funds represented by AIM Investments
1
AIM BLUE CHIP FUND
DEAR AIM FUNDS 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
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM BLUE CHIP FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
We follow a "conservative growth"
strategy, investing in market leaders
that have attractive growth and value
===================================================================================== characteristics:
PERFORMANCE SUMMARY
======================================== o growth--we seek companies with the
For the year ended October 31, 2005, FUND VS. INDEXES potential for sustainable, long-term
Class A shares of AIM Blue Chip Fund, earnings, revenue and cash flow growth.
excluding sales charges, underperformed TOTAL RETURNS, 10/31/04-10/31/05,
the broad stock market and its EXCLUDING APPLICABLE SALES CHARGES. IF o value--we seek companies whose stocks
style-specific index. We believe the SALES CHARGES WERE INCLUDED, RETURNS are trading at attractive valuations
Fund under-performed the S&P 500 Index WOULD BE LOWER. relative to their potential growth rates
because growth stocks-in particular,
large-cap growth stocks-were out of Class A Shares 6.95% We construct the portfolio by
favor for much of the year. The Fund focusing on stocks rather than
invests in such stocks. The Fund Class B Shares 6.15 industries or sectors. While there are
underperformed the Russell 1000 Growth no formal sector guidelines or
Index because within the large-cap Class C Shares 6.15 constraints, internal controls and
growth space, the very largest growth proprietary software help us monitor
stocks-so-called "mega capitalization" Class R Shares 6.69 risk levels and sector concentration.
stocks-lagged other large-cap growth
stocks. For much of the year, a large Investor Class Shares 6.93 Our sell process seeks to identify
portion of the Fund's assets were deterioration in the underlying reasons
invested in "mega-cap" stocks. S&P 500 Index a stock was initially purchased.
(Broad Market Index) 8.72 Conditions that may cause us to reduce
or sell a position include:
Russell 1000 Growth Index
(Style-specific Index) 8.81 o deterioration in business prospects
Lipper Large-Cap Growth Fund o worsening competitive position
Index (Peer Group Index) 12.09
o slowing earnings growth
SOURCE: LIPPER, INC.
o extended valuation
========================================
o finding more attractive investment
Your Fund's long-term performance opportunities
appears on Pages 6 and 7.
===================================================================================== MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST Quantitative analysis focuses on the Despite widespread concern about the
level, growth rate and sustainability of potential impact of rising short-term
We believe a growth investment strategy earnings, revenue and cash flow, ranking interest rates and historically high
is an essential component of a investment candidates on absolute and energy prices, the U.S. economy
diversified portfolio. relative attractiveness. Fundamental expanded, inflation remained contained
analysis seeks to define a company's key and corporate profits generally rose
Our investment process combines drivers of success and to assess their during the fiscal year. Late in the
quantitative and fundamental analysis to durability. We review financial year, higher energy prices and rising
uncover companies exhibiting long-term, statements and earnings reports, the interest rates threatened to crimp
sustainable earnings and cash flow company's business model and management consumer spending, which accounts for
growth that is not yet reflected in team, the competitive environment and approximately two-thirds of the U.S.
investor expectations or equity market opportunities. economy.
valuations.
(continued)
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.5% 1. Johnson & Johnson 3.5%
[PIE CHART] 2. Managed Health Care 7.5 2. Procter & Gamble Co. (The) 3.2
Health Care 27.3% 3. Systems Software 6.0 3. Goldman Sachs Group, Inc. (The) 2.6
Information Technology 21.6% 4. Biotechnology 5.3 4. Microsoft Corp. 2.6
Financials 12.9% 5. Semiconductors 4.8 5. Aetna Inc. 2.5
Consumer Discretionary 12.6% 6. Investment Banking & Brokerage 4.6 6. Amgen Inc. 2.3
Energy 9.5% 7. Aerospace & Defense 4.3 7. QUALCOMM Inc. 2.3
Industrials 6.5% 8. Communications Equipment 3.6 8. Home Depot, Inc. (The) 2.1
Consumer Staples 5.1% 9. Oil & Gas Equipment & Services 3.5 9. WellPoint, Inc. 2.1
Materials 1.7% 10. Household Products 3.2 10. Oracle Corp. 2.0
Money Market Funds Plus TOTAL NET $1.9 BILLION ASSETS The Fund's holdings are subject to change,
Other Assets Less Liabilities 2.8% and there is no assurance that the Fund
TOTAL NUMBER OF HOLDINGS* 80 will continue to hold any particular
security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
</Table>
3
AIM BLUE CHIP FUND
<Table>
<Caption>
Corporate profits and stock market disappointing quarterly results and manufactures and markets digital wireless
performance varied widely by sector withdrew all forward-looking guidance. telecommunications products. Management
during the year. Rising energy prices has announced a $2 billion stock buyback
caused many energy companies and Energy has not been considered a and has raised earnings guidance,
utilities to report record earnings and traditional growth sector, but supply prompting the stock to appreciate in
profits--while profits of companies that and demand characteristics have clearly recent months.
use a lot of energy, such as chemical changed in recent years, due largely to
companies and airlines, were weak. The explosive economic growth in China and IN CLOSING
broad stock market rose for the year. India. Worldwide production and refining
capacity has struggled to keep pace with As the fiscal year ended, we considered
Since assuming management of your rising demand. We believe that any the fundamentals of large-cap growth
Fund on July 1, we have spent significant improvement in supply is stocks to be good--and getting better.
considerable time revaluating Fund likely to be years away. Given these As a group, large-cap growth companies
holdings and considering new investment trends, many energy companies have seen boasted healthy cash flows, strong
opportunities. In the past, the Fund notable growth in their revenue and balance sheets and positive earnings
sought exposure to all 10 sectors of the earnings--using the money to improve growth, and managements were generally
market, but we have decided to pursue their balance sheets and to benefit using capital for the benefit of
promising investment opportunities shareholders in the form of stock shareholders. And yet, large-cap growth
regardless of sector, based on our buybacks and dividend increases. stocks were attractively priced relative
quantitative and fundamental research. to other stocks with less attractive
Since taking over the Fund, this Since taking over management of the fundamentals. While large-cap growth
research has led us to greatly increase Fund in July, we have increased the stocks have lagged the broad market in
our health care holdings because we Fund's exposure to the energy sector recent years, we believe investors will
found attractive investment from about 8.4% to almost 10% of total eventually recognize and reward these
opportunities within that sector, and net assets. Integrated oil giant characteristics. As always, we thank you
eliminate utilities and EXXONMOBIL and oilfield services for your continued investment in AIM
telecommunication services stocks from provider SCHLUMBERGER were among the Blue Chip Fund.
the Fund because we found more promising energy stocks that helped Fund
opportunities elsewhere. As a result of performance during the year. (We sold THE VIEWS AND OPINIONS EXPRESSED IN
our research, a number of new names our holdings in ExxonMobil before the MANAGEMENT'S DISCUSSION OF FUND
appear in the Fund's top 10-holdings close of the fiscal year when the stock PERFORMANCE ARE THOSE OF A I M ADVISORS,
list. The Fund's transformation is now reached our price target.) INC. THESE VIEWS AND OPINIONS ARE
virtually complete. SUBJECT TO CHANGE AT ANY TIME BASED ON
We added to the Fund's consumer FACTORS SUCH AS MARKET AND ECONOMIC
Health care and energy stocks made discretionary stocks following a major CONDITIONS. THESE VIEWS AND OPINIONS MAY
the greatest contribution to your Fund's sell-off in August, when a number of NOT BE RELIED UPON AS INVESTMENT ADVICE
performance. retailers announced disappointing OR RECOMMENDATIONS, OR AS AN OFFER FOR A
same-store sales results. We sought out PARTICULAR SECURITY. THE INFORMATION IS
Within the health care sector, our companies that we believe can still grow NOT A COMPLETE ANALYSIS OF EVERY ASPECT
research led us to managed care stocks their earnings without necessarily OF ANY MARKET, COUNTRY, INDUSTRY,
and non-U.S. pharmaceutical stocks, improving their same-store sales. We SECURITY OR THE FUND. STATEMENTS OF FACT
while leading us away from U.S. also targeted retailers that cater to ARE FROM SOURCES CONSIDERED RELIABLE,
pharmaceutical stocks. Many managed care higher-end consumers--consumers less BUT A I M ADVISORS, INC. MAKES NO
companies have reported strong earnings likely to be affected by potentially REPRESENTATION OR WARRANTY AS TO THEIR
in recent quarters by aggressively higher winter heating bills, for COMPLETENESS OR ACCURACY. ALTHOUGH
controlling costs, reducing hospital example. NORDSTROM and FEDERATED HISTORICAL PERFORMANCE IS NO GUARANTEE
utilization rates and switching plan DEPARTMENT STORES were among the stocks OF FUTURE RESULTS, THESE INSIGHTS MAY
participants from name-brand to generic we added to the Fund, and we did so at HELP YOU UNDERSTAND OUR INVESTMENT
drugs. AETNA and UNITEDHEALTH GROUP were what we believe were very reasonable MANAGEMENT PHILOSOPHY.
among the managed care companies that prices.
contributed to Fund performance. See important Fund and index
Individual stock selection within the disclosures inside front cover.
We increased our ownership of information technology sector (IT) was
non-U.S. pharmaceutical companies, the biggest drag on Fund performance for
including ROCHE HOLDING and NOVARTIS, the year. The Fund does not own Google, KIRK L. ANDERSON, portfolio
both of which have developed promising which has been a Wall Street darling [ANDERSON manager, is lead portfolio
new cancer treatments. In addition to since going public in August 2004, and PHOTO] manager of AIM Blue Chip
being the manufacturer of Tamiflu that hurt the Fund's performance Fund. Mr. Anderson joined
- --Registered Trademark--, the potential relative to its style-specific index. IT AIM in 1994 in the fund
treatment for "bird flu," Roche owns 56% stalwarts MICROSOFT, IBM and ORACLE all services area. He moved to
of Genentech, maker of Avastin underperformed, hindering the Fund's portfolio administration in 1995, became
- --Registered Trademark--, which has absolute performance. (We sold our an analyst in 1997, and was named a
shown promise in the treatment of a holdings in IBM before the close of the portfolio manager in 2003. Mr. Anderson
number of types of cancer. fiscal year and after the company earned a B.A. in political science from
announced disappointing quarterly Texas A&M University and an M.S. in
Just as important to Fund earnings results.) During the year, and finance from the University of Houston.
performance, we avoided a number of U.S. based on our fundamental research, we
pharmaceutical companies. Weak product added to our position in QUALCOMM. Our Assisted by the Large/Multi-Cap Growth
pipelines, patent expirations and research suggested cell phone sales may Team
litigation risk have raised questions be stronger than expected in coming
about the prospects for a number of quarters; the company designs, [RIGHT ARROW GRAPHIC]
these companies. During the year, we
eliminated PFIZER from the portfolio FOR A PRESENTATION OF YOUR FUND'S
after the company reported LONG-TERM PERFORMANCE, PLEASE SEE PAGES
6 AND 7.
</Table>
4
AIM BLUE CHIP FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over The hypothetical account values and
the period. Simply divide your account expenses may not be used to estimate the
As a shareholder of the Fund, you incur value by $1,000 (for example, an $8,600 actual ending account balance or
two types of costs: (1) transaction account value divided by $1,000 = 8.6), expenses you paid for the period. You
costs, which may include sales charges then multiply the result by the number may use this information to compare the
(loads) on purchase payments; contingent in the table under the heading entitled ongoing costs of investing in the Fund
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to and other funds. To do so, compare this
and redemption fees, if any; and (2) estimate the expenses you paid on your 5% hypothetical example with the 5%
ongoing costs, including management fees; account during this period. hypothetical examples that appear in the
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
May 1, 2005, through October 31, 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 October 31, 2005, appear in the of owning different funds. In addition,
The table below provides information table "Cumulative Total Returns" on page if these transactional costs were
about actual account values and actual 7. included, your costs would have been
expenses. You may use the information in higher.
this table, together with the amount you
invested, to
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL BEFORE RETURN EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2),(3) (10/31/05) PERIOD(2),(4) RATIO
A $1,000.00 $1,065.60 $ 7.50 $1,017.95 $ 7.32 1.44%
B 1,000.00 1,061.50 11.17 1,014.37 10.92 2.15
C 1,000.00 1,061.50 11.17 1,014.37 10.92 2.15
R 1,000.00 1,065.00 8.59 1,016.89 8.39 1.65
Investor 1,000.00 1,065.50 7.29 1,018.15 7.12 1.40
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half-year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense ratio restated as if
the agreement had been in effect throughout the entire most recent half year is 1.40% for Class A 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 $7.29 for Class A shares.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
year are $7.12 for Class A shares.
===================================================================================================================================
</Table>
[ARROW
BUTTON FOR MORE INFORMATION VISIT
IMAGE] AIMinvestments.com
5
AIM BLUE CHIP FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 10/31/95
<Table>
<Caption>
[MOUNTAIN CHART]
======================================================================================================================
DATE AIM BLUE CHIP FUND- S&P 500 RUSSELL 1000 LIPPER LARGE-CAP
CLASS A SHARES INDEX GROWTH INDEX GROWTH INDEX
10/31/95 $9450 $10000 $10000 $10000
11/95 9826 10438 10389 10315
12/95 9957 10640 10448 10319
1/96 10130 11001 10798 10622
2/96 10391 11104 10995 10861
3/96 10539 11211 11009 10866
4/96 10737 11376 11299 11125
5/96 11096 11669 11694 11453
6/96 11150 11713 11710 11350
7/96 10676 11196 11024 10742
8/96 10927 11432 11308 11065
9/96 11657 12075 12132 11835
10/96 11895 12408 12205 11982
11/96 12584 13345 13121 12757
12/96 12322 13081 12864 12440
1/97 13034 13898 13766 13229
2/97 13074 14007 13673 13039
3/97 12372 13432 12933 12371
4/97 13174 14233 13792 13049
5/97 13982 15104 14787 13935
6/97 14625 15775 15379 14519
7/97 15945 17030 16739 15906
8/97 15118 16077 15760 15039
9/97 16010 16957 16535 15869
10/97 15427 16391 15924 15318
11/97 15995 17149 16600 15659
12/97 16255 17443 16786 15873
1/98 16454 17636 17288 16153
2/98 17584 18907 18589 17387
3/98 18393 19875 19330 18196
4/98 18719 20078 19597 18501
5/98 18286 19734 19041 18087
6/98 19136 20535 20207 19123
7/98 18989 20318 20074 19114
8/98 16112 17382 17061 15992
9/98 17034 18497 18372 17155
10/98 18414 19999 19848 18262
11/98 19590 21211 21358 19516
12/98 21199 22432 23284 21662
1/99 22017 23370 24651 23068
2/99 21235 22643 23525 22121
3/99 22282 23549 24764 23378
4/99 22527 24461 24795 23458
5/99 21863 23884 24033 22681
6/99 23238 25206 25717 24258
7/99 22594 24422 24899 23497
8/99 22416 24301 25306 23501
9/99 22196 23636 24775 23263
10/99 23754 25131 26646 25047
11/99 24521 25642 28083 26285
12/99 26638 27150 31004 29204
1/00 25759 25786 29550 28032
2/00 26163 25299 30995 29506
3/00 28478 27772 33213 31577
4/00 27251 26937 31633 29133
5/00 26376 26385 30040 27456
6/00 27592 27034 32317 29272
7/00 27369 26612 30969 28679
8/00 29041 28264 33774 31159
9/00 27185 26772 30579 28783
10/00 26511 26659 29132 27261
11/00 24059 24559 24838 23603
12/00 24167 24679 24052 23457
1/01 24658 25554 25713 24139
2/01 21423 23226 21348 20402
3/01 19321 21755 19025 18283
4/01 21315 23444 21431 20245
5/01 21268 23602 21116 20091
6/01 20456 23027 20627 19512
7/01 19781 22801 20111 18813
8/01 18216 21375 18467 17383
9/01 16544 19649 16623 15635
10/01 17202 20024 17495 16284
11/01 18597 21559 19176 17776
12/01 18627 21748 19140 17858
1/02 18243 21431 18801 17454
2/02 17568 21018 18021 16732
3/02 18304 21808 18645 17405
4/02 16955 20486 17123 16246
5/02 16572 20336 16709 15950
6/02 15422 18888 15163 14651
7/02 14380 17416 14329 13549
8/02 14456 17530 14372 13624
9/02 13014 15627 12881 12304
10/02 14134 17001 14063 13251
11/02 14548 18000 14827 13799
12/02 13704 16943 13803 12838
1/03 13320 16500 13468 12542
2/03 13259 16253 13406 12407
3/03 13488 16410 13655 12640
4/03 14500 17761 14665 13565
5/03 15160 18696 15397 14229
6/03 15205 18935 15609 14347
7/03 15573 19269 15997 14763
8/03 15849 19644 16395 15127
9/03 15573 19436 16220 14805
10/03 16386 20535 17131 15703
11/03 16540 20715 17310 15852
12/03 17169 21801 17909 16299
1/04 17352 22201 18275 16612
2/04 17489 22509 18391 16683
3/04 17274 22170 18050 16497
4/04 16815 21822 17840 16127
5/04 17075 22121 18172 16419
6/04 17260 22551 18399 16654
7/04 16525 21805 17359 15669
8/04 16449 21892 17273 15559
9/04 16556 22129 17438 15923
10/04 16771 22467 17710 16115
11/04 17369 23376 18319 16834
12/04 17906 24171 19037 17514
1/05 17507 23582 18402 16911
2/05 17645 24078 18598 17022
3/05 17276 23652 18259 16712
4/05 16832 23204 17912 16348
5/05 17430 23942 18778 17256
6/05 17369 23976 18709 17290
7/05 18090 24867 19623 18160
8/05 17737 24640 19371 17966
9/05 17982 24840 19460 18181
10/05 17940 24425 19271 18063
======================================================================================================================
SOURCE: LIPPER, INC
The data shown in the chart include This chart, which is a logarithmic
reinvested distributions, applicable chart, presents the fluctuations in the
sales charges, Fund expenses and value of the Fund and its indexes. We
management fees. Index results include believe that a logarithmic chart is more
reinvested dividends, but they do not effective than other types of charts in
reflect sales charges. Performance of an illustrating changes in value during the
index of funds reflects fund expenses early years shown in the chart. The
and management fees; performance of a vertical axis, the one that indicates
market index does not. Performance shown the dollar value of an investment, is
in the chart and table(s) does not constructed with each segment
reflect deduction of taxes a shareholder representing a percent change in the
would pay on Fund distributions or sale value of the investment. In this chart,
of Fund shares. Performance of the each segment represents a doubling, or
indexes does not reflect the effects of 100% change, in the value of the
taxes. investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000.
</Table>
6
AIM BLUE CHIP FUND
<Table>
<Caption>
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar
sales charges quarter-end, including applicable sales 6 months ended 10/31/05, excluding
charges applicable sales charges
CLASS A SHARES
Inception (2/4/87) 8.23% CLASS A SHARES Class A Shares 6.56%
10 Years 6.02 Inception (2/4/87) 8.29% Class B Shares 6.15
5 Years -8.56 10 Years 5.96 Class C Shares 6.15
1 Year 1.04 5 Years -8.96 Class R Shares 6.50
1 Year 2.62 Investor Class Shares 6.55
CLASS B SHARES
Inception (10/1/96) 4.20% CLASS B SHARES ========================================
5 Years -8.50 Inception (10/1/96) 4.27%
1 Year 1.15 5 Years -8.89
1 Year 2.89
CLASS C SHARES
Inception (8/4/97) 0.80% CLASS C SHARES
5 Years -8.12 Inception (8/4/97) 0.85%
1 Year 5.15 5 Years -8.53
1 Year 6.89
CLASS R SHARES
10 Years 6.46% CLASS R SHARES
5 Years -7.65 10 Years 6.40%
1 Year 6.69 5 Years -8.07
1 Year 8.36
INVESTOR CLASS SHARES
10 Years 6.64% INVESTOR CLASS SHARES
5 Years -7.48 10 Years 6.59%
1 Year 6.93 5 Years -7.88
1 Year 8.69
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE THE PERFORMANCE DATA QUOTED REPRESENT BEGINNING OF THE SEVENTH YEAR. THE CDSC
3, 2002. RETURNS SINCE THAT DATE ARE PAST PERFORMANCE AND CANNOT GUARANTEE ON CLASS C SHARES IS 1% FOR THE FIRST
HISTORICAL RETURNS. ALL OTHER RETURNS COMPARABLE FUTURE RESULTS; CURRENT YEAR AFTER PURCHASE. CLASS R SHARES DO
ARE BLENDED RETURNS OF HISTORICAL CLASS PERFORMANCE MAY BE LOWER OR HIGHER. NOT HAVE A FRONT-END SALES CHARGE;
R SHARE PERFORMANCE AND RESTATED CLASS A PLEASE VISIT AIMINVESTMENTS.COM FOR THE RETURNS SHOWN ARE AT NET ASSET VALUE AND
SHARE PERFORMANCE (FOR PERIODS PRIOR TO MOST RECENT MONTH-END PERFORMANCE. DO NOT REFLECT A 0.75% CDSC THAT MAY BE
THE INCEPTION DATE OF CLASS R SHARES) AT PERFORMANCE FIGURES REFLECT REINVESTED IMPOSED ON A TOTAL REDEMPTION OF
NET ASSET VALUE, ADJUSTED TO REFLECT THE DISTRIBUTIONS, CHANGES IN NET ASSET RETIREMENT PLAN ASSETS WITHIN THE FIRST
HIGHER RULE 12b-1 FEES APPLICABLE TO VALUE AND THE EFFECT OF THE MAXIMUM YEAR. INVESTOR CLASS SHARES DO NOT HAVE
CLASS R SHARES. SALES CHARGE UNLESS OTHERWISE STATED. A FRONT-END SALES CHARGE OR A CDSC;
INVESTMENT RETURN AND PRINCIPAL VALUE THEREFORE, PERFORMANCE IS AT NET ASSET
INVESTOR CLASS SHARES' INCEPTION DATE WILL FLUCTUATE SO THAT YOU MAY HAVE A VALUE.
IS SEPTEMBER 30, 2003. RETURNS SINCE GAIN OR LOSS WHEN YOU SELL SHARES.
THAT DATE ARE HISTORICAL RETURNS. ALL THE PERFORMANCE OF THE FUND'S SHARE
OTHER RETURNS ARE BLENDED RETURNS OF CLASS A SHARE PERFORMANCE REFLECTS CLASSES WILL DIFFER DUE TO DIFFERENT
HISTORICAL INVESTOR CLASS SHARE THE MAXIMUM 5.50% SALES CHARGE, AND SALES CHARGE STRUCTURES AND CLASS
PERFORMANCE AND RESTATED CLASS A SHARE CLASS B AND CLASS C SHARE PERFORMANCE EXPENSES.
PERFORMANCE (FOR PERIODS PRIOR TO THE REFLECTS THE APPLICABLE CONTINGENT
INCEPTION DATE OF INVESTOR CLASS SHARES) DEFERRED SALES CHARGE (CDSC) FOR THE
AT NET ASSET VALUE AND REFLECT THE PERIOD INVOLVED. THE CDSC ON CLASS B
HIGHER RULE 12b-1 FEES APPLICABLE TO SHARES DECLINES FROM 5% BEGINNING AT THE
CLASS A SHARES. TIME OF PURCHASE TO 0% AT THE
</Table>
7
AIM BLUE CHIP FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
<Caption>
The Board of Trustees of AIM Equity o The quality of services to be provided o Fees relative to those of clients of
Funds (the "Board") oversees the by AIM. The Board reviewed the AIM with comparable investment
management of AIM Blue Chip Fund (the credentials and experience of the strategies. The Board reviewed the
"Fund") and, as required by law, officers and employees of AIM who will advisory fee rate for the Fund under the
determines annually whether to approve provide investment advisory services to Advisory Agreement. The Board noted that
the continuance of the Fund's advisory the Fund. In reviewing the this rate (i) was the same as the
agreement with A I M Advisors, Inc. qualifications of AIM to provide advisory fee rates for a variable
("AIM"). Based upon the recommendation investment advisory services, the Board insurance fund advised by AIM and
of the Investments Committee of the reviewed the qualifications of AIM's offered to insurance company separate
Board, which is comprised solely of investment personnel and considered such accounts with investment strategies
independent trustees, at a meeting held issues as AIM's portfolio and product comparable to those of the Fund; and
on June 30, 2005, the Board, including review process, various back office (ii) was higher than the sub-advisory
all of the independent trustees, support functions provided by AIM and fee rates for three unaffiliated mutual
approved the continuance of the advisory AIM's equity and fixed income trading funds for which an AIM affiliate serves
agreement (the "Advisory Agreement") operations. Based on the review of these as sub-advisor, although the total
between the Fund and AIM for another and other factors, the Board concluded management fees paid by such
year, effective July 1, 2005. that the quality of services to be unaffiliated mutual funds were higher
provided by AIM was appropriate and that than the advisory fee rate for the Fund.
The Board considered the factors AIM currently is providing satisfactory The Board noted that AIM has agreed to
discussed below in evaluating the services in accordance with the terms of waive advisory fees of the Fund, as
fairness and reasonableness of the the Advisory Agreement. discussed below. Based on this review,
Advisory Agreement at the meeting on the Board concluded that the advisory
June 30, 2005 and as part of the Board's o The performance of the Fund relative fee rate for the Fund under the Advisory
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed Agreement was fair and reasonable.
deliberations, the Board and the the performance of the Fund during the
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, effective July 1, 2005, AIM will change comparable to the median rate of the
is to manage the process by which the the Fund's portfolio management team, funds advised by other advisors with
Fund's proposed management fees are which change will need time to be investment strategies comparable to
negotiated to ensure that they are evaluated before a conclusion can be those of the Fund that the Board
negotiated in a manner which is at arm's made that the change has addressed the reviewed. The Board noted that AIM has
length and reasonable. To that end, the Fund's under-performance. Based on this agreed to waive advisory fees of the
Senior Officer must either supervise a review, the Board concluded that no Fund, as discussed below. Based on this
competitive bidding process or prepare changes should be made to the Fund and review, the Board concluded that the
an independent written evaluation. The that it was not necessary to further advisory fee rate for the Fund under the
Senior Officer has recommended an change the Fund's portfolio management Advisory Agreement was fair and
independent written evaluation in lieu 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 Growth Fund Index. The Board advisory fees payable by the Fund do not
certain recommendations to the Board in noted that the Fund's performance in exceed a specified maximum advisory fee
connection with such written evaluation. such periods was below the performance rate, which maximum rate includes break
of such Index. The Board noted that, points and is based on net asset levels.
The discussion below serves as a effective July 1, 2005, AIM will change The Board considered the contractual
summary of the Senior Officer's the Fund's portfolio management team, nature of this fee waiver and noted that
independent written evaluation and which change will need time to be it remains in effect until December 31,
recommendations to the Board in evaluated before a conclusion can be 2009. The Board considered the effect
connection therewith, as well as a made that the change has addressed the this fee waiver would have on the Fund's
discussion of the material factors and Fund's under-performance. Based on this estimated expenses and concluded that
the conclusions with respect thereto review, the Board concluded that no the levels of fee waivers/expense
that formed the basis for the Board's changes should be made to the Fund and limitations for the Fund were fair and
approval of the Advisory Agreement. that it was not necessary to further reasonable.
After consideration of all of the change the Fund's portfolio management
factors below and based on its informed team at this time. o Breakpoints and economies of scale.
business judgment, the Board determined The Board reviewed the structure of the
that the Advisory Agreement is in the o Meeting with the Fund's portfolio Fund's advisory fee under the Advisory
best interests of the Fund and its managers and investment personnel. With Agreement, noting that it includes one
shareholders and that the compensation respect to the Fund, the Board is breakpoint. The Board reviewed the level
to AIM under the Advisory Agreement is meeting periodically with such Fund's of the Fund's advisory fees, and noted
fair and reasonable and would have been portfolio managers and/or other that such fees, as a percentage of the
obtained through arm's length investment personnel and believes that Fund's net assets, have decreased as net
negotiations. such individuals are competent and able assets increased because the Advisory
to continue to carry out their Agreement includes a breakpoint. The
o The nature and extent of the advisory responsibilities under the Advisory Board noted that AIM has contractually
services to be provided by AIM. The Agreement. agreed to waive advisory fees of the
Board reviewed the services to be Fund through December 31, 2009 to the
provided by AIM under the Advisory o Overall performance of AIM. The Board extent necessary so that the advisory
Agreement. Based on such review, the considered the overall performance of fees payable by the Fund do not exceed a
Board concluded that the range of AIM in providing investment advisory and specified maximum advisory fee rate,
services to be provided by AIM under the portfolio administrative services to the which maximum rate includes breakpoints
Advisory Agreement was appropriate and Fund and concluded that such performance and is based on net asset levels. The
that AIM currently is providing services was satisfactory. Board concluded that
in accordance with the terms of the
Advisory Agreement.
(continued)
</Table>
8
AIM BLUE CHIP FUND
<Table>
<Caption>
the Fund's fee levels under the Advisory consider an additional advisory fee waiver advisory services to the Fund, including
Agreement therefore reflect economies of for the Fund due to the Fund's administrative, transfer agency and
scale and that it was not necessary to under-performance. The Board concluded distribution services, and that AIM and
change the advisory fee breakpoints in that such a fee waiver was not its affiliates currently are providing
the Fund's advisory fee schedule. appropriate for the Fund at this time satisfactory non-investment advisory
and that, rather than requesting such a services.
o Investments in affiliated money market fee waiver from AIM, the Board should
funds. The Board also took into account closely monitor the Fund's performance o Other factors and current trends. In
the fact that uninvested cash and cash under the new portfolio management team. determining whether to continue the
collateral from securities lending Advisory Agreement for the Fund, the
arrangements (collectively, "cash o Profitability of AIM and its Board considered the fact that AIM,
balances") of the Fund may be invested affiliates. The Board reviewed along with others in the mutual fund
in money market funds advised by AIM information concerning the profitability industry, is subject to regulatory
pursuant to the terms of an SEC of AIM's (and its affiliates') inquiries and litigation related to a
exemptive order. The Board found that investment advisory and other activities wide range of issues. The Board also
the Fund may realize certain benefits and its financial condition. The Board considered the governance and compliance
upon investing cash balances in AIM considered the overall profitability of reforms being undertaken by AIM and its
advised money market funds, including a AIM, as well as the profitability of AIM affiliates, including maintaining an
higher net return, increased liquidity, in connection with managing the Fund. internal controls committee and
increased diversification or decreased The Board noted that AIM's operations retaining an independent compliance
transaction costs. The Board also found remain profitable, although increased consultant, and the fact that AIM has
that the Fund will not receive reduced expenses in recent years have reduced undertaken to cause the Fund to operate
services if it invests its cash balances AIM's profitability. Based on the review in accordance with certain governance
in such money market funds. The Board of the profitability of AIM's and its policies and practices. The Board
noted that, to the extent the Fund affiliates' investment advisory and concluded that these actions indicated a
invests in affiliated money market other activities and its financial good faith effort on the part of AIM to
funds, AIM has voluntarily agreed to condition, the Board concluded that the adhere to the highest ethical standards,
waive a portion of the advisory fees it compensation to be paid by the Fund to and determined that the current
receives from the Fund attributable to AIM under its Advisory Agreement was not regulatory and litigation environment to
such investment. The Board further excessive. which AIM is subject should not prevent
determined that the proposed securities the Board from continuing the Advisory
lending program and related procedures o Benefits of soft dollars to AIM. The Agreement for the Fund.
with respect to the lending Fund is in Board considered the benefits realized
the best interests of the lending Fund by AIM as a result of brokerage
and its respective shareholders. The transactions executed through "soft
Board therefore concluded that the dollar" arrangements. Under these
investment of cash collateral received arrangements, brokerage commissions paid
in connection with the securities by the Fund and/or other funds advised
lending program in the money market by AIM are used to pay for research and
funds according to the procedures is in execution services. This research is
the best interests of the lending Fund used by AIM in making investment
and its respective shareholders. decisions for the Fund. The Board
concluded that such arrangements were
o Independent written evaluation and appropriate.
recommendations of the Fund's Senior
Officer. The Board noted that, upon o AIM's financial soundness in light of
their direction, the Senior Officer of the Fund's needs. The Board considered
the Fund, who is independent of AIM and whether AIM is financially sound and has
AIM's affiliates, had prepared an the resources necessary to perform its
independent written evaluation in order obligations under the Advisory
to assist the Board in determining the Agreement, and concluded that AIM has
reasonableness of the proposed the financial resources necessary to
management fees of the AIM Funds, fulfill its obligations under the
including the Fund. The Board noted that Advisory Agreement.
the Senior Officer's written evaluation
had been relied upon by the Board in o Historical relationship between the
this regard in lieu of a competitive Fund and AIM. In determining whether to
bidding process. In determining whether continue the Advisory Agreement for the
to continue the Advisory Agreement for Fund, the Board also considered the
the Fund, the Board considered the prior relationship between AIM and the
Senior Officer's written evaluation and Fund, as well as the Board's knowledge
the recommendation made by the Senior of AIM's operations, and concluded that
Officer to the Board that the Board it was beneficial to maintain the
consider implementing a process to current relationship, in part, because
assist them in more closely monitoring of such knowledge. The Board also
the performance of the AIM Funds. The reviewed the general nature of the
Board concluded that it would be non-investment advisory services
advisable to implement such a process as currently performed by AIM and its
soon as reasonably practicable. The affiliates, such as administrative,
Board noted that, effective July 1, transfer agency and distribution
2005, AIM will change the Fund's services, and the fees received by AIM
portfolio management team, which change and its affiliates for performing such
will need time to be evaluated before a services. In addition to reviewing such
conclusion can be made that the change services, the trustees also considered
has addressed the Fund's the organizational structure employed by
under-performance. The Board also AIM and its affiliates to provide those
considered the Senior Officer's services. Based on the review of these
recommendation that the Board and other factors, the Board concluded
that AIM and its affiliates were
qualified to continue to provide
non-investment
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM BLUE CHIP FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception (3/15/02) -0.32% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 1 Year 7.63 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 6 Months* 6.96 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered ======================================== PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans AVERAGE ANNUAL TOTAL RETURNS OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. For periods ended 9/30/05, most recent FULL REPORT FOR INFORMATION ON
calendar quarter-end COMPARATIVE BENCHMARKS. PLEASE CONSULT
YOUR FUND PROSPECTUS FOR MORE
Inception (3/15/02) -0.26% INFORMATION. FOR THE MOST CURRENT
1 Year 9.37 MONTH-END PERFORMANCE, PLEASE CALL
6 Months* 4.43 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND
CLASS EXPENSES.
========================================
NASDAQ SYMBOL ABCVX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM BCH-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR shareholder reports of the other funds.
example is based on an investment of COMPARISON PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical
ACTUAL EXPENSES on the Fund's actual expense ratio and information is useful in comparing
an assumed rate of return of 5% per year ongoing costs only, and will not help
The table below provides information before expenses, which is not the Fund's you determine the relative total costs
about actual account values and actual actual return. The Fund's actual of owning different funds.
expenses. You may use the information in cumulative total return after expenses
this table, together with the amount you for the six months ended October 31,
invested, to estimate the expenses that 2005, appears in the table on the front
you paid over the period. Simply of this supplement.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,069.60 $ 3.76 $ 1,021.58 $ 3.67 0.72%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMINVESTMENTS.COM BCH-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.21%
AEROSPACE & DEFENSE-4.25%
Boeing Co. (The) 234,589 $ 15,163,833
- -----------------------------------------------------------------------------
General Dynamics Corp. 172,160 20,022,208
- -----------------------------------------------------------------------------
Lockheed Martin Corp. 340,424 20,616,077
- -----------------------------------------------------------------------------
United Technologies Corp. 483,046 24,770,599
=============================================================================
80,572,717
=============================================================================
APPAREL RETAIL-0.59%
Chico's FAS, Inc.(a) 284,088 11,232,839
=============================================================================
APPLICATION SOFTWARE-1.16%
Amdocs Ltd.(a) 828,093 21,919,622
=============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.99%
Franklin Resources, Inc. 211,862 18,722,245
=============================================================================
BIOTECHNOLOGY-5.29%
Amgen Inc.(a) 584,244 44,262,325
- -----------------------------------------------------------------------------
Genentech, Inc.(a) 222,024 20,115,374
- -----------------------------------------------------------------------------
Genzyme Corp.(a) 197,563 14,283,805
- -----------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 455,807 21,536,881
=============================================================================
100,198,385
=============================================================================
COMMUNICATIONS EQUIPMENT-3.59%
Cisco Systems, Inc.(a) 1,445,679 25,227,099
- -----------------------------------------------------------------------------
QUALCOMM Inc. 1,076,399 42,797,624
=============================================================================
68,024,723
=============================================================================
COMPUTER & ELECTRONICS RETAIL-0.89%
Best Buy Co., Inc. 379,619 16,801,937
=============================================================================
COMPUTER HARDWARE-1.94%
Apple Computer, Inc.(a) 239,212 13,776,219
- -----------------------------------------------------------------------------
Dell Inc.(a) 722,229 23,024,660
=============================================================================
36,800,879
=============================================================================
COMPUTER STORAGE & PERIPHERALS-1.71%
EMC Corp.(a) 2,323,071 32,430,071
=============================================================================
CONSUMER FINANCE-1.82%
American Express Co. 361,514 17,992,552
- -----------------------------------------------------------------------------
SLM Corp. 295,360 16,401,341
=============================================================================
34,393,893
=============================================================================
DEPARTMENT STORES-3.01%
Federated Department Stores, Inc. 206,373 12,665,111
- -----------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------------
<Caption>
DEPARTMENT STORES-(CONTINUED)
J.C. Penney Co., Inc. 368,063 18,844,826
- -----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
Nordstrom, Inc. 736,029 $ 25,503,405
=============================================================================
57,013,342
=============================================================================
DIVERSIFIED BANKS-1.06%
Bank of America Corp. 460,030 20,121,712
=============================================================================
DIVERSIFIED CHEMICALS-0.63%
Dow Chemical Co. (The) 261,662 11,999,819
=============================================================================
DIVERSIFIED METALS & MINING-0.50%
BHP Billiton Ltd. (Australia)(b) 615,000 9,543,856
=============================================================================
DRUG RETAIL-0.68%
CVS Corp. 526,285 12,846,617
=============================================================================
FOOTWEAR-1.33%
NIKE, Inc.-Class B 299,015 25,132,211
=============================================================================
GENERAL MERCHANDISE STORES-0.89%
Target Corp. 302,193 16,829,128
=============================================================================
HEALTH CARE EQUIPMENT-2.55%
Bard (C.R.), Inc. 161,015 10,044,116
- -----------------------------------------------------------------------------
Medtronic, Inc. 423,243 23,980,948
- -----------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 312,786 14,250,530
=============================================================================
48,275,594
=============================================================================
HEALTH CARE FACILITIES-1.11%
HCA Inc. 437,760 21,095,654
=============================================================================
HEALTH CARE SERVICES-1.65%
Express Scripts, Inc.(a) 187,209 14,117,431
- -----------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 303,693 17,158,654
=============================================================================
31,276,085
=============================================================================
HEALTH CARE SUPPLIES-1.69%
Alcon, Inc. (Switzerland) 240,192 31,921,517
=============================================================================
HOME IMPROVEMENT RETAIL-2.13%
Home Depot, Inc. (The) 981,982 40,300,541
=============================================================================
HOUSEHOLD PRODUCTS-3.18%
Procter & Gamble Co. (The) 1,076,489 60,272,619
=============================================================================
HOUSEWARES & SPECIALTIES-0.92%
Fortune Brands, Inc. 229,967 17,470,593
=============================================================================
INDUSTRIAL CONGLOMERATES-0.73%
Tyco International Ltd. 525,611 13,870,874
=============================================================================
INDUSTRIAL GASES-0.54%
Air Products and Chemicals, Inc. 179,409 10,269,371
=============================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
INTEGRATED OIL & GAS-2.23%
ConocoPhillips 492,122 $ 32,174,936
- -----------------------------------------------------------------------------
Occidental Petroleum Corp. 128,252 10,116,518
=============================================================================
42,291,454
=============================================================================
INTERNET RETAIL-1.24%
eBay Inc.(a) 594,336 23,535,706
=============================================================================
INTERNET SOFTWARE & SERVICES-1.58%
Yahoo! Inc.(a) 807,275 29,844,957
=============================================================================
INVESTMENT BANKING & BROKERAGE-4.55%
Goldman Sachs Group, Inc. (The) 393,005 49,664,042
- -----------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 333,535 21,593,056
- -----------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 975,000 14,820,000
=============================================================================
86,077,098
=============================================================================
MANAGED HEALTH CARE-7.45%
Aetna Inc. 541,828 47,984,288
- -----------------------------------------------------------------------------
CIGNA Corp. 213,249 24,709,162
- -----------------------------------------------------------------------------
UnitedHealth Group Inc. 502,368 29,082,084
- -----------------------------------------------------------------------------
WellPoint, Inc.(a) 526,454 39,315,585
=============================================================================
141,091,119
=============================================================================
MULTI-LINE INSURANCE-2.09%
Genworth Financial Inc.-Class A(c) 567,117 17,971,938
- -----------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 271,473 21,649,972
=============================================================================
39,621,910
=============================================================================
OIL & GAS DRILLING-1.94%
ENSCO International Inc. 381,834 17,407,812
- -----------------------------------------------------------------------------
GlobalSantaFe Corp. 431,618 19,228,582
=============================================================================
36,636,394
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-3.47%
BJ Services Co. 887,866 30,853,343
- -----------------------------------------------------------------------------
Schlumberger Ltd. 384,575 34,907,873
=============================================================================
65,761,216
=============================================================================
OIL & GAS REFINING & MARKETING-1.91%
Valero Energy Corp. 342,832 36,079,640
=============================================================================
PHARMACEUTICALS-7.53%
Novartis A.G.-ADR (Switzerland) 475,457 25,589,096
- -----------------------------------------------------------------------------
Roche Holding A.G. (Switzerland) 177,201 26,476,019
- -----------------------------------------------------------------------------
Allergan, Inc. 174,786 15,608,390
- -----------------------------------------------------------------------------
Johnson & Johnson 1,042,139 65,258,744
- -----------------------------------------------------------------------------
Wyeth 217,212 9,678,967
=============================================================================
142,611,216
=============================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------------
<Caption>
PROPERTY & CASUALTY INSURANCE-1.48%
Allstate Corp. (The) 530,010 $ 27,979,228
=============================================================================
RAILROADS-1.56%
Canadian National Railway Co. (Canada) 229,967 16,668,008
- -----------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 206,951 12,843,379
=============================================================================
29,511,387
=============================================================================
RESTAURANTS-1.60%
Starbucks Corp.(a) 533,700 15,093,036
- -----------------------------------------------------------------------------
YUM! Brands, Inc. 299,015 15,210,893
=============================================================================
30,303,929
=============================================================================
SEMICONDUCTOR EQUIPMENT-0.86%
KLA-Tencor Corp. 349,669 16,186,178
=============================================================================
SEMICONDUCTORS-4.80%
Marvell Technology Group Ltd. (Singapore)(a) 258,568 12,000,141
- -----------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 1,281,575 10,355,126
- -----------------------------------------------------------------------------
Analog Devices, Inc. 962,358 33,470,811
- -----------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 602,208 14,380,727
- -----------------------------------------------------------------------------
Microchip Technology Inc. 376,359 11,354,751
- -----------------------------------------------------------------------------
Texas Instruments Inc. 328,304 9,373,079
=============================================================================
90,934,635
=============================================================================
SOFT DRINKS-1.19%
PepsiCo, Inc. 381,834 22,558,753
=============================================================================
SYSTEMS SOFTWARE-6.01%
Microsoft Corp. 1,896,274 48,734,242
- -----------------------------------------------------------------------------
Oracle Corp.(a) 2,907,330 36,864,944
- -----------------------------------------------------------------------------
Symantec Corp.(a) 1,182,192 28,195,279
=============================================================================
113,794,465
=============================================================================
THRIFTS & MORTGAGE FINANCE-0.89%
MGIC Investment Corp. 283,445 16,791,282
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,481,301,634) 1,840,947,411
=============================================================================
MONEY MARKET FUNDS-2.83%
Liquid Assets Portfolio-Institutional
Class(d) 26,833,535 26,833,535
- -----------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 26,833,535 26,833,535
=============================================================================
Total Money Market Funds (Cost
$53,667,070) 53,667,070
=============================================================================
TOTAL INVESTMENTS-100.04% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,534,968,704) 1,894,614,481
=============================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.61%
Liquid Assets Portfolio-Institutional
Class(d)(e) 11,619,200 $ 11,619,200
=============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $11,619,200) 11,619,200
=============================================================================
TOTAL INVESTMENTS-100.65% (Cost
$1,546,587,904) 1,906,233,681
=============================================================================
OTHER ASSETS LESS LIABILITIES-(0.65%) (12,367,151)
=============================================================================
NET ASSETS-100.00% $1,893,866,530
_____________________________________________________________________________
=============================================================================
</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
value of this security at October 31, 2005 represented 0.50% of the Fund's
Total Net Assets. See Note 1A.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at October 31, 2005.
(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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,481,301,634)* $1,840,947,411
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $65,286,270) 65,286,270
============================================================
Total investments (cost $1,546,587,904) 1,906,233,681
============================================================
Receivables for:
Investments sold 18,233,856
- ------------------------------------------------------------
Fund shares sold 820,836
- ------------------------------------------------------------
Dividends 1,093,912
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 140,567
- ------------------------------------------------------------
Other assets 84,526
============================================================
Total assets 1,926,607,378
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 13,776,567
- ------------------------------------------------------------
Fund shares reacquired 4,828,405
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 308,021
- ------------------------------------------------------------
Collateral upon return of securities
loaned 11,619,200
- ------------------------------------------------------------
Accrued distribution fees 983,531
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,409
- ------------------------------------------------------------
Accrued transfer agent fees 984,429
- ------------------------------------------------------------
Accrued operating expenses 237,286
============================================================
Total liabilities 32,740,848
============================================================
Net assets applicable to shares outstanding $1,893,866,530
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,886,882,000
- ------------------------------------------------------------
Undistributed net investment income 34,123
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (1,352,695,370)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 359,645,777
============================================================
$1,893,866,530
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 934,228,345
____________________________________________________________
============================================================
Class B $ 762,710,041
____________________________________________________________
============================================================
Class C $ 161,877,532
____________________________________________________________
============================================================
Class R $ 6,799,649
____________________________________________________________
============================================================
Investor Class $ 26,945,105
____________________________________________________________
============================================================
Institutional Class $ 1,305,858
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 79,878,823
____________________________________________________________
============================================================
Class B 69,106,994
____________________________________________________________
============================================================
Class C 14,667,781
____________________________________________________________
============================================================
Class R 584,312
____________________________________________________________
============================================================
Investor Class 2,298,225
____________________________________________________________
============================================================
Institutional Class 108,924
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 11.70
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $11.70 divided by
94.50%) $ 12.38
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 11.04
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.04
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.64
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 11.72
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.99
____________________________________________________________
============================================================
</Table>
* At October 31, 2005 securities with an aggregate value of $11,506,639 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $34,156) $ 39,135,425
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $17,580, less compensation to
counterparties of $450,700) 649,476
- ---------------------------------------------------------------------------
Interest 4,872
===========================================================================
Total investment income 39,789,773
===========================================================================
EXPENSES:
Advisory fees 14,760,006
- ---------------------------------------------------------------------------
Administrative services fees 497,908
- ---------------------------------------------------------------------------
Custodian fees 133,445
- ---------------------------------------------------------------------------
Distribution fees:
Class A 3,542,018
- ---------------------------------------------------------------------------
Class B 9,086,134
- ---------------------------------------------------------------------------
Class C 1,902,879
- ---------------------------------------------------------------------------
Class R 33,519
- ---------------------------------------------------------------------------
Investor Class 73,611
- ---------------------------------------------------------------------------
Transfer agent fees-Class A, B, C, R & Investor 8,905,699
- ---------------------------------------------------------------------------
Transfer agent fees-Institutional Class 4,085
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 100,498
- ---------------------------------------------------------------------------
Other 867,682
===========================================================================
Total expenses 39,907,484
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (322,009)
===========================================================================
Net expenses 39,585,475
===========================================================================
Net investment income 204,298
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from securities sold
to affiliates of $143,273) 337,770,458
- ---------------------------------------------------------------------------
Foreign currencies 58,517
- ---------------------------------------------------------------------------
Option contracts written 1,837,075
===========================================================================
339,666,050
===========================================================================
Change in net unrealized appreciation (depreciation) of
investment securities (183,235,293)
===========================================================================
Net gain from investment securities, foreign securities and
option contracts 156,430,757
===========================================================================
Net increase in net assets resulting from operations $ 156,635,055
___________________________________________________________________________
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
==============================================================================================
OPERATIONS:
Net investment income (loss) $ 204,298 $ (14,677,760)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 339,666,050 141,551,945
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, futures
contracts and option contracts (183,235,293) (63,358,526)
==============================================================================================
Net increase in net assets resulting from operations 156,635,055 63,515,659
==============================================================================================
Share transactions-net:
Class A (383,177,483) (236,834,043)
- ----------------------------------------------------------------------------------------------
Class B (327,809,635) (213,672,955)
- ----------------------------------------------------------------------------------------------
Class C (73,463,942) (73,035,331)
- ----------------------------------------------------------------------------------------------
Class R 386,057 4,401,189
- ----------------------------------------------------------------------------------------------
Investor Class (7,248,038) 30,994,771
- ----------------------------------------------------------------------------------------------
Institutional Class (50,630,332) 48,256,952
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (841,943,373) (439,889,417)
==============================================================================================
Net increase (decrease) in net assets (685,308,318) (376,373,758)
==============================================================================================
NET ASSETS:
Beginning of year 2,579,174,848 2,955,548,606
==============================================================================================
End of year (including undistributed net investment income
(loss) of $34,123 and $(228,692), respectively) $1,893,866,530 $2,579,174,848
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-7
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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
F-8
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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee 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 year ended October 31, 2005, AIM waived fees of $97,005.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement are included in the Statement of Operations. For
the year ended October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $157,685.
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 year ended
October 31, 2005, AIM was paid $497,908.
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 year ended October 31, 2005, the
Fund paid AISI $8,905,699 for Class A, Class B, Class C, Class R and Investor
Class share classes and $4,085 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
F-9
respect to the Fund's Class A, Class B, Class C, Class R and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Plans, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the
average daily net asset of Investor Class shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily net assets of Class A 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. National Association of Securities Dealers ("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, 2005, the Class A, Class B, Class C, Class
R and Investor Class shares paid $3,542,018, $9,086,134, $1,902,879, $33,519 and
$73,611, 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, 2005, ADI advised the Fund that it retained $200,132 in
front-end sales commissions from the sale of Class A shares and $2,563,
$332,129, $14,496 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 year ended October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 7,279,701 $367,279,081 $(347,725,247) $ -- $26,833,535 $315,004 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 7,279,701 367,279,081 (347,725,247) -- 26,833,535 316,892 --
==================================================================================================================================
Subtotal $14,559,402 $734,558,162 $(695,450,494) $ -- $53,667,070 $631,896 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 101,612,505 $ (89,993,305) $ -- $11,619,200 $ 6,367 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 34,975,975 302,492,490 (337,468,465) -- -- 11,213 --
==================================================================================================================================
Subtotal $34,975,975 $ 404,104,995 $ (427,461,770) $ -- $11,619,200 $ 17,580 $ --
==================================================================================================================================
Total $49,535,377 $1,138,663,157 $(1,122,912,264) $ -- $65,286,270 $649,476 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended October 31, 2005, the Fund
engaged in securities purchases of $19,606,508 and sales of $2,841,270, which
resulted in net realized gains of $143,273.
F-10
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, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $67,319.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $9,757
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $11,506,639 were
on loan to brokers. The loans were secured by cash collateral of $11,619,200
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $17,580 for securities lending transactions, which are net of
compensation to counterparties.
F-11
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Opened 29,728 923,763
- ------------------------------------------------------------------------------------
Closed (11,772) (965,369)
- ------------------------------------------------------------------------------------
Expired (9,606) 968,559
- ------------------------------------------------------------------------------------
Exercised (8,350) (926,953)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -------------------------------------------------------------------------------
Undistributed ordinary income $ 296,317
- -------------------------------------------------------------------------------
Unrealized appreciation-investments 346,221,516
- -------------------------------------------------------------------------------
Temporary book/tax differences (262,194)
- -------------------------------------------------------------------------------
Capital loss carryforward (1,339,271,109)
- -------------------------------------------------------------------------------
Shares of beneficial interest 2,886,882,000
===============================================================================
Total net assets $ 1,893,866,530
_______________________________________________________________________________
===============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation 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, 2005 to utilizing $1,331,656,313 of capital loss carryforward in the fiscal
year ended October 31, 2006.
F-12
The Fund utilized $312,409,743 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $ 618,799,608
- ------------------------------------------------------------------------------
October 31, 2010 617,527,392
- ------------------------------------------------------------------------------
October 31, 2011 102,944,109
==============================================================================
Total capital loss carryforward $1,339,271,109
______________________________________________________________________________
==============================================================================
</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 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, 2005 was $1,319,466,310 and $2,189,914,793, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $361,738,910
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (15,517,394)
==============================================================================
Net unrealized appreciation of investment securities $346,221,516
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,560,012,165.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currencies, on
October 31, 2005, undistributed net investment income was increased by $58,517,
undistributed net realized gain (loss) was decreased by $58,517. This
reclassification had no effect on the net assets of the Fund.
F-13
NOTE 13--SHARE INFORMATION
The Fund currently consists of 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,213,457 $ 116,760,171 21,493,299 $ 237,822,246
- --------------------------------------------------------------------------------------------------------------------------
Class B 3,723,262 40,297,776 7,106,647 75,074,355
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,418,945 15,372,152 2,785,689 29,371,888
- --------------------------------------------------------------------------------------------------------------------------
Class R 210,476 2,402,543 672,346 7,394,140
- --------------------------------------------------------------------------------------------------------------------------
Investor Class 241,052 2,752,360 513,156 5,688,744
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,735,298 20,146,871 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 6,238,971 71,152,048 2,357,674 26,110,071
- --------------------------------------------------------------------------------------------------------------------------
Class B (6,587,381) (71,152,048) (2,474,910) (26,110,071)
==========================================================================================================================
Reacquired:
Class A (49,587,784) (571,089,702) (45,616,888) (501,443,066)
- --------------------------------------------------------------------------------------------------------------------------
Class B (27,383,877) (296,955,363) (25,052,874) (262,781,002)
- --------------------------------------------------------------------------------------------------------------------------
Class C (8,189,944) (88,836,094) (9,864,695) (103,409,473)
- --------------------------------------------------------------------------------------------------------------------------
Class R (176,404) (2,016,486) (270,057) (2,992,951)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (870,159) (10,000,398) (1,149,919) (12,707,797)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (6,029,755) (70,777,203) (30,273) (336,706)
==========================================================================================================================
(75,043,843) $(841,943,373) (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 in aggregate they own 6% of the
outstanding shares of the Fund. ADI has an agreement with these entities
to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the
Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these shareholders 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.
F-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,
----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.94 $ 10.69 $ 9.22 $ 11.22 $ 17.29
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) (0.02) (0.02) (0.04)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.72 0.27 1.49 (1.96) (6.03)
=================================================================================================================================
Total from investment operations 0.76 0.25 1.47 (2.00) (6.07)
=================================================================================================================================
Net asset value, end of period $ 11.70 $ 10.94 $ 10.69 $ 9.22 $ 11.22
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.95% 2.34% 15.94% (17.82)% (35.11)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $934,228 $1,236,434 $1,439,518 $1,402,589 $2,067,602
=================================================================================================================================
Ratio of expenses to average net assets 1.42%(c)(d) 1.44%(d) 1.47% 1.40% 1.28%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.32%(c) (0.19)% (0.17)% (0.33)% (0.29)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 58% 29% 28% 28% 31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $1,106,956,408.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.43% and 1.45% for the years ended October 31, 2005 and 2004,
respectively.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.87
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.10) (0.08) (0.10)(a) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.69 0.27 1.42 (1.89) (5.87)
=================================================================================================================================
Total from investment operations 0.65 0.17 1.34 (1.99) (6.00)
=================================================================================================================================
Net asset value, end of period $ 11.04 $ 10.39 $ 10.22 $ 8.88 $ 10.87
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.26% 1.66% 15.09% (18.31)% (35.57)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $762,710 $1,032,774 $1,223,821 $1,198,513 $1,806,464
=================================================================================================================================
Ratio of expenses to average net assets 2.10%(c)(d) 2.09%(d) 2.12% 2.05% 1.94%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.36)%(c) (0.84)% (0.82)% (0.98)% (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 58% 29% 28% 28% 31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $908,613,446.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.11% and 2.10% for the years ended October 31, 2005 and 2004,
respectively.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.39 $ 10.22 $ 8.88 $ 10.87 $ 16.86
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.10) (0.08) (0.10)(a) (0.13)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.69 0.27 1.42 (1.89) (5.86)
============================================================================================================================
Total from investment operations 0.65 0.17 1.34 (1.99) (5.99)
============================================================================================================================
Net asset value, end of period $ 11.04 $ 10.39 $ 10.22 $ 8.88 $ 10.87
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 6.26% 1.66% 15.09% (18.31)% (35.53)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $161,878 $222,840 $290,396 $302,555 $487,838
============================================================================================================================
Ratio of expenses to average net assets 2.10%(c)(d) 2.09%(d) 2.12% 2.05% 1.94%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(c) (0.84)% (0.82)% (0.98)% (0.94)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 58% 29% 28% 28% 31%
____________________________________________________________________________________________________________________________
============================================================================================================================
</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 $190,287,830.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.11% and 2.10% for the years ended October 31, 2005 and 2004,
respectively.
<Table>
<Caption>
CLASS R
-------------------------------------------------
JUNE 2, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------- 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) 0.02(a) (0.03) (0.00) (0.02)(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 0.28 1.44 (1.29)
===============================================================================================================
Total from investment operations 0.73 0.25 1.44 (1.31)
===============================================================================================================
Net asset value, end of period $11.64 $10.91 $10.66 $ 9.22
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 6.69% 2.35% 15.62% (12.44)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,800 $6,000 $1,578 $ 37
===============================================================================================================
Ratio of expenses to average net assets 1.60%(c)(d) 1.59%(d) 1.62% 1.55%(e)
===============================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(c) (0.34)% (0.32)% (0.49)%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate 58% 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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $6,703,851.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.61% and 1.60% for the years ended October 31, 2005 and 2004,
respectively.
(e) Annualized.
F-16
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
---------------------------------------------
SEPTEMBER 30, 2003
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
----------------------- 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) 0.04(a) 0.24 (0.00)
===========================================================================================================
Net gains on securities (both realized and unrealized) 0.72 0.03 0.53
===========================================================================================================
Total from investment operations 0.76 0.27 0.53
===========================================================================================================
Net asset value, end of period $ 11.72 $ 10.96 $10.69
___________________________________________________________________________________________________________
===========================================================================================================
Total return(a) 6.93% 2.53% 5.22%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,945 $32,084 $ 100
===========================================================================================================
Ratio of expenses to average net assets 1.35%(c)(d) 1.34%(d) 1.29%(e)
===========================================================================================================
Ratio of net investment income (loss) to average net assets 0.39%(c) (0.09)% (0.01)%(e)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate 58% 29% 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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $29,444,536.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.36% and 1.35% for the years ended October 31, 2005 and 2004,
respectively.
(e) Annualized.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------- 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 0.12(a) 0.04 0.06 0.02(a)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.73 0.29 1.49 (2.89)
=================================================================================================================
Total from investment operations 0.85 0.33 1.55 (2.87)
=================================================================================================================
Net asset value, end of period $11.99 $ 11.14 $10.81 $ 9.26
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(b) 7.63% 3.05% 16.74% (23.66)%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,306 $49,044 $ 136 $ 160
=================================================================================================================
Ratio of expenses to average net assets 0.71%(c)(d) 0.74%(d) 0.77% 0.77%(e)
=================================================================================================================
Ratio of net investment income to average net assets 1.03%(c) 0.51% 0.53% 0.30%(e)
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate 58% 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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $49,594,938.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.72% and 0.75% for the years ended October 31, 2005 and 2004,
respectively.
(e) Annualized.
F-17
NOTE 15--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 16--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Seller") unanimously approved, on November
14, 2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Selling Fund") a series of Seller, would transfer all of its
assets to AIM Large Cap Growth Fund ("Buying 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 February 28, 2006. 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 17--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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 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 lawsuit, it could be
F-18
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Blue Chip 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 Blue Chip Fund (one of the
funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
As described in Note 16, on November 14, 2005, the Board of Trustees of the
Fund approved a plan of merger for the Fund with AIM Large Cap Growth Fund. This
merger is expected to take place in early 2006 upon the approval of the Fund's
shareholders.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 2.58%, 2.36%, 4.51% and 9.73%, respectively.
<Table>
<Caption>
DOMESTIC EQUITY SECTOR EQUITY
AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Conservative Allocation Fund
AIM Basic Value Fund AIM Financial Services Fund AIM Growth Allocation Fund(2)
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderate Growth Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund AIM Moderately Conservative Allocation Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
*Domestic equity and income fund TAX-FREE
INTERNATIONAL/GLOBAL EQUITY AIM High Income Municipal Fund(1)
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund(1)
AIM Global Aggressive Growth Fund ======================================================================================
AIM Global Equity Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Global Growth Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Global Value Fund AND READ IT CAREFULLY BEFORE INVESTING.
AIM International Core Equity Fund ================================================================================
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com BCH-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>
AIM CAPITAL DEVELOPMENT FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
AIM CAPITAL DEVELOPMENT FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES o The unmanaged MSCI WORLD INDEX is a Classification Standard, which was
group of global securities tracked by developed by and is the exclusive property
o Class B shares are not available as an Morgan Stanley Capital International Inc. and a service mark of Morgan Stanley
investment for retirement plans Capital International Inc. and Standard &
maintained pursuant to Section 401 of the o The unmanaged RUSSELL MIDCAP Poor's.
Internal Revenue Code, including 401(k) --Registered Trademark--GROWTH INDEX is a
plans, money purchase pension plans and subset of the Russell Midcap Index, which The Fund provides a complete list of its
profit sharing plans. Plans that have represents the performance of the stocks holdings four times in each fiscal year,
existing accounts invested in Class B of domestic mid-capitalization companies; at the quarter-ends. For the second and
shares prior to September 30, 2003, will the Growth subset measures the performance fourth quarters, the lists appear in the
continue to be allowed to make additional of Russell Midcap companies with higher Fund's semiannual and annual reports to
purchases. price/book ratios and higher forecasted shareholders. For the first and third
growth values. quarters, the Fund files the lists with
o Investor Class shares are closed to most the Securities and Exchange Commission
investors. For more information on who may o The unmanaged LIPPER MID-CAP GROWTH FUND (SEC) on Form N-Q. The most recent list of
continue to invest in the Investor Class INDEX represents an average of the portfolio holdings is available at
shares, please see the prospectus. performance of the 30 largest AIMinvestments.com. From our home page,
mid-capitalization growth funds tracked by click on Products & Performance, then
o Class R shares are available only to Lipper, Inc., an independent mutual fund Mutual Funds, then Fund Overview. Select
certain retirement plans. Please see the performance monitor. your Fund from the drop-down menu and
prospectus for more information. click on Complete Quarterly Holdings.
o The Fund is not managed to track the Shareholders can also look up the Fund's
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of any particular index, Forms N-Q on the SEC's Web site at sec.gov.
including the indexes defined here, and And copies of the Fund's Forms N-Q may be
o Investing in smaller companies involves consequently, the performance of the Fund reviewed and copied at the SEC's Public
risks not associated with investing in may deviate significantly from the Reference Room at 450 Fifth Street, N.W.,
more established companies, including performance of the indexes. Washington, D.C. 20549-0102. You can
business risk, significant stock price obtain information on the operation of the
fluctuations and illiquidity. o A direct investment cannot be made in an Public Reference Room, including
index. Unless otherwise indicated, index information about duplicating fee charges,
o The Fund may invest up to 25% of its results include reinvested dividends, and by calling 202-942-8090 or 800-732-0330,
assets in the securities of non-U.S. they do not reflect sales charges. or by electronic request at the following
issuers. International investing presents Performance of an index of funds reflects e-mail address: publicinfo@sec.gov. The
certain risks not associated with fund expenses; performance of a market SEC file numbers for the Fund are
investing solely in the United States. index does not. 811-01424 and 2-25469.
These include risks relating to
fluctuations in the value of the U.S. OTHER INFORMATION A description of the policies and
dollar relative to the values of other procedures that the Fund uses to determine
currencies, the custody arrangements made o The returns shown in the management's how to vote proxies relating to portfolio
for the Fund's foreign holdings, discussion of Fund performance are based securities is available without charge,
differences in accounting, political on net asset values calculated for upon request, from our Client Services
risks and the lesser degree of public shareholder transactions. Generally department at 800-959-4246 or on the AIM
information required to be provided by accepted accounting principles require Web site, AIMinvestments.com. On the home
non-U.S. companies. adjustments to be made to the net assets page, scroll down and click on AIM Funds
of the Fund at period end for financial Proxy Policy. The information is also
ABOUT INDEXES USED IN THIS REPORT reporting purposes, and as such, the net available on the Securities and Exchange
asset values for shareholder transactions Commission's Web site, sec.gov.
o The unmanaged Standard & Poor's and the returns based on those net asset
Composite Index of 500 Stocks (the S&P 500 values may differ from the net asset Information regarding how the Fund voted
- --Registered Trademark--INDEX) is an index values and returns reported in the proxies related to its portfolio
of common stocks frequently used as a Financial Highlights. securities during the 12 months ended June
general measure of U.S. stock market 30, 2005, is available at our Web site. Go
performance. o Industry classifications used in this to AIMinvestments.com, access the About Us
report are generally according to the tab, click on Required Notices and then
Global Industry click on Proxy Voting Activity. Next,
select the Fund from the drop-down menu.
The information is also available on the
Securities and Exchange Commission's Web
site, sec.gov.
==========================================
FUND NASDAQ SYMBOLS
Class A shares ACDAX
Class B shares ACDBX
Class C shares ACDCX
Class R shares ACDRX
Investor Class shares ACDIX
====================================================================================== ==========================================
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.
======================================================================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM CAPITAL DEVELOPMENT FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the fiscal year ended October 31, 2005. Of course,
your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
[WILLIAMSON affected your Fund and how your Fund was managed during the
PHOTO] fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
MARK H. WILLIAMSON Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President, AIM Advisors, Inc.
AIM Funds
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM CAPITAL DEVELOPMENT FUND
DEAR AIM FUNDS 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 AIM 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
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM CAPITAL DEVELOPMENT FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
o we find a more attractive investment
option
====================================================================================== MARKET CONDITIONS AND YOUR FUND
PERFORMANCE SUMMARY ========================================== The U.S. economy continued to expand
throughout the fiscal year, with corporate
Your Fund's focus on mid-cap stocks, one FUND VS. INDEXES profits generally improving amid a
of the better-performing market segments backdrop of rising short-term interest
for the year, helped it post double-digit TOTAL RETURNS, 10/31/04-10/31/05, rates and record high oil and natural gas
gains for the reporting period, as EXCLUDING APPLICABLE SALES CHARGES. IF prices. The threat of hurricanes, surging
illustrated by the table. SALES CHARGES WERE INCLUDED, RETURNS WOULD gasoline prices and the ongoing fear of a
BE LOWER. housing bubble seemed to dominate the
Mid-cap stocks generally outperformed media, but not even the combined effect of
large-cap stocks for the year, helping Class A Shares 13.87% these events could prevent equity markets
your Fund outperform the large-cap from achieving near double-digit returns.
oriented S&P 500 Index. The portfolio's Class B Shares 13.09
industrials and information technology In this environment, the sectors that
holdings generally underperformed those of Class C Shares 13.10 contributed the most to Fund performance
the Russell Midcap Growth Index, causing were health care, consumer discretionary
the Fund to lag that benchmark. Class R Shares 13.69 and energy. Industrials was the most
challenging sector for the Fund.
For long-term performance, please see Investor Class Shares 13.99
Pages 6 and 7. Over the reporting period, we increased
S&P 500 Index (Broad-Market Index) 8.72 the Fund's exposure to health care, the
sector that contributed the most to
Russell Midcap Growth Index portfolio performance. Demand for medical
(Style-specific Index) 15.91 services and products tends to remain
stable regardless of economic trends and
Lipper Mid-Cap Growth Fund Index could increase as the population ages. Our
(Peer Group Index) 14.19 focus was on health care services and
health care equipment, the best-performing
SOURCE: LIPPER, INC. industries in this sector for the year.
EXPRESS SCRIPTS, a pharmacy benefits
========================================== management company, was our
best-performing stock and also our top
====================================================================================== holding at the close of the reporting
period. Express Scripts, whose clients
HOW WE INVEST erating business models, improving balance include managed-care organizations,
sheets and solid management teams insurance carriers and employers, recorded
We select stocks based on evaluation of record earnings for the third quarter of
individual companies, focusing on mid-cap o using a variety of valuation techniques 2005
growth companies that are favorably priced to determine target buy prices and a
relative to the rest of the market. stock's valuation upside and downside (continued)
potential.
Our investment process involves:
We strive to control volatility and
o identifying companies with sustainable risk by diversifying Fund holdings across
cash flow and earnings growth and sectors. We consider selling a stock if:
attractive valuations relative to their
projected growth rates o a company's fundamentals deteriorate
o applying fundamental research, including o a stock's price reaches our valuation
financial statement analysis, to identify target
companies with large potential markets,
cash-gen- o a company moves into the large
capitalization range
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Application Software 8.0% 1. American Tower Corp.-Class A 2.1%
[PIE CHART] 2. Health Care Services 5.5 2. iShares Nasdaq 1.5
Biotechnology Index Fund
Industrials 10.8% 3. Semiconductors 5.2
3. Chicago Mercantile 1.3
Energy 10.7% 4. Oil & Gas Equipment & 3.6 Exchange Holdings Inc.
Services
Financials 10.0% 4. National-Oilwell Varco Inc. 1.3
5. Health Care Equipment 3.4
Consumer Staples 5.2% 5. Williams Cos., Inc. (The) 1.3
TOTAL NET ASSETS $1.2 BILLION
Money Market Funds Plus 6. Office Depot, Inc. 1.2
TOTAL NUMBER OF HOLDINGS* 114
Other Assets Less Liabilities 4.0% 7. Manitowoc Co., Inc. (The) 1.2
Telecommunications Services 3.2% 8. Express Scripts, Inc. 1.2
Materials 2.3% 9. CB Richard Ellis Group, 1.2
Inc.-Class A
Utilities 1.1%
10. Weatherford International Ltd. 1.2
Information Technology 25.3%
Health Care 15.5%
Consumer Discretionary 11.9%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
</Table>
3
AIM CAPITAL DEVELOPMENT FUND
<Table>
and raised its earnings estimate for the We reduced our weighting in PAUL RASPLICKA,
remainder of the year. The company industrials, which was adversely affected [RASPLICKA Chartered Financial
benefited from increased use of generic by rising fuel costs and interest rates. PHOTO] Analyst, is lead
drugs and home delivery of pharmaceutical One stock in particular, SIRVA, detracted portfolio manager of
products. from performance in this sector. Sirva, a AIM Capital
global relocation services company, has Development Fund. Mr. Rasplicka joined AIM
While many consumer discretionary experienced accounting problems that may in 1998. Mr. Rasplicka began his
stocks in the Russell Midcap Growth Index result in a restatement of its financial investment career in 1982 as an equity
struggled, this sector was the results for the fourth quarter of 2004. research analyst. A native of Denver, Mr.
second-leading contributor to Fund The company also reported that it will Rasplicka is a magna cum laude graduate of
performance. Investors were concerned that incur significant expenses because of the University of Colorado in Boulder with
rising oil and gas prices might adversely internal and external audits. We sold the a B.S. in business administration. He
affect consumer spending, which could stock because of deteriorating company received an M.B.A. from the University of
reduce the earnings of many retailers. Our fundamentals. Chicago. He is a Chartered Investment
focus was on consumer discretionary Counselor.
companies whose sales and earnings were In the information technology sector,
less affected by increasing fuel costs. AVAYA, a business communications software
One example is NORDSTROM,a department store company, was a detractor from performance. Assisted by Mid Cap Growth/GARP Team
chain catering to higher-end customers. The company reported disappointing
The company reported solid second-quarter first-quarter 2005 earnings, citing signs
earnings and strong same-store sales in of potential weakness in the U.S.
August and September, when oil and gas technology market and disruptions caused
prices were rising sharply. by the implementation of a new domestic
marketing strategy. We no longer owned the
OFFICE DEPOT, an office supply chain stock at the close of the reporting
and one of our top holdings, also period.
benefited Fund performance as investors
reacted favorably to a change in company IN CLOSING
management. The new management team has
begun to implement strategies to improve We are pleased to have provided positive
profit margins, and the company reported returns for our investors for the
second and third quarter 2005 earnings reporting period. We remain committed to
that exceeded analysts' expectations. our investment process of focusing on the
attractively priced stocks of mid-cap
Although we were generally pleased with companies with growing earnings. We
the performance of our consumer believe our strategy has the potential to
discretionary holdings, we reduced our provide investors with attractive returns
weighting in this sector, mainly because over the long term and thank your for your
we eliminated or reduced our positions in commitment to AIM Capital Development
the stocks of companies whose earnings Fund.
might be adversely affected by higher fuel
costs. The views and opinions expressed in
management's discussion of Fund
Energy was the best-performing sector performance are those of A I M Advisors,
in the S&P 500 Index, and we increased our Inc. These views and opinions are subject
weighting in this sector. Energy stocks to change at any time based on factors
benefited from record-high oil and gas such as market and economic conditions.
prices, which increased dramatically in These views and opinions may not be relied
response to supply disruptions caused by upon as investment advice or
two major hurricanes along the Gulf Coast. recommendations, or as an offer for a
WILLIAMS COS., a producer and transporter particular security. The information is
of natural gas and one of our top not a complete analysis of every aspect of
holdings, was our second-best performing any market, country, industry, security or
stock for the year. The company reported the Fund. Statements of fact are from
income of $248.6 million for the first sources considered reliable, but
three quarters of 2005, compared to a loss A I M Advisors, Inc. makes no representation
for the same period for the previous year. or warranty as to their completeness or
accuracy. Although historical performance
is no guarantee of future results, these
insights may help you understand our
investment management philosophy.
See important Fund and index
disclosures inside front cover. [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
AND 7.
</Table>
4
AIM CAPITAL DEVELOPMENT FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES estimate the expenses that you paid over The hypothetical account values and
the period. Simply divide your account expenses may not be used to estimate the
EXAMPLE value by $1,000 (for example, an $8,600 actual ending account balance or expenses
account value divided by $1,000 = 8.6), you paid for the period. You may use this
As a shareholder of the Fund, you incur then multiply the result by the number in information to compare the ongoing costs
two types of costs: (1) transaction costs, the table under the heading entitled of investing in the Fund and other funds.
which may include sales charges (loads) on "Actual Expenses Paid During Period" to To do so, compare this 5% hypothetical
purchase payments; contingent deferred estimate the expenses you paid on your example with the 5% hypothetical examples
sales charges on redemptions; and account during this period. that appear in the shareholder reports of
redemption fees, if any; and (2) ongoing the other funds.
costs, including management fees; HYPOTHETICAL EXAMPLE FOR
distribution and/or service fees (12b-1); COMPARISON PURPOSES Please note that the expenses shown in
and other Fund expenses. This example is the table are meant to highlight your
intended to help you understand your The table below also provides ongoing costs only and do not reflect any
ongoing costs (in dollars) of investing in information about hypothetical account transactional costs, such as sales charges
the Fund and to compare these costs with values and hypothetical expenses based on (loads) on purchase payments, contingent
ongoing costs of investing in other mutual the Fund's actual expense ratio and an deferred sales charges on redemptions, and
funds. The example is based on an assumed rate of return of 5% per year redemption fees, if any. Therefore, the
investment of $1,000 invested at the before expenses, which is not the Fund's hypothetical information is useful in
beginning of the period and held for the actual return. The Fund's actual comparing ongoing costs only, and will not
entire period May 1, 2005, through October cumulative total returns at net asset help you determine the relative total
31, 2005. value after expenses for the six months costs of owning different funds. In
ended October 31, 2005, appear in the table addition, if these transactional costs
ACTUAL EXPENSES "Cumulative Total Returns" on page 7. were included, your costs would have been
higher.
The table below provides information about
actual account values and actual expenses.
You may use the information in this table,
together with the amount you invested, to
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2),(3) (10/31/05) PERIOD(2),(4) RATIO
A $1,000.00 $1,107.50 $7.17 $1,018.40 $6.87 1.35%
B 1,000.00 1,103.30 10.95 1,014.80 10.49 2.07
C 1,000.00 1,104.10 10.98 1,014.77 10.51 2.07
R 1,000.00 1,106.30 8.34 1,017.29 7.98 1.57
Investor 1,000.00 1,108.00 7.01 1,018.55 6.72 1.32
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appear in the table "Cumulative Total Returns" on page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half-year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense ratio restated as if the
agreement had been in effect throughout the entire most recent half year is 1.32% for the Class A 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 $7.01 for the Class A shares.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
year are $6.72 for the Class A shares.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM CAPITAL DEVELOPMENT FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
RESULTS OF A $10,000 INVESTMENT
Fund data from 6/17/96, index data from 6/30/96
[MOUNTAIN CHART]
====================================================================================================================================
AIM CAPITAL DEVELOPMENT LIPPER MID-CAP RUSSELL MIDCAP S&P 500
DATE FUND-CLASS A SHARES GROWTH FUND INDEX GROWTH INDEX INDEX
6/17/96 $ 9450
6/96 9563 $10000 $10000 $10000
7/96 8977 8906 9224 9558
8/96 9904 9483 9722 9760
9/96 10669 10127 10340 10309
10/96 10480 9747 10219 10593
11/96 10744 9970 10821 11393
12/96 10971 9919 10638 11168
1/97 11131 10172 11109 11865
2/97 10470 9496 10864 11958
3/97 9752 8774 10251 11468
4/97 9648 8698 10502 12152
5/97 11046 9831 11443 12895
6/97 11831 10245 11759 13468
7/97 12766 10871 12885 14539
8/97 13183 10841 12759 13725
9/97 14241 11617 13405 14477
10/97 13768 10966 12734 13994
11/97 13485 10791 12868 14641
12/97 13570 11044 13036 14892
1/98 13503 10835 12802 15057
2/98 14836 11755 14005 16142
3/98 15697 12364 14592 16968
4/98 15744 12417 14791 17142
5/98 14714 11694 14182 16848
6/98 14902 12232 14583 17532
7/98 13797 11417 13959 17346
8/98 10829 8956 11295 14840
9/98 11783 9890 12149 15792
10/98 12180 10254 13044 17074
11/98 13002 11033 13923 18109
12/98 14183 12456 15365 19151
1/99 13974 13074 15826 19952
2/99 12689 12059 15052 19332
3/99 12953 12918 15890 20105
4/99 13302 13448 16614 20884
5/99 13454 13392 16401 20391
6/99 14285 14472 17546 21520
7/99 14144 14274 16987 20851
8/99 13464 14201 16810 20747
9/99 13842 14616 16667 20179
10/99 14400 15908 17956 21456
11/99 15893 17904 19815 21892
12/99 18123 21638 23247 23180
1/00 17811 21267 23242 22015
2/00 22148 26596 28128 21599
3/00 22177 24724 28157 23710
4/00 20296 21463 25424 22997
5/00 19125 19533 23570 22526
6/00 20391 22569 26072 23081
7/00 19835 21633 24421 22720
8/00 22019 24462 28103 24131
9/00 21083 23286 26730 22857
10/00 20591 21403 24900 22760
11/00 18267 16927 19489 20967
12/00 19905 18148 20515 21070
1/01 20387 18394 21687 21817
2/01 18829 15635 17936 19829
3/01 17304 13976 15369 18573
4/01 18927 15819 17931 20016
5/01 19387 15949 17847 20150
6/01 19562 15887 17856 19660
7/01 19047 15051 16652 19466
8/01 18192 14043 15445 18249
9/01 15791 12017 12892 16775
10/01 16108 12686 14247 17095
11/01 17326 13728 15781 18406
12/01 18182 14324 16381 18568
1/02 17787 13776 15849 18297
2/02 17721 13091 14951 17944
3/02 19125 13916 16092 18619
4/02 18949 13454 15240 17490
5/02 18598 13005 14785 17362
6/02 17228 11836 13154 16126
7/02 15178 10560 11876 14869
8/02 15024 10434 11834 14966
9/02 13565 9786 10894 13341
10/02 14038 10279 11738 14514
11/02 14860 10890 12657 15368
12/02 14235 10246 11892 14466
1/03 13971 10094 11775 14087
2/03 13818 9938 11673 13876
3/03 13905 10080 11890 14010
4/03 14815 10787 12700 15163
5/03 15869 11679 13922 15962
6/03 16286 11862 14120 16165
7/03 16670 12330 14625 16451
8/03 17372 12936 15430 16771
9/03 16966 12502 15131 16593
10/03 18270 13483 16350 17531
11/03 18764 13804 16788 17686
12/03 19253 13875 16971 18612
1/04 19771 14225 17532 18954
2/04 20311 14421 17826 19217
3/04 20311 14418 17792 18927
4/04 19738 13960 17289 18631
5/04 19851 14264 17697 18886
6/04 20290 14608 17979 19253
7/04 19086 13570 16788 18616
8/04 18829 13335 16581 18690
9/04 19604 13905 17200 18893
10/04 20077 14316 17784 19182
11/04 21302 15112 18702 19957
12/04 22228 15821 19598 20636
1/05 21815 15310 19074 20133
2/05 22094 15508 19557 20557
3/05 21681 15199 19271 20193
4/05 20638 14467 18508 19810
5/05 21827 15325 19568 20440
6/05 22409 15676 19932 20469
7/05 23622 16578 21095 21230
8/05 23634 16526 20966 21037
9/05 23766 16815 21238 21207
10/05 22863 16347 20613 20853
====================================================================================================================================
Source: Lipper, Inc.
The data shown in the chart include This chart, which is a logarithmic chart,
reinvested distributions, applicable sales presents the fluctuations in the value of
charges, Fund expenses and management the Fund and its indexes. We believe that
fees. Index results include reinvested a logarithmic chart is more effective than
dividends, but they do not reflect sales other types of charts in illustrating
charges. Performance of an index of funds changes in value during the early years
reflects fund expenses and management shown in the chart. The vertical axis, the
fees; performance of a market index does one that indicates the dollar value of an
not. Performance shown in the chart and investment, is constructed with each
table(s) does not reflect deduction of segment representing a percent change in
taxes a shareholder would pay on Fund the value of the investment. In this
distributions or sale of Fund shares. chart, each segment represents a doubling,
Performance of the indexes does not or 100% change, in the value of the
reflect the effects of taxes. investment. In other words, the space
between $5,000 and $10,000 is the same
size as the space between $10,000 and
$20,000 and so on.
</Table>
6
AIM CAPITAL DEVELOPMENT FUND
<Table>
========================================== ========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable
sales charges As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
quarter-end, including applicable sales applicable sales charges
CLASS A SHARES charges
Inception (6/17/96) 9.22% Class A Shares 10.75%
5 Years 0.96 CLASS A SHARES Class B Shares 10.33
1 Year 7.60 Inception (6/17/96) 9.77% Class C Shares 10.41
5 Years 1.27 Class R Shares 10.63
CLASS B SHARES 1 Year 14.55 Investor Class Shares 10.80
Inception (10/1/96) 8.12%
5 Years 1.13 CLASS B SHARES ==========================================
1 Year 8.09 Inception (10/1/96) 8.67%
5 Years 1.44
CLASS C SHARES 1 Year 15.47
Inception (8/4/97) 6.54%
5 Years 1.44 CLASS C SHARES
1 Year 12.10 Inception (8/4/97) 7.12%
5 Years 1.75
CLASS R SHARES 1 Year 19.42
Inception 9.71%
5 Years 1.94 CLASS R SHARES
1 Year 13.69 Inception 10.27%
5 Years 2.26
INVESTOR CLASS SHARES 1 Year 21.04
Inception 9.90%
5 Years 2.13 INVESTOR CLASS SHARES
1 Year 13.99 Inception 10.45%
5 Years 2.44
1 Year 21.31
========================================== ==========================================
CLASS R SHARES' INCEPTION DATE IS JUNE 3, FEES APPLICABLE TO CLASS A SHARES. CLASS A CONTINGENT DEFERRED SALES CHARGE (CDSC)
2002. RETURNS SINCE THAT DATE ARE SHARES' INCEPTION DATE IS JUNE 17, 1996. FOR THE PERIOD INVOLVED. THE CDSC ON CLASS
HISTORICAL RETURNS. ALL OTHER RETURNS ARE B SHARES DECLINES FROM 5% BEGINNING AT THE
BLENDED RETURNS OF HISTORICAL CLASS R THE PERFORMANCE DATA QUOTED REPRESENT TIME OF PURCHASE TO 0% AT THE BEGINNING OF
SHARE PERFORMANCE AND RESTATED CLASS A PAST PERFORMANCE AND CANNOT GUARANTEE THE SEVENTH YEAR. THE CDSC ON CLASS C
SHARE PERFORMANCE (FOR PERIODS PRIOR TO COMPARABLE FUTURE RESULTS; CURRENT SHARES IS 1% FOR THE FIRST YEAR AFTER
THE INCEPTION DATE OF CLASS R SHARES) AT PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE PURCHASE. CLASS R SHARES DO NOT HAVE A
NET ASSET VALUE, ADJUSTED TO REFLECT THE VISIT AIMinvestments.com FOR THE MOST FRONT-END SALES CHARGE; RETURNS SHOWN ARE
HIGHER RULE 12b-1 FEES APPLICABLE TO CLASS RECENT MONTH-END PERFORMANCE. PERFORMANCE AT NET ASSET VALUE AND DO NOT REFLECT A
R SHARES. CLASS A SHARES' INCEPTION DATE FIGURES REFLECT REINVESTED DISTRIBUTIONS, 0.75% CDSC THAT MAY BE IMPOSED ON A TOTAL
IS JUNE 17, 1996. CHANGES IN NET ASSET VALUE AND THE EFFECT REDEMPTION OF RETIREMENT PLAN ASSETS
OF THE MAXIMUM SALES CHARGE UNLESS WITHIN THE FIRST YEAR. INVESTOR CLASS
INVESTOR CLASS SHARES' INCEPTION DATE OTHERWISE STATED. INVESTMENT RETURN AND SHARES DO NOT HAVE A FRONT-END SALES
IS NOVEMBER 30, 2004. RETURNS SINCE THAT PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CHARGE OR A CDSC; THEREFORE, PERFORMANCE
DATE ARE HISTORICAL RETURNS. ALL OTHER MAY HAVE A GAIN OR LOSS WHEN YOU SELL IS AT NET ASSET VALUE.
RETURNS ARE BLENDED RETURNS OF HISTORICAL SHARES.
INVESTOR CLASS SHARE PERFORMANCE AND THE PERFORMANCE OF THE FUND'S SHARE
RESTATED CLASS A SHARE PERFORMANCE (FOR CLASS A SHARE PERFORMANCE REFLECTS THE CLASSES WILL DIFFER DUE TO DIFFERENT SALES
PERIODS PRIOR TO THE INCEPTION DATE OF MAXIMUM 5.50% SALES CHARGE, AND CLASS B CHARGE STRUCTURES AND CLASS EXPENSES.
INVESTOR CLASS SHARES) AT NET ASSET VALUE, AND CLASS C SHARE PERFORMANCE REFLECTS THE
ADJUSTED TO REFLECT THE HIGHER RULE 12b-1 APPLICABLE
</Table>
7
AIM CAPITAL DEVELOPMENT FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Equity Funds o The quality of services to be provided discussed below. Based on this review, the
(the "Board") oversees the management of by AIM. The Board reviewed the credentials Board concluded that the advisory fee rate
AIM Capital Development Fund (the "Fund") and experience of the officers and for the Fund under the Advisory Agreement
and, as required by law, determines employees of AIM who will provide invest- was fair and reasonable.
annually whether to approve the ment advisory services to the Fund. In
continuance of the Fund's advisory reviewing the qualifications of AIM to o Fees relative to those of comparable
agreement with A I M Advisors, Inc. ("AIM"). provide investment advisory services, the funds with other advisors. The Board
Based upon the recommendation of the Board reviewed the qualifications of AIM's reviewed the advisory fee rate for the
Investments Committee of the Board, which investment personnel and considered such Fund under the Advisory Agreement. The
is comprised solely of independent issues as AIM's portfolio and product Board compared effective contractual
trustees, at a meeting held on June 30, review process, various back office advisory fee rates at a common asset level
2005, the Board, including all of the support functions provided by AIM and and noted that the Fund's rate was below
independent trustees, approved the AIM's equity and fixed income trading the median rate of the funds advised by
continuance of the advisory agreement (the operations. Based on the review of these other advisors with investment strategies
"Advisory Agreement") between the Fund and and other factors, the Board concluded comparable to those of the Fund that the
AIM for another year, effective July 1, that the quality of services to be pro- Board reviewed. The Board noted that AIM
2005. vided by AIM was appropriate and that AIM has agreed to waive advisory fees of the
currently is providing satisfactory Fund, as discussed below. Based on this
The Board considered the factors services in accordance with the terms of review, the Board concluded that the
discussed below in evaluating the fairness the Advisory Agreement. advisory fee rate for the Fund under the
and reasonableness of the Advisory Advisory Agreement was fair and
Agreement at the meeting on June 30, 2005 o The performance of the Fund relative to reasonable.
and as part of the Board's ongoing comparable funds. The Board reviewed the
oversight of the Fund. In their performance of the Fund during the past o Expense limitations and fee waivers. The
deliberations, the Board and the one, three and five calendar years against Board noted that AIM has contractually
independent trustees did not identify any the performance of funds advised by other agreed to waive advisory fees of the Fund
particular factor that was controlling, advisors with investment strategies through June 30, 2006 to the extent
and each trustee attributed different comparable to those of the Fund. The Board necessary so that the advisory fees
weights to the various factors. noted that the Fund's performance in such payable by the Fund do not exceed a
periods was above the median performance specified maximum advisory fee rate,
One of the responsibilities of the of such comparable funds. Based on this which maximum rate includes breakpoints
Senior Officer of the Fund, who is review, the Board concluded that no and is based on net asset levels. The
independent of AIM and AIM's affiliates, changes should be made to the Fund and Board considered the contractual nature of
is to manage the process by which the that it was not necessary to change the this fee waiver and noted that it remains
Fund's proposed management fees are Fund's portfolio management team at this in effect until June 30, 2006. The Board
negotiated to ensure that they are time. considered the effect this fee waiver
negotiated in a manner which is at arm's would have on the Fund's estimated
length and reasonable. To that end, the o The performance of the Fund relative to expenses and concluded that the levels of
Senior Officer must either supervise a indices. The Board reviewed the fee waivers/expense limitations for the
competitive bidding process or prepare an performance of the Fund during the past Fund were fair and reasonable.
independent written evaluation. The Senior one, three and five calendar years against
Officer has recommended an independent the performance of the Lipper Mid-Cap o Breakpoints and economies of scale. The
written evaluation in lieu of a Growth Index. The Board noted that the Board reviewed the structure of the Fund's
competitive bidding process and, upon the Fund's performance was comparable to the advisory fee under the Advisory Agreement,
direction of the Board, has prepared such performance of such Index for the one year noting that it includes one breakpoint.
an independent written evaluation. Such period and above such Index for the three The Board reviewed the level of the Fund's
written evaluation also considered certain and five year periods. Based on this advisory fees, and noted that such fees,
of the factors discussed below. In review, the Board concluded that no as a percentage of the Fund's net assets,
addition, as discussed below, the Senior changes should be made to the Fund and have decreased as net assets increased
Officer made certain recommendations to that it was not necessary to change the because the Advisory Agreement includes a
the Board in connection with such written Fund's portfolio management team at this breakpoint. The Board noted that AIM has
evaluation. time. contractually agreed to waive advisory
fees of the Fund through June 30, 2006 to
The discussion below serves as a o Meeting with the Fund's portfolio the extent necessary so that the advisory
summary of the Senior Officer's managers and investment personnel. With fees payable by the Fund do not exceed a
independent written evaluation and respect to the Fund, the Board is meeting specified maximum advisory fee rate, which
recommendations to the Board in connection periodically with such Fund's portfolio maximum rate includes breakpoints and is
therewith, as well as a discussion of the managers and/or other investment personnel based on net asset levels. The Board
material factors and the conclusions with and believes that such individuals are concluded that the Fund's fee levels under
respect thereto that formed the basis for competent and able to continue to carry the Advisory Agreement therefore reflect
the Board's approval of the Advisory out their responsibilities under the economies of scale.
Agreement. After consideration of all of Advisory Agreement.
the factors below and based on its o Investments in affiliated money market
informed business judgment, the Board o Overall performance of AIM. The Board funds. The Board also took into account
determined that the Advisory Agreement is considered the overall performance of AIM the fact that uninvested cash and cash
in the best interests of the Fund and its in providing investment advisory and collateral from securities lending
shareholders and that the compensation to portfolio administrative services to the arrangements (collectively, "cash
AIM under the Advisory Agreement is fair Fund and concluded that such performance balances") of the Fund may be invested in
and reasonable and would have been was satisfactory. money market funds advised by AIM pursuant
obtained through arm's length to the terms of an SEC exemptive order.
negotiations. o Fees relative to those of clients of AIM The Board found that the Fund may realize
with comparable investment strategies. certain benefits upon investing cash
o The nature and extent of the advisory The Board reviewed the advisory fee rate balances in AIM advised money market
services to be provided by AIM. The Board for the Fund under the Advisory Agreement. funds, including a higher net return,
reviewed the services to be provided by The Board noted that this rate was the increased liquidity, increased
AIM under the Advisory Agreement. Based on same as the advisory fee rates for a diversification or decreased transaction
such review, the Board concluded that the variable insurance fund advised by AIM and costs. The Board also found that the Fund
range of services to be provided by AIM offered to insurance company separate will not receive reduced services if it
under the Advisory Agreement was accounts with investment strategies com- invests
appropriate and that AIM currently is parable to those of the Fund. The Board
providing services in accordance with the noted that AIM has agreed to waive
terms of the Advisory Agreement. advisory fees of the Fund, as
(continued)
</Table>
8
AIM CAPITAL DEVELOPMENT FUND
<Table>
its cash balances in such money market o AIM's financial soundness in light of
funds. The Board noted that, to the extent the Fund's needs. The Board considered
the Fund invests in affiliated money whether AIM is financially sound and has
market funds, AIM has voluntarily agreed the resources necessary to perform its
to waive a portion of the advisory fees it obligations under the Advisory Agreement,
receives from the Fund attributable to and concluded that AIM has the financial
such investment. The Board further resources necessary to fulfill its
determined that the proposed securities obligations under the Advisory Agreement.
lending program and related procedures
with respect to the lending Fund is in the o Historical relationship between the Fund
best interests of the lending Fund and its and AIM. In determining whether to
respective shareholders. The Board continue the Advisory Agreement for the
therefore concluded that the investment of Fund, the Board also considered the prior
cash collateral received in connection relationship between AIM and the Fund, as
with the securities lending program in the well as the Board's knowledge of AIM's
money market funds according to the operations, and concluded that it was
procedures is in the best interests of the beneficial to maintain the current
lending Fund and its respective relationship, in part, because of such
shareholders. knowledge. The Board also reviewed the
general nature of the non-investment
o Independent written evaluation and advisory services currently performed by
recommendations of the Fund's Senior AIM and its affiliates, such as
Officer. The Board noted that, upon their administrative, transfer agency and
direction, the Senior Officer of the Fund, distribution services, and the fees
who is independent of AIM and AIM's received by AIM and its affiliates for
affiliates, had prepared an independent performing such services. In addition to
written evaluation in order to assist the reviewing such services, the trustees also
Board in determining the reasonableness considered the organizational structure
of the proposed management fees of the AIM employed by AIM and its affiliates to
Funds, including the Fund. The Board noted provide those services. Based on the
that the Senior Officer's written review of these and other factors, the
evaluation had been relied upon by the Board concluded that AIM and its
Board in this regard in lieu of a competi- affiliates were qualified to continue to
tive bidding process. In determining provide non-investment advisory services
whether to continue the Advisory to the Fund, including administrative,
Agreement for the Fund, the Board transfer agency and distribution services,
considered the Senior Officer's written and that AIM and its affiliates currently
evaluation and the recommendation made by are providing satisfactory non-investment
the Senior Officer to the Board that the advisory services.
Board consider implementing a process to
assist them in more closely monitoring the o Other factors and current trends. In
performance of the AIM Funds. The Board determining whether to continue the
concluded that it would be advisable to Advisory Agreement for the Fund, the Board
implement such a process as soon as considered the fact that AIM, along with
reasonably practicable. others in the mutual fund industry, is
subject to regulatory inquiries and
o Profitability of AIM and its affiliates. litigation related to a wide range of
The Board reviewed information concerning issues. The Board also considered the
the profitability of AIM's (and its governance and compliance reforms being
affiliates') investment advisory and other undertaken by AIM and its affiliates,
activities and its financial condition. including maintaining an internal
The Board considered the overall controls committee and retaining an
profitability of AIM, as well as the independent compliance consultant, and the
profitability of AIM in connection with fact that AIM has undertaken to cause the
managing the Fund. The Board noted that Fund to operate in accordance with
AIM's operations remain profitable, certain governance policies and practices.
although increased expenses in recent The Board concluded that these actions
years have reduced AIM's profitability. indicated a good faith effort on the part
Based on the review of the profitability of AIM to adhere to the highest ethical
of AIM's and its affiliates' investment standards, and determined that the current
advisory and other activities and its regulatory and litigation environment to
financial condition, the Board concluded which AIM is subject should not prevent
that the compensation to be paid by the the Board from continuing the Advisory
Fund to AIM under its Advisory Agreement Agreement for the Fund.
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" arrange-
ments. 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.
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM CAPITAL DEVELOPMENT FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception (3/15/02) 5.95% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 1 Year 14.52 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 6 Months* 11.07 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered ======================================== PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans AVERAGE ANNUAL TOTAL RETURNS OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. For periods ended 9/30/05, most recent FULL REPORT FOR INFORMATION ON
calendar quarter-end COMPARATIVE BENCHMARKS. PLEASE CONSULT
YOUR FUND PROSPECTUS FOR MORE
Inception (3/15/02) 7.26% INFORMATION. FOR THE MOST CURRENT
1 Year 21.93 MONTH-END PERFORMANCE, PLEASE CALL
6 Months* 9.87 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND
CLASS EXPENSES.
========================================
NASDAQ SYMBOL ACDVX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM CDV-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
example is based on an investment of PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical informa-
ACTUAL EXPENSES on the Fund's actual expense ratio and tion is useful in comparing ongoing
an assumed rate of return of 5% per year costs only, and will not help you
The table below provides information before expenses, which is not the Fund's determine the relative total costs of
about actual account values and actual actual return. The Fund's actual cumu- owning different funds.
expenses. You may use the information in lative total return after expenses for
this table, together with the amount you the six months ended October 31, 2005,
invested, to estimate the expenses that appears in the table on the front of
you paid over the period. Simply this supplement.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,110.70 $ 4.31 $ 1,021.12 $ 4.13 0.81%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMINVESTMENTS.COM CDV-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.03%
ADVERTISING-2.06%
Omnicom Group Inc.(a) 146,900 $ 12,186,824
- -------------------------------------------------------------------------
R.H. Donnelley Corp.(b) 219,200 13,531,216
=========================================================================
25,718,040
=========================================================================
AEROSPACE & DEFENSE-2.08%
Aviall, Inc.(b) 419,393 13,231,849
- -------------------------------------------------------------------------
L-3 Communications Holdings, Inc.(a) 162,819 12,670,575
=========================================================================
25,902,424
=========================================================================
AIR FREIGHT & LOGISTICS-1.03%
Robinson (C.H.) Worldwide, Inc. 362,404 12,778,365
=========================================================================
APPAREL RETAIL-0.92%
Abercrombie & Fitch Co.-Class A 194,538 10,114,031
- -------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 67,400 1,403,268
=========================================================================
11,517,299
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.42%
Coach, Inc.(b) 181,200 5,831,016
- -------------------------------------------------------------------------
Polo Ralph Lauren Corp. 240,568 11,835,946
=========================================================================
17,666,962
=========================================================================
APPLICATION SOFTWARE-7.95%
Amdocs Ltd.(b) 430,000 11,382,100
- -------------------------------------------------------------------------
Autodesk, Inc.(a) 310,700 14,021,891
- -------------------------------------------------------------------------
Business Objects S.A.-ADR (France)(b) 179,279 6,143,891
- -------------------------------------------------------------------------
Citrix Systems, Inc.(a)(b) 519,805 14,331,024
- -------------------------------------------------------------------------
Cognos, Inc. (Canada)(a)(b) 172,407 6,470,435
- -------------------------------------------------------------------------
Hyperion Solutions Corp.(b) 248,085 11,997,391
- -------------------------------------------------------------------------
Mercury Interactive Corp.(a)(b) 347,275 12,081,697
- -------------------------------------------------------------------------
NAVTEQ Corp.(a)(b) 251,576 9,841,653
- -------------------------------------------------------------------------
Synopsys, Inc.(b) 675,710 12,804,705
=========================================================================
99,074,787
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.95%
Legg Mason, Inc. 110,075 11,812,148
=========================================================================
AUTOMOTIVE RETAIL-0.89%
Advance Auto Parts, Inc.(b) 294,750 11,053,125
=========================================================================
BIOTECHNOLOGY-0.50%
Charles River Laboratories International,
Inc.(b) 142,000 6,213,920
=========================================================================
BROADCASTING & CABLE TV-0.86%
Univision Communications Inc.-Class A(a)(b) 410,800 10,738,312
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
CASINOS & GAMING-1.93%
Harrah's Entertainment, Inc. 174,000 $ 10,523,520
- -------------------------------------------------------------------------
Scientific Games Corp.-Class A(b) 452,100 13,544,916
=========================================================================
24,068,436
=========================================================================
COMMUNICATIONS EQUIPMENT-2.47%
Comverse Technology, Inc.(b) 246,000 6,174,600
- -------------------------------------------------------------------------
Harris Corp. 350,000 14,385,000
- -------------------------------------------------------------------------
Scientific-Atlanta, Inc. 288,600 10,227,984
=========================================================================
30,787,584
=========================================================================
COMPUTER HARDWARE-0.60%
Palm, Inc.(a)(b) 289,387 7,434,352
=========================================================================
COMPUTER STORAGE & PERIPHERALS-2.71%
Emulex Corp.(b) 634,887 11,751,758
- -------------------------------------------------------------------------
Network Appliance, Inc.(b) 348,108 9,524,235
- -------------------------------------------------------------------------
QLogic Corp.(b) 412,700 12,447,032
=========================================================================
33,723,025
=========================================================================
CONSTRUCTION & ENGINEERING-0.75%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 416,609 9,290,381
=========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.70%
Joy Global Inc. 136,805 6,275,245
- -------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 281,266 14,966,164
=========================================================================
21,241,409
=========================================================================
CONSUMER ELECTRONICS-0.60%
Harman International Industries, Inc.(a) 75,500 7,539,430
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.73%
Alliance Data Systems Corp.(b) 257,528 9,157,696
=========================================================================
DEPARTMENT STORES-1.04%
Nordstrom, Inc. 372,905 12,921,158
=========================================================================
DIVERSIFIED BANKS-0.78%
Centennial Bank Holdings, Inc.(b)(c) 874,600 9,778,028
=========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.36%
ChoicePoint Inc.(b) 317,760 13,428,538
- -------------------------------------------------------------------------
Corrections Corp. of America(b) 363,400 14,492,392
- -------------------------------------------------------------------------
Global Cash Access, Inc.(b) 104,596 1,466,436
=========================================================================
29,387,366
=========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-1.78%
Freeport-McMoRan Copper & Gold, Inc.-Class
B(a) 208,100 $ 10,284,302
- -------------------------------------------------------------------------
Phelps Dodge Corp.(a) 98,520 11,868,704
=========================================================================
22,153,006
=========================================================================
DRUG RETAIL-1.04%
Shoppers Drug Mart Corp. (Canada) 389,900 12,970,806
=========================================================================
EDUCATION SERVICES-1.00%
Career Education Corp.(a)(b) 348,900 12,417,351
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.03%
Cooper Industries, Ltd.-Class A 180,800 12,816,912
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.04%
Amphenol Corp.-Class A 324,476 12,969,306
=========================================================================
GAS UTILITIES-1.07%
Questar Corp. 170,000 13,387,500
=========================================================================
HEALTH CARE DISTRIBUTORS-0.61%
Schein (Henry), Inc..(a)(b) 193,239 7,659,994
=========================================================================
HEALTH CARE EQUIPMENT-3.40%
Biomet, Inc. 175,900 6,126,597
- -------------------------------------------------------------------------
Kinetic Concepts, Inc.(a)(b) 134,057 4,812,646
- -------------------------------------------------------------------------
PerkinElmer, Inc. 580,000 12,800,600
- -------------------------------------------------------------------------
Varian Medical Systems, Inc.(a)(b) 275,000 12,529,000
- -------------------------------------------------------------------------
Waters Corp.(b) 170,220 6,161,964
=========================================================================
42,430,807
=========================================================================
HEALTH CARE FACILITIES-1.44%
Community Health Systems, Inc.(b) 302,003 11,207,331
- -------------------------------------------------------------------------
VCA Antech, Inc.(a)(b) 259,400 6,692,520
=========================================================================
17,899,851
=========================================================================
HEALTH CARE SERVICES-5.54%
Covance Inc.(a)(b) 175,000 8,513,750
- -------------------------------------------------------------------------
DaVita, Inc.(b) 292,900 14,404,822
- -------------------------------------------------------------------------
Express Scripts, Inc.(a)(b) 196,217 14,796,724
- -------------------------------------------------------------------------
Medco Health Solutions, Inc.(b) 109,038 6,160,647
- -------------------------------------------------------------------------
Omnicare, Inc.(a) 257,359 13,923,122
- -------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 80,815 4,644,438
- -------------------------------------------------------------------------
Psychiatric Solutions, Inc.(b) 120,000 6,564,000
=========================================================================
69,007,503
=========================================================================
HEALTH CARE SUPPLIES-0.95%
Cooper Cos., Inc. (The) 172,000 11,840,480
=========================================================================
HOTELS, RESORTS & CRUISE LINES-0.90%
Hilton Hotels Corp. 579,300 11,267,385
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
HOUSEHOLD APPLIANCES-0.53%
Whirlpool Corp. 83,500 $ 6,554,750
=========================================================================
HOUSEHOLD PRODUCTS-0.60%
Central Garden & Pet Co.(b) 175,622 7,528,915
=========================================================================
HOUSEWARES & SPECIALTIES-1.51%
Fortune Brands, Inc. 67,900 5,158,363
- -------------------------------------------------------------------------
Jarden Corp.(a)(b) 405,350 13,696,777
=========================================================================
18,855,140
=========================================================================
INDUSTRIAL MACHINERY-0.88%
ITT Industries, Inc. 108,500 11,023,600
=========================================================================
INSURANCE BROKERS-0.77%
Willis Group Holdings Ltd. (United Kingdom) 257,078 9,547,877
=========================================================================
INTEGRATED OIL & GAS-0.88%
Murphy Oil Corp. 235,000 11,009,750
=========================================================================
INTERNET SOFTWARE & SERVICES-1.58%
Digital River, Inc.(a)(b) 262,000 7,338,620
- -------------------------------------------------------------------------
VeriSign, Inc.(a)(b) 524,163 12,385,972
=========================================================================
19,724,592
=========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.50%
iShares Nasdaq Biotechnology Index Fund(a)(b) 253,124 18,708,395
=========================================================================
IT CONSULTING & OTHER SERVICES-0.48%
Cognizant Technology Solutions Corp.-Class
A(b) 136,483 6,002,522
=========================================================================
MANAGED HEALTH CARE-2.21%
CIGNA Corp. 91,000 10,544,170
- -------------------------------------------------------------------------
Coventry Health Care, Inc.(b) 182,000 9,826,180
- -------------------------------------------------------------------------
Humana Inc.(b) 162,000 7,191,180
=========================================================================
27,561,530
=========================================================================
OIL & GAS DRILLING-1.94%
Nabors Industries, Ltd.(b) 173,000 11,872,990
- -------------------------------------------------------------------------
Noble Corp. 191,706 12,342,032
=========================================================================
24,215,022
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.61%
Grant Prideco, Inc.(b) 355,838 13,838,540
- -------------------------------------------------------------------------
National-Oilwell Varco Inc.(b) 265,000 16,554,550
- -------------------------------------------------------------------------
Weatherford International Ltd.(b) 233,067 14,589,994
=========================================================================
44,983,084
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.42%
CNX Gas Corp. (Acquired 08/01/05; Cost
$3,379,200)(b)(d) 211,200 4,382,400
- -------------------------------------------------------------------------
Rosetta Resources, Inc. (Acquired 06/28/05;
Cost $12,241,600)(b)(d) 765,100 14,154,350
- -------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Southwestern Energy Co. 160,500 $ 11,642,670
=========================================================================
30,179,420
=========================================================================
OIL & GAS REFINING & MARKETING-0.56%
Tesoro Corp. 115,000 7,032,250
=========================================================================
OIL & GAS STORAGE & TRANSPORTATION-1.25%
Williams Cos., Inc. (The) 700,000 15,610,000
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.95%
CapitalSource Inc.(b) 537,268 11,819,896
=========================================================================
PACKAGED FOODS & MEATS-0.88%
McCormick & Co., Inc. 187,300 5,673,317
- -------------------------------------------------------------------------
TreeHouse Foods, Inc.(a)(b) 207,200 5,354,048
=========================================================================
11,027,365
=========================================================================
PHARMACEUTICALS-0.88%
Medicis Pharmaceutical Corp.-Class A(a) 370,000 10,915,000
=========================================================================
REAL ESTATE-0.70%
People's Choice Financial Corp. (Acquired
12/21/04-06/30/05; Cost $11,582,666)(b)(d) 1,167,200 8,754,000
=========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.18%
CB Richard Ellis Group, Inc.-Class A(b) 300,000 14,655,000
=========================================================================
REGIONAL BANKS-0.58%
Signature Bank(b) 249,200 7,226,800
=========================================================================
REINSURANCE-0.51%
Endurance Specialty Holdings Ltd. 191,278 6,342,778
=========================================================================
SEMICONDUCTOR EQUIPMENT-1.45%
ASML Holding N.V.-New York Shares
(Netherlands)(b) 358,327 6,084,392
- -------------------------------------------------------------------------
MEMC Electronic Materials, Inc.(b) 669,647 12,013,467
=========================================================================
18,097,859
=========================================================================
SEMICONDUCTORS-5.23%
Analog Devices, Inc. 401,400 13,960,692
- -------------------------------------------------------------------------
ATI Technologies Inc. (Canada)(b) 451,204 6,519,898
- -------------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(b) 270,207 12,540,307
- -------------------------------------------------------------------------
Microchip Technology Inc.(a) 389,887 11,762,891
- -------------------------------------------------------------------------
Microsemi Corp.(b) 521,744 12,088,808
- -------------------------------------------------------------------------
National Semiconductor Corp. 370,500 8,384,415
=========================================================================
65,257,011
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
SOFT DRINKS-0.67%
Hansen Natural Corp.(a)(b) 165,000 $ 8,335,800
=========================================================================
SPECIALIZED FINANCE-1.33%
Chicago Mercantile Exchange Holdings Inc. 45,451 16,596,433
=========================================================================
SPECIALTY STORES-1.23%
Office Depot, Inc.(b) 555,800 15,301,174
=========================================================================
STEEL-0.52%
Nucor Corp. 109,273 6,539,989
=========================================================================
SYSTEMS SOFTWARE-1.11%
Red Hat, Inc.(b) 596,786 13,857,371
=========================================================================
THRIFTS & MORTGAGE FINANCE-0.80%
Hudson City Bancorp, Inc. 844,718 10,001,461
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.16%
American Tower Corp.-Class A(a)(b) 1,085,385 25,886,432
- -------------------------------------------------------------------------
NII Holdings, Inc.(b) 162,200 13,449,624
=========================================================================
39,336,056
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $986,252,752) 1,197,225,988
=========================================================================
</Table>
<Table>
<Caption>
</Table>
<Table>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
<Caption>
PUT OPTIONS PURCHASED-0.01%
COMPUTER STORAGE & PERIPHERALS-0.01%
Emulex Corp. (Cost $284,336) 4,341 $17.5 Nov-05 72,495
=============================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-4.00%
Liquid Assets Portfolio-Institutional
Class(e) 24,940,812 24,940,812
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 24,940,812 24,940,812
=========================================================================
Total Money Market Funds (Cost
$49,881,624) 49,881,624
=========================================================================
TOTAL INVESTMENTS-100.04% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,036,418,712) 1,247,180,107
=========================================================================
</Table>
F-3
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-14.52%
Liquid Assets Portfolio-Institutional
Class(e)(f) 90,554,944 $ 90,554,944
=========================================================================
STIC Prime Portfolio-Institutional
Class(e)(f) 90,554,944 90,554,944
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $181,109,888) 181,109,888
=========================================================================
TOTAL INVESTMENTS-114.56% (Cost
$1,217,528,600) 1,428,289,995
=========================================================================
OTHER ASSETS LESS LIABILITIES-(14.56%) (181,518,712)
=========================================================================
NET ASSETS-100.00% $1,246,771,283
_________________________________________________________________________
=========================================================================
</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
securities lending transactions at October 31, 2005.
(b) Non-income producing security.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at October
31, 2005 represented 0.78% of the Fund's Total Net Assets. See Note 1A.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold 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 value of these securities at October 31, 2005 was $27,290,750,
which represented 2.19% of the Fund's Total Net Assets. These securities are
considered to be illiquid. The Fund is limited to investing 15% of net
assets in illiquid securities at the time of purchase.
(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 to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $986,537,088)* $1,197,298,483
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $230,991,512) 230,991,512
============================================================
Total investments (cost $1,217,528,600) 1,428,289,995
============================================================
Receivables for:
Investments sold 16,035,819
- ------------------------------------------------------------
Fund shares sold 1,913,775
- ------------------------------------------------------------
Dividends 377,360
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 74,142
- ------------------------------------------------------------
Other assets 47,135
============================================================
Total assets 1,446,738,226
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 14,869,447
- ------------------------------------------------------------
Fund shares reacquired 2,654,987
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 141,861
- ------------------------------------------------------------
Collateral upon return of securities
loaned 181,109,888
- ------------------------------------------------------------
Accrued distribution fees 593,488
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,418
- ------------------------------------------------------------
Accrued transfer agent fees 435,199
- ------------------------------------------------------------
Accrued operating expenses 159,655
============================================================
Total liabilities 199,966,943
============================================================
Net assets applicable to shares outstanding $1,246,771,283
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 867,838,502
- ------------------------------------------------------------
Undistributed net investment income (loss) (116,433)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 168,287,819
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 210,761,395
============================================================
$1,246,771,283
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 800,829,587
____________________________________________________________
============================================================
Class B $ 317,492,089
____________________________________________________________
============================================================
Class C $ 88,315,629
____________________________________________________________
============================================================
Class R $ 8,378,708
____________________________________________________________
============================================================
Investor Class $ 6,790,820
____________________________________________________________
============================================================
Institutional Class $ 24,964,450
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 42,477,921
____________________________________________________________
============================================================
Class B 18,130,453
____________________________________________________________
============================================================
Class C 5,047,301
____________________________________________________________
============================================================
Class R 447,298
____________________________________________________________
============================================================
Investor Class 359,951
____________________________________________________________
============================================================
Institutional Class 1,295,489
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 18.85
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $18.85 divided by
94.50%) $ 19.95
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 17.51
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 17.50
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 18.73
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 18.87
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 19.27
____________________________________________________________
============================================================
</Table>
* At October 31, 2005 securities with an aggregate value of $179,842,688 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $14,146) $ 7,797,132
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $376,729 after rebates of
$5,031,994) 1,407,558
==========================================================================
Total investment income 9,204,690
==========================================================================
EXPENSES:
Advisory fees 7,906,988
- --------------------------------------------------------------------------
Administrative services fees 324,055
- --------------------------------------------------------------------------
Custodian fees 91,445
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,287,310
- --------------------------------------------------------------------------
Class B 3,613,279
- --------------------------------------------------------------------------
Class C 835,177
- --------------------------------------------------------------------------
Class R 37,132
- --------------------------------------------------------------------------
Investor Class 6,467
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 3,509,926
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 6,506
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 55,299
- --------------------------------------------------------------------------
Other 534,813
==========================================================================
Total expenses 19,208,397
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (100,384)
==========================================================================
Net expenses 19,108,013
==========================================================================
Net investment income (loss) (9,903,323)
==========================================================================
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 $3,107,303) 198,665,912
- --------------------------------------------------------------------------
Foreign currencies (14,457)
==========================================================================
198,651,455
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (42,686,280)
==========================================================================
Foreign currencies 36,287
==========================================================================
(42,649,993)
==========================================================================
Net gain from investment securities and foreign currencies 156,001,462
==========================================================================
Net increase in net assets resulting from operations $146,098,139
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (9,903,323) $ (7,843,507)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 198,651,455 92,544,722
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (42,649,993) 9,256,653
==============================================================================================
Net increase in net assets resulting from operations 146,098,139 93,957,868
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (50,047,808) (13,528,020)
- ----------------------------------------------------------------------------------------------
Class B (30,863,202) (10,257,718)
- ----------------------------------------------------------------------------------------------
Class C (6,304,790) (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 (88,010,584) (25,605,633)
==============================================================================================
Share transactions-net:
Class A 144,724,899 31,588,830
- ----------------------------------------------------------------------------------------------
Class B (74,233,309) (40,086,908)
- ----------------------------------------------------------------------------------------------
Class C 10,965,505 1,351,823
- ----------------------------------------------------------------------------------------------
Class R 2,405,509 4,312,014
- ----------------------------------------------------------------------------------------------
Investor Class 6,814,869 --
- ----------------------------------------------------------------------------------------------
Institutional Class 24,840,069 55,370
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 115,517,542 (2,778,871)
==============================================================================================
Net increase in net assets 173,605,097 65,573,364
______________________________________________________________________________________________
==============================================================================================
NET ASSETS:
Beginning of year 1,073,166,186 1,007,592,822
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(116,433) and $(98,307), respectively) $1,246,771,283 $1,073,166,186
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee or
other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
F-9
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee 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 July 18, 2005, AIM 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, Investor Class and Institutional Class shares to 1.55%,
2.30%, 2.30%, 1.80%, 1.55% and 1.30% 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; and (vi) expenses that the Fund has incurred but did
not actually pay because of an expense offset arrangement. Currently, in
addition to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
described more fully below, the expense offset arrangements from which the Fund
may benefit are in the form of credits that the Fund receives from banks where
the Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $7,593.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$49,026.
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 year ended
October 31, 2005, AIM was paid $324,055.
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 year ended October 31, 2005, the
Fund paid AISI $3,509,926 for Class A, Class B, Class C, Class R and Investor
Class share classes and $6,506 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 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the
average daily net assets of Investor Class shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily net assets of Class A 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. National Association of Securities Dealers ("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, 2005, the Class A, Class B, Class C, Class
R and Investor Class shares paid $2,287,310, $3,613,279, $835,177, $37,132 and
$6,467, 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. For the year ended
October 31, 2005, ADI advised the Fund that it retained $165,953 in front-end
sales commissions from the sale of Class A shares and $5,043, $68,324 and $5,685
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.
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 October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ 10,261,930 $ 300,909,932 $ (286,231,050) $ -- $ 24,940,812 $ 513,614
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 10,261,930 300,909,932 (286,231,050) -- 24,940,812 517,215
===============================================================================================================================
Subtotal $ 20,523,860 $ 601,819,864 $ (572,462,100) $ -- $ 49,881,624 $1,030,829
===============================================================================================================================
<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>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME*
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ 69,189,281 $ 325,359,623 $ (303,993,960) $ -- $ 90,554,944 $ 187,896
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 69,189,281 323,709,673 (302,344,010) -- 90,554,944 188,833
===============================================================================================================================
Subtotal $138,378,562 $ 649,069,296 $ (606,337,970) $ -- $181,109,888 $ 376,729
===============================================================================================================================
Total $158,902,422 $1,250,889,160 $(1,178,800,070) $ -- $230,991,512 $1,407,558
_______________________________________________________________________________________________________________________________
===============================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ------------------------
Liquid Assets Portfolio-
Institutional Class $ --
- ------------------------
STIC Prime Portfolio-
Institutional Class --
========================
Subtotal $ --
========================
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 year ended October 31, 2005, the Fund
engaged in securities purchases of $27,497,668 and sales of $12,419,907, which
resulted in net realized gains of $3,107,303.
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, 2005, the Fund received credits from these arrangements which
resulted in the reduction of the Fund's total expenses of $43,765.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $6,008
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 October 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $179,842,688 were
on loan to brokers. The loans were secured by cash collateral of $181,109,888
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $376,729 for securities lending transactions, which are net of
compensation to counterparties.
F-12
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------
Distributions paid from long-term capital gain $88,010,584 $25,605,633
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 21,607,521
- ------------------------------------------------------------------------------
Undistributed long-term gain 148,919,476
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 208,522,217
- ------------------------------------------------------------------------------
Temporary book/tax differences (116,433)
- ------------------------------------------------------------------------------
Shares of beneficial interest 867,838,502
==============================================================================
Total net assets $1,246,771,283
______________________________________________________________________________
==============================================================================
</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 deferral of losses on
wash sales and the deferral of losses on certain straddles.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund does not have a capital loss carryforward as of October 31, 2005.
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, 2005 was $1,390,838,738 and $1,445,999,906, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $234,861,628
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (26,339,411)
==============================================================================
Net unrealized appreciation of investment securities $208,522,217
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,219,767,778.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses, the use of a portion of the proceeds from
redemptions as distributions and expenses related to the plan of reorganization
on July 18, 2005, on October 31, 2005, undistributed net investment income
(loss) was increased by $9,888,786, undistributed net realized gain was
decreased by $29,839,936 and shares of beneficial interest increased by
$19,951,150. Further, as a result of tax deferrals acquired in the
reorganization of AIM Mid Cap Stock Fund into the Fund on July 18, 2005,
undistributed net investment income (loss) was decreased by $3,589,
undistributed net realized gain was decreased by $124,265 and shares of
beneficial interest increased by $127,854. This reclassification had no effect
on the net assets of the Fund.
F-13
NOTE 12--SHARE INFORMATION
The Fund currently consists of 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,348,935 $190,673,466 6,956,116 $121,226,684
- ----------------------------------------------------------------------------------------------------------------------------
Class B 2,667,018 45,749,438 2,589,525 42,660,392
- ----------------------------------------------------------------------------------------------------------------------------
Class C 1,289,052 22,136,153 1,128,395 18,630,607
- ----------------------------------------------------------------------------------------------------------------------------
Class R 257,080 4,728,499 275,328 4,806,109
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 91,260 1,700,432 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 490,561 9,221,195 3,080 55,129
============================================================================================================================
Issued as reinvestment of dividends:
Class A 2,609,950 47,005,197 727,483 12,170,787
- ----------------------------------------------------------------------------------------------------------------------------
Class B 1,735,416 29,207,054 564,080 8,923,747
- ----------------------------------------------------------------------------------------------------------------------------
Class C 358,665 6,032,744 96,104 1,519,408
- ----------------------------------------------------------------------------------------------------------------------------
Class R 25,963 465,263 1,810 30,198
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 2,559 46,094 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 15,412 282,499 14 241
============================================================================================================================
Issued in connection with acquisitions:(c)
Class A 799,385 15,219,369 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class B 405,707 7,187,683 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class C 225,708 3,996,573 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class 322,644 6,146,451 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 876,136 17,023,454 -- --
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 3,983,902 73,470,591 834,769 14,693,499
- ----------------------------------------------------------------------------------------------------------------------------
Class B (4,272,532) (73,470,591) (886,014) (14,693,499)
============================================================================================================================
Reacquired:
Class A (9,830,016) (181,643,724) (6,701,600) (116,502,140)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (4,826,915) (82,906,893) (4,698,851) (76,977,548)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (1,233,703) (21,199,965) (1,149,534) (18,798,192)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (151,929) (2,788,253) (30,395) (524,293)
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (56,512) (1,078,108) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (90,294) (1,687,079) -- --
============================================================================================================================
6,043,452 $115,517,542 (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 in aggregate they own 6% of the
outstanding shares of the Fund. ADI has an agreement with these entities
to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the
Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
(b)owned of record by these shareholders are also owned beneficially.
(c)Investor Class shares commenced sales on November 30, 2004.
As of the open of business on July 18, 2005, the Fund acquired all the
net assets of AIM Mid Cap Stock Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund March 21-23, 2005
and by the shareholders of AIM Mid Cap Stock Fund on June 28, 2005. The
acquisition was accomplished by a tax free exchange of 2,629,580 shares
of the Fund for 2,743,238 shares of AIM Mid Cap Stock Fund shares
outstanding as of the close of business on July 15, 2005. AIM Mid Cap
Stock Fund's net assets at that date of $49,573,530 including $5,830,760
of unrealized appreciation. The aggregate net assets of the Fund
immediately before the acquisition were $1,228,658,758.
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 OCTOBER 31,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.86 $ 16.66 $ 12.80 $ 14.69 $ 21.79
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.08)(a) (0.08)(a) (0.04)(a) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.52 1.70 3.94 (1.85) (4.27)
=================================================================================================================================
Total from investment operations 2.41 1.62 3.86 (1.89) (4.31)
=================================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79)
=================================================================================================================================
Net asset value, end of period $ 18.85 $ 17.86 $ 16.66 $ 12.80 $ 14.69
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.87% 9.87% 30.16% (12.87)% (21.76)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $800,830 $617,194 $545,691 $456,268 $576,660
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.40%(d) 1.53% 1.38% 1.33%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.58)%(c) (0.46)% (0.56)% (0.29)% (0.21)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 120% 74% 101% 120% 130%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $730,108,701.
(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,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.79 $ 15.79 $ 12.21 $ 14.10 $ 21.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.18)(a) (0.16)(a) (0.14)(a) (0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.36 1.60 3.74 (1.75) (4.12)
=================================================================================================================================
Total from investment operations 2.14 1.42 3.58 (1.89) (4.27)
=================================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79)
=================================================================================================================================
Net asset value, end of period $ 17.51 $ 16.79 $ 15.79 $ 12.21 $ 14.10
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.09% 9.13% 29.32% (13.40)% (22.29)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $317,492 $376,355 $392,382 $346,456 $454,018
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.04%(c) 2.05%(d) 2.18% 2.03% 1.99%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.26)%(c) (1.11)% (1.21)% (0.94)% (0.87)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 120% 74% 101% 120% 130%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $361,327,853.
(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%.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.77 $ 15.78 $ 12.20 $ 14.10 $ 21.15
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.22)(a) (0.18)(a) (0.16)(a) (0.14)(a) (0.14)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.37 1.59 3.74 (1.76) (4.12)
=============================================================================================================================
Total from investment operations 2.15 1.41 3.58 (1.90) (4.26)
=============================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- -- (2.79)
=============================================================================================================================
Net asset value, end of period $ 17.50 $ 16.77 $ 15.78 $ 12.20 $ 14.10
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 13.16% 9.07% 29.34% (13.48)% (22.24)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $88,316 $73,929 $68,356 $56,298 $66,127
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 2.04%(c) 2.05%(d) 2.18% 2.03% 1.99%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.26)%(c) (1.11)% (1.21)% (0.94)% (0.87)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 120% 74% 101% 120% 130%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(c) Ratios are based on average daily net assets of $83,517,683.
(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
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------- 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) (0.14)(a) (0.10)(a) (0.10)(a) (0.03)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.51 1.68 3.93 (3.80)
==================================================================================================================
Total from investment operations 2.37 1.58 3.83 (3.83)
==================================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- --
==================================================================================================================
Net asset value, end of period $18.73 $17.78 $16.62 $12.79
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 13.69% 9.65% 29.95% (23.05)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,379 $5,622 $1,154 $ 10
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 1.54%(c) 1.55%(d) 1.68% 1.54%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.61)% (0.71)% (0.44)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 120% 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 based on average daily net assets of $7,426,374.
(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-16
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
-----------------
NOVEMBER 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2005
- -------------------------------------------------------------------------------
Net asset value, beginning of period $18.95
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a)
- -------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.43
===============================================================================
Total from investment operations 1.34
===============================================================================
Less distributions from net realized gains (1.42)
===============================================================================
Net asset value, end of period $18.87
_______________________________________________________________________________
===============================================================================
Total return(b) 7.43%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,791
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets 1.29%(c)
===============================================================================
Ratio of net investment income (loss) to average net assets (0.51)%(c)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate 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
$2,810,151.
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------ 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 (loss) (0.01)(a) 0.01(a) 0.01(a) 0.02(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.57 1.71 3.98 (4.43)
==============================================================================================================
Total from investment operations 2.56 1.72 3.99 (4.41)
==============================================================================================================
Less distributions from net realized gains (1.42) (0.42) -- --
==============================================================================================================
Net asset value, end of period $ 19.27 $18.13 $16.83 $ 12.84
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 14.52% 10.38% 31.08% (25.57)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,964 $ 67 $ 10 $ 7
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.81%(c) 0.86% 0.87% 0.84%(d)
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.81%(c) 1.15% 1.25% 0.99%(d)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.03)%(c) 0.08% 0.10% 0.25%(d)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 120% 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 based on average daily net assets of $10,150,659.
(d) Annualized.
F-17
NOTE 14--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending March 31, 2006. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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
ss. 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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.
F-18
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of AIM Capital
Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Capital Development Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The Fund distributed long-term capital gains of $88,010,584 for the Fund's tax
year ended October 31, 2005.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 6.20%, 7.58%, 3.10% and 9.45%, respectively.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Asia Pacific Growth Fund
AIM Aggressive Growth Fund AIM Developing Markets Fund TAXABLE
AIM Basic Balanced Fund* AIM European Growth Fund
AIM Basic Value Fund AIM European Small Company Fund(1) AIM Floating Rate Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM High Yield Fund
AIM Capital Development Fund AIM Global Equity Fund AIM Income Fund
AIM Charter Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Constellation Fund AIM Global Value Fund AIM Limited Maturity Treasury Fund
AIM Diversified Dividend Fund AIM International Core Equity Fund AIM Money Market Fund
AIM Dynamics Fund AIM International Growth Fund AIM Short Term Bond Fund
AIM Large Cap Basic Value Fund AIM International Small Company Fund(1) AIM Total Return Bond Fund
AIM Large Cap Growth Fund AIM Trimark Fund Premier Portfolio
AIM Mid Cap Basic Value Fund Premier U.S. Government Money Portfolio
AIM Mid Cap Core Equity Fund(1) SECTOR EQUITY
AIM Mid Cap Growth Fund TAX-FREE
AIM Opportunities I Fund AIM Advantage Health Sciences Fund
AIM Opportunities II Fund AIM Energy Fund AIM High Income Municipal Fund(1)
AIM Opportunities III Fund AIM Financial Services Fund AIM Municipal Bond Fund
AIM Premier Equity Fund AIM Global Health Care Fund AIM Tax-Exempt Cash Fund
AIM S&P 500 Index Fund AIM Global Real Estate Fund AIM Tax-Free Intermediate Fund
AIM Select Equity Fund AIM Gold & Precious Metals Fund Premier Tax-Exempt Portfolio
AIM Small Cap Equity Fund AIM Leisure Fund
AIM Small Cap Growth Fund(1) AIM Multi-Sector Fund AIM ALLOCATION SOLUTIONS
AIM Small Company Growth Fund AIM Real Estate Fund(1)
AIM Summit Fund AIM Technology Fund AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund AIM Utilities Fund AIM Growth Allocation Fund(2)
AIM Trimark Small Companies Fund AIM Moderate Allocation Fund
AIM Weingarten Fund AIM Moderate Growth Allocation Fund
AIM Moderately Conservative Allocation
Fund
DIVERSIFIED PORTFOLIOS
AIM Income Allocation Fund
AIM International 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) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com CDV-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>
AIM CHARTER FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
=================================================================================================================================
AIM CHARTER FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October 31, 2005, and is based on total net assets.
=================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged LIPPER LARGE-CAP CORE The Fund provides a complete list of
FUND INDEX represents an average of its holdings four times in each fiscal
o Class B shares are not available as the performance of the 30 largest year, at the quarter-ends. For the
an investment for retirement plans large-capitalization core equity funds second and fourth quarters, the lists
maintained pursuant to Section 401 of tracked by Lipper, Inc., an appear in the Fund's semiannual and
the Internal Revenue Code, including independent mutual fund performance annual reports to shareholders. For
401(k) plans, money purchase pension monitor. the first and third quarters, the Fund
plans and profit sharing plans. Plans files the lists with the Securities
that had existing accounts invested in o The Fund is not managed to track the and Exchange Commission (SEC) on Form
Class B shares prior to September performance of any particular index, N-Q. The most recent list of portfolio
30, 2003, will continue to be allowed including the indexes defined here, holdings is available at
to make additional purchases. and consequently, the performance of AIMinvestments.com. From our home
the Fund may deviate significantly page, click on Products & Performance,
o Class R shares are available only to from the performance of the indexes. then Mutual Funds, then Fund Overview.
certain retirement plans. Please see Select your Fund from the drop-down
the prospectus for more information. o A direct investment cannot be made menu and click on Complete Quarterly
in an index. Unless otherwise Holdings. Shareholders can also look
PRINCIPAL RISKS OF INVESTING IN THE indicated, index results include up the Fund's Forms N-Q on the SEC's
FUND reinvested dividends, and they do not Web site at sec.gov. And copies of the
reflect sales charges. Performance of Fund's Forms N-Q may be reviewed and
o The Fund may invest up to 20% of its an index of funds reflects fund copied at the SEC's Public Reference
assets in the securities of non-U.S. expenses; performance of a market Room at 450 Fifth Street, N.W.,
issuers. International investing index does not. Washington, D.C. 20549-0102. You can
presents certain risks not associated obtain information on the operation of
with investing solely in the United OTHER INFORMATION the Public Reference Room, including
States. These include risks relating information about duplicating fee
to fluctuations in the value of the o The returns shown in management's charges, by calling 202-942-8090 or
U.S. dollar relative to the values of discussion of Fund performance are 800-732-0330, or by electronic request
other currencies, the custody based on net asset values calculated at the following e-mail address:
arrangements made for the Fund's for shareholder transactions. publicinfo@sec.gov. The SEC file
foreign holdings, differences in Generally accepted accounting princi numbers for the Fund are 811-01424 and
accounting, political risks and the ples require adjustments to be made to 2-25469.
lesser degree of public information the net assets of the Fund at period
required to be provided by non-U.S. end for financial reporting purposes, A description of the policies and
companies. and as such, the net asset values for procedures that the Fund uses to
shareholder transactions and the determine how to vote proxies relating
ABOUT INDEXES USED IN THIS REPORT returns based on those net asset to portfolio securities is available
values may differ from the net asset without charge, upon request, from our
o The unmanaged Standard & Poor's values and returns reported in the Client Services department at
Composite Index of 500 Stocks (the S&P Financial Highlights. 800-959-4246 or on the AIM Web site,
500--Registered Trademark--INDEX) is AIMinvestments.com. On the home page,
an index of common stocks frequently o Industry classifications used in scroll down and click on AIM Funds
used as a general measure of U.S. this report are generally according to Proxy Policy. The information is also
stock market performance. the Global Industry Classification available on the Securities and
Standard, which was developed by and Exchange Commission's Web site,
o The unmanaged MSCI WORLD INDEX is a is the exclusive property and a sec.gov.
group of global securities tracked by service mark of Morgan Stanley Capital
Morgan Stanley Capital International. International Inc. and Standard & Information regarding how the Fund
Poor's. voted proxies related to its portfolio
o The unmanaged Russell 1000 securities during the 12 months ended
- --Registered Trademark--INDEX June 30, 2005, is available at our Web
represents the performance of the site. Go to AIMinvestments.com, access
stocks of large-capitalization the About Us tab, click on Required
companies. Notices and then click on Proxy Voting
Activity. Next, select the Fund from
the drop-down menu. The information is
also available on the Securities and
Exchange Commission's Web site,
sec.gov.
=========================================
FUND NASDAQ SYMBOLS
Class A Shares CHTRX
Class B Shares BCHTX
Class C Shares CHTCX
Class R Shares CHRRX
=========================================
=============================================================================
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 CHARTER FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
ROBERT H. GRAHAM the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
[WILLIAMSON to the performance of natural resources and commodities.
PHOTO]
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the fiscal year ended October 31, 2005. Of course,
MARK H. WILLIAMSON your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM CHARTER FUND
DEAR AIM FUNDS 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
[CROCKETT voluntary fee reductions from A I M Advisors, Inc. (AIM) that
PHOTO] save shareholders approximately $20.8 million 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
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of these
five standing committees to include all 14 independent Board
members. Further, our Investments 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
December 15, 2005
2
AIM CHARTER FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
through the size of individual
holdings and sector weightings. Sector
========================================================================================= exposure is consistent with a core
PERFORMANCE SUMMARY investment to complement value and
============================================ growth investments. We may also
For the fiscal year ended October 31, FUND VS. INDEXES maintain a cash position as a means to
2005, the Fund underperformed the limit volatility in certain market
indexes against which it is compared. TOTAL RETURNS, 10/31/04-10/31/05, environments.
It underperformed the market indexes EXCLUDING APPLICABLE SALES CHARGES. IF
because of holdings in the information SALES CHARGES WERE INCLUDED, RETURNS We consider selling a stock when
technology and consumer discretionary WOULD BE LOWER.
sectors. We seek to provide a core o it exceeds our target price
fund that is complementary to the more Class A Shares 6.59%
aggressive funds in a shareholder's o we have not seen a demonstrable
portfolio, competitive in its Class B Shares 5.76 improvement in fundamentals during an
performance, and more consistent over 18- to 24-month time horizon
time. In characterizing "competitive," Class C Shares 5.75
we acknowledge that the Fund's more o there is a deterioration in company
conservative investment strategy will Class R Shares 6.22 fundamentals
likely not capture all of the market's
upside gains. Our goal is for the Fund S&P 500 Index (Broad Market o more compelling investment
to give up less in declining markets. Index) 8.72 opportunities exist
Russell 1000 Index MARKET CONDITIONS AND YOUR FUND
(Style-specific Index) 10.47
During the Fund's fiscal year,
Lipper Large-Cap Core Fund Index economic indicators were generally
(Peer Group Index) 8.67 positive, pointing to the health of
the U.S. economy. Throughout the year,
SOURCE: LIPPER, INC. the nation's gross domestic product
============================================ reflected continuing growth. Corporate
Your Fund's long-term performance earnings growth was generally healthy.
appears on Pages 6 and 7. Unemployment declined somewhat,
========================================================================================= manufacturing growth continued and
inflation remained low. However, many
HOW WE INVEST provide the potential for both investors focused on the impact that
long-term capital appreciation and record-breaking energy prices and
We manage your Fund as a core fund, lower downside risk. rising interest rates would have on
seeking to provide upside potential consumer spending, corporate earnings
and a measure of protection in We conduct quantitative research to and continued economic growth.
difficult markets to complement more identify growing companies whose stock
aggressive value and growth prices may be experiencing some Most of the stock market gains for
investments. near-term distress. By further the one-year period came in 2004. So
applying rigorous fundamental far, the year 2005 has produced only
We believe a portfolio of research, including analysis of modest gains. In both the Russell 1000
attractively valued companies with company financial statements with a and S&P 500 indexes, energy and
consistent free cash flow and special focus on cash flow, we assess utilities were by far the
management teams that effectively the prospects for each business and highest-performing sectors, because of
allocate excess cash to the benefit of its appreciation potential. high demand and those sectors'
shareholders can outperform the market pass-through pricing power. Consumer
over the long term. We believe these We target a well-diversified, discretionary and telecommunication
companies are best positioned to large-cap core portfolio and attempt services
weather temporary setbacks and to protect against volatility
therefore (continued)
========================================== ========================================== =========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Pharmaceuticals 10.3% 1. Microsoft Corp. 3.5%
[PIE CHART] 2. Property & Casualty Insurance 7.7 2. Merck & Co. Inc 2.8
3. Packaged Foods & Meats 5.8 3. Berkshire Hathaway Inc.-Class A 2.5
Information Technology 18.5% 4. Integrated Oil & Gas 5.5 4. Tyco International Ltd. 2.5
Financials 17.6% 5. Systems Software 4.8 5. Exxon Mobil Corp. 2.5
Consumer Staples 13.3% 6. Oil & Gas Equipment & Services 4.6 6. Xerox Corp. 2.1
Energy 12.1% 7. Industrial Conglomerates 3.8 7. BJ Services Co. 2.1
Health Care 11.3% 8. Semiconductors 3.6 8. Koninklijke (Royal) Philips
Industrials 9.9% 9. Communications Equipment 3.4 Electronics N.V. (Netherlands) 2.0
Consumer Discretionary 5.9% 10. Integrated Telecommunications 9. GlaxoSmithKline PLC-ADR
Telecommunications Services 2.8% Services 2.8 (United Kingdom) 1.9
Materials 1.0% 10. General Mills, Inc. 1.9
Utilities 1.0%
Money Market Funds Plus TOTAL NET ASSETS $2.4 BILLION
Other Assets Less Liabilities 6.6%
TOTAL NUMBER OF HOLDINGS* 73
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.
========================================== ========================================== =========================================
3
AIM CHARTER FUND
posted the smallest gains in the prices--would result. Either scenario can be at the core of the investor's
Russell 1000 Index, while those same would mean increased profits for portfolio, one which can add stability
sectors lost ground for the year in insurance carriers and the likelihood and constancy to more aggressive
the S&P 500 Index. of share price increases for equity investments. We believe we can
investors. provide that to shareholders by
The single greatest contributor to choosing from stocks that the market
Fund performance this year was our PHILIPS ELECTRONICS, an has temporarily punished or
overweight position in the energy international stock we added to the undervalued and by purchasing
sector relative to the Russell 1000 portfolio this year, is a new top-10 companies with strong cash flow, clean
Index. A number of strong contributors holding. Philips was a strong balance sheets and management teams
in the sector were names in which we contributor to Fund performance for with a history of being good stewards
had increased our holdings during fall the period. Besides being the world's of cash.
2004 when there was a pull-back in oil number one producer of light bulbs,
prices that enabled us to purchase the Philips manufactures TVs, VCRs and THE VIEWS AND OPINIONS EXPRESSED IN
stocks when they were temporarily electric shavers, as well as picture MANAGEMENT'S DISCUSSION OF FUND
undervalued by the marketplace. tubes, semiconductors and medical PERFORMANCE ARE THOSE OF A I M ADVISORS,
systems. The company recently INC. THESE VIEWS AND OPINIONS ARE
B.J. SERVICES, an oil and gas announced that the Food and Drug SUBJECT TO CHANGE AT ANY TIME BASED ON
services company, was among the top Administration had approved its FACTORS SUCH AS MARKET AND ECONOMIC
contributors to Fund performance for advanced defibrillator technology. A CONDITIONS. THESE VIEWS AND OPINIONS
the year. The company does both oil defibrillator equipped with this MAY NOT BE RELIED UPON AS INVESTMENT
and gas drilling, including deep gas technology can indicate to medical ADVICE OR RECOMMENDATIONS, OR AS AN
drilling in the Rocky Mountains and in personnel whether a patient whose OFFER FOR A PARTICULAR SECURITY. THE
Canada, where it dominates its heart has stopped suddenly should be INFORMATION IS NOT A COMPLETE ANALYSIS
industry. We selected B.J. Services treated first with a shock or with OF EVERY ASPECT OF ANY MARKET,
for its clean balance sheet, modest cardiopulmonary resuscitation. COUNTRY, INDUSTRY, SECURITY OR THE
debt, high returns and disciplined FUND. STATEMENTS OF FACT ARE FROM
management. The consumer discretionary and SOURCES CONSIDERED RELIABLE, BUT
information technology (IT) sectors A I M ADVISORS, INC. MAKES NO
The fact that the Fund was more detracted from Fund performance. REPRESENTATION OR WARRANTY AS TO THEIR
heavily invested in the consumer COMPLETENESS OR ACCURACY. ALTHOUGH
staples sector than the Russell 1000 The publishing industry, a segment HISTORICAL PERFORMANCE IS NO GUARANTEE
Index was another benefit to Fund of the consumer discretionary sector, OF FUTURE RESULTS, THESE INSIGHTS MAY
performance. In addition, the Fund's suffered from decreased advertising HELP YOU UNDERSTAND OUR INVESTMENT
holdings in the financials sector revenue because of the many MANAGEMENT PHILOSOPHY.
significantly outperformed the stocks alternatives available to advertisers
in the same sector in that index. in allocating their promotional See important Fund and index
spending. The sector itself has disclosures inside front cover.
Early in the year, we sold some suffered from investors' fears that
financial stocks and then avoided any oil prices would diminish consumer RONALD S. SLOAN,
that would be adversely affected by spending. Over the year, we reduced Chartered Financial
rising interest rates. In addition, we our consumer discretionary holdings [SLOAN Analyst, senior
purchased AMERICAN INTERNATIONAL GROUP and trimmed our exposure to the PHOTO] portfolio manager, is
early in the second half of the fiscal publishing industry in particular. lead portfolio manager
year after it had been severely of AIM Charter Fund.
punished because of investigations Some well-known large-cap names in Mr. Sloan has 34
into wrongdoing on the part of company IT struggled this year, including some years of experience in the investment
executives. The new management team owned by your Fund. IBM and CISCO industry. He joined AIM in 1998. Mr.
has since delivered solid results, SYSTEMS, both held at fiscal-year-end, Sloan attended the University of
and, as of October 31, 2005, the stock detracted from performance, but we Missouri, where he received both a
had rebounded more than 30% since its remain confident in their potential to B.S. in business administration and an
April low. achieve the price targets we have set M.B.A.
for them.
Finally, several of the Fund's Assisted by the Mid/Large Cap Core
stocks in the property and casualty LEXMARK, also an IT sector holding, Team
insurance industry were sector is the number two manufacturer of
outperformers. These stocks--long-term printers and printer supplies in the
holdings ACE LTD. and ST. PAUL U.S. The company has strong cash flow
TRAVELERS, along with CHUBB, which we and virtually no debt. Unfortunately,
acquired this year--benefited from in early October, Lexmark warned that
investors anticipating better times its printer sales could be expected to
ahead for the industry. In previous be rather flat in its upcoming
years, more and more companies began earnings release. For printer
offering property and casualty manufacturers, the bulk of revenue
insurance. The fierce competition comes from ink and supplies.
resulted in carriers discounting their Nevertheless, the market dealt harshly
premium prices. Because of the with the company's announcement,
hurricane devastation in 2005, almost affecting Fund returns just as the
all industry competitors sustained fiscal year ended. At that time, we
heavy losses. Investors acted on the continued to hold shares in the
belief that such losses would put an company.
end to the discounting of premium
prices and that sustained premium IN CLOSING
costs--or perhaps higher [RIGHT ARROW GRAPHIC]
Thank you for investing in AIM Charter
Fund. We continually strive to provide FOR A PRESENTATION OF YOUR FUND'S
a fund that LONG-TERM PERFORMANCE, PLEASE SEE
PAGES 6 AND 7.
4
AIM CHARTER FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, The hypothetical account values and
to estimate the expenses that you paid expenses may not be used to estimate
As a shareholder of the Fund, you over the period. Simply divide your the actual ending account balance or
incur two types of costs: (1) account value by $1,000 (for example, expenses you paid for the period. You
transaction costs, which may include an $8,600 account value divided by may use this information to compare
sales charges (loads) on purchase $1,000 = 8.6), then multiply the the ongoing costs of investing in the
payments; contingent deferred sales result by the number in the table Fund and other funds. To do so,
charges on redemptions; and redemption under the heading entitled "Actual compare this 5% hypothetical example
fees, if any; and (2) ongoing costs, Expenses Paid During Period" to with the 5% hypothetical examples that
including management fees; estimate the expenses you paid on your appear in the shareholder reports of
distribution and/or service fees account during this period. the other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
understand your ongoing costs (in PURPOSES in the table are meant to highlight
dollars) of investing in the Fund and your ongoing costs only and do not
to compare these costs with ongoing The table below also provides reflect any transactional costs, such
costs of investing in other mutual information about hypothetical account as sales charges (loads) on purchase
funds. The example is based on an values and hypothetical expenses based payments, contingent deferred sales
investment of $1,000 invested at the on the Fund's actual expense ratio and charges on redemptions, and redemption
beginning of the period and held for an assumed rate of return of 5% per fees, if any. Therefore, the
the entire period May 1, 2005, through year before expenses, which is not the hypothetical information is useful in
October 31, 2005. Fund's actual return. The Fund's comparing ongoing costs only, and will
actual cumulative total returns at net not help you determine the relative
ACTUAL EXPENSES asset value after expenses for the six total costs of owning different funds.
months ended October 31, 2005, appear In addition, if these transactional
The table below provides information in the table "Cumulative Total costs were included, your costs would
about actual account values and actual Returns" on Page 7. have been higher.
expenses. You may use the information
in this table,
================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2),(3) (10/31/05) PERIOD(2),(4) RATIO
A $1,000.00 $1,032.10 $6.20 $1,019.11 $6.16 1.21%
B 1,000.00 1,028.50 9.97 1,015.38 9.91 1.95
C 1,000.00 1,028.40 9.97 1,015.38 9.91 1.95
R 1,000.00 1,030.70 7.42 1,017.90 7.38 1.45
(1) The actual ending account value is based on the actual total return of the
Fund for the period May 1, 2005, through October 31, 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 October 31, 2005, appear in
the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
184/365 to reflect the most recent fiscal half year. Effective on July
1, 2005, the distributor contractually agreed to reduce Rule 12b-1 plan fees
for Class A shares to 0.25%. The annualized expense ratio restated as if
this agreement had been in effect throughout the entire most recent fiscal
half year is 1.20% for Class A shares.
(3) The actual expenses paid restated as if the changes discussed above had been
in effect throughout the entire most recent fiscal half year are $6.15 for
Class A shares.
(4) The hypothetical expenses paid restated as if the changes discussed above
had been in effect throughout the entire most recent fiscal half year are
$6.11 for Class A shares
================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
5
AIM CHARTER FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 11/26/68, INDEX DATA FROM 11/30/68
[MOUNTAIN CHART]
================================================================================
AIM CHARTER FUND-- S&P 500
DATE CLASS A SHARES INDEX
- -------------------- ------------------- --------------------
11/26/68 $9450
11/68 9450 $10000
12/68 9365 9609
1/69 9337 9554
2/69 9140 9127
3/69 9292 9464
4/69 9434 9691
5/69 9548 9694
6/69 9007 9180
7/69 8465 8651
8/69 9064 9022
9/69 9064 8821
10/69 9577 9238
11/69 9264 8938
12/69 9086 8798
1/70 8168 8150
2/70 8730 8605
3/70 8375 8642
4/70 7250 7886
5/70 6629 7430
6/70 6185 7084
7/70 6629 7629
8/70 6836 7993
9/70 7250 8282
10/70 7043 8214
11/70 7116 8630
12/70 7574 9146
1/71 8154 9541
2/71 8215 9652
3/71 8673 10032
4/71 9162 10422
5/71 9070 10015
6/71 9193 10048
7/71 9040 9659
8/71 9437 10033
9/71 9559 9990
10/71 9192 9598
11/71 9302 9600
12/71 10325 10453
1/72 11472 10668
2/72 11906 10965
3/72 12371 11054
4/72 12898 11130
5/72 14014 11349
6/72 14137 11128
7/72 13238 11181
8/72 12557 11593
9/72 13021 11564
10/72 12774 11702
11/72 13517 12265
12/72 14167 12439
1/73 14167 12253
2/73 12525 11821
3/73 12491 11831
4/73 11191 11378
5/73 10609 11192
6/73 10233 11148
7/73 11635 11601
8/73 11806 11205
9/73 13517 11684
10/73 14167 11703
11/73 11494 10405
12/73 12249 10612
1/74 12009 10535
2/74 11941 10526
3/74 11323 10312
4/74 10706 9943
5/74 10328 9641
6/74 10396 9533
7/74 9676 8826
8/74 9573 8062
9/74 8270 7135
10/74 9745 8335
11/74 9499 7927
12/74 8941 7803
1/75 9465 8796
2/75 9954 9357
3/75 10443 9594
4/75 11630 10083
5/75 12153 10564
6/75 12957 11068
7/75 12258 10355
8/75 12188 10172
9/75 11700 9856
10/75 11909 10500
11/75 12120 10795
12/75 11837 10708
1/76 13357 12011
2/76 13852 11910
3/76 14346 12312
4/76 13922 12216
5/76 13745 12081
6/76 14062 12616
7/76 13850 12555
8/76 13638 12531
9/76 14486 12856
10/76 14380 12616
11/76 15701 12564
12/76 16808 13270
1/77 17236 12643
2/77 16309 12412
3/77 16237 12282
4/77 16559 12333
5/77 16274 12091
6/77 17201 12689
7/77 16524 12493
8/77 16167 12316
9/77 16560 12335
10/77 16096 11855
11/77 17020 12230
12/77 17682 12321
1/78 16630 11614
2/78 17213 11378
3/78 18148 11713
4/78 19551 12770
5/78 20720 12886
6/78 21188 12710
7/78 23642 13451
8/78 25746 13856
9/78 24616 13811
10/78 21539 12607
11/78 22170 12878
12/78 23356 13131
1/79 24181 13712
2/79 23612 13271
3/79 25055 14062
4/79 25363 14151
5/79 25363 13844
6/79 26292 14446
7/79 26497 14639
8/79 28351 15483
9/79 28867 15551
10/79 27424 14555
11/79 30537 15246
12/79 33642 15573
1/80 36337 16541
2/80 37274 16539
3/80 32410 14931
4/80 33933 15622
5/80 34697 16426
6/80 35929 16946
7/80 38508 18125
8/80 39741 18308
9/80 41676 18847
10/80 42322 19228
11/80 46004 21276
12/80 45024 20635
1/81 43061 19771
2/81 44043 20114
3/81 46567 20919
4/81 46357 20514
5/81 48601 20566
6/81 46569 20438
7/81 46150 20481
8/81 43833 19297
9/81 42851 18347
10/81 45448 19338
11/81 46130 20134
12/81 45646 19619
1/82 44514 19364
2/82 42813 18281
3/82 43220 18185
4/82 44758 19008
5/82 44029 18359
6/82 43866 18083
7/82 43625 17762
8/82 45727 19918
9/82 46294 20166
10/82 49290 22487
11/82 51754 23395
12/82 52691 23846
1/83 52949 24732
2/83 54824 25299
3/83 58919 26234
4/83 62843 28302
5/83 63270 28055
6/83 66510 29146
7/83 64548 28287
8/83 62844 28711
9/83 64892 29107
10/83 63951 28771
11/83 64891 29378
12/83 62932 29224
1/84 59382 29061
2/84 56407 28038
3/84 57846 28524
4/84 56695 28795
5/84 53718 27201
6/84 55351 27791
7/84 54294 27447
8/84 59474 30478
9/84 58421 30485
10/84 58999 30603
11/84 58232 30260
12/84 59286 31057
1/85 64634 33478
2/85 66017 33888
3/85 64928 33910
4/85 64136 33879
5/85 67394 35836
6/85 68088 36397
7/85 67890 36344
8/85 67001 35993
9/85 64234 34906
10/85 67497 36519
11/85 72046 39023
12/85 74618 40911
1/86 75357 41140
2/86 81544 44214
3/86 85776 46682
4/86 85013 46157
5/86 90113 48611
6/86 92177 49433
7/86 86969 46669
8/86 91204 50130
9/86 84583 45985
10/86 88821 48638
11/86 89362 49819
12/86 87370 48547
1/87 99095 55085
2/87 105407 57260
3/87 107125 58913
4/87 107264 58391
5/87 108273 58896
6/87 111283 61871
7/87 116591 65005
8/87 119750 67430
9/87 119175 65952
10/87 94792 51750
11/87 88621 47485
12/87 96473 51096
1/88 94061 53244
2/88 98520 55715
3/88 96293 53996
4/88 96110 54593
5/88 95735 55059
6/88 99268 57584
7/88 97412 57364
8/88 93876 55421
9/88 98898 57779
10/88 100381 59387
11/88 99448 58539
12/88 100293 59559
1/89 107996 63916
2/89 106268 62327
3/89 110699 63780
4/89 116865 67088
5/89 123024 69792
6/89 120908 69399
7/89 133422 75660
8/89 134383 77134
9/89 136116 76820
10/89 134197 75038
11/89 137283 76562
12/89 138519 78398
1/90 130014 73138
2/90 131925 74078
3/90 134907 76040
4/90 134057 74146
5/90 146819 81361
6/90 149799 80812
7/90 151926 80554
8/90 144269 73282
9/90 138527 69720
10/90 139372 69426
11/90 147038 73905
12/90 149920 75961
1/91 156067 79261
2/91 168365 84922
3/91 174965 86977
4/91 173600 87184
5/91 179520 90932
6/91 173362 86769
7/91 183382 90810
8/91 189764 92955
9/91 188853 91399
10/91 191818 92625
11/91 185891 88903
12/91 206506 99053
1/92 200765 97210
2/92 201488 98468
3/92 198144 96555
4/92 200303 99387
5/92 200784 99873
6/92 195042 98388
7/92 200542 102404
8/92 196009 100312
9/92 196009 101491
10/92 199832 101840
11/92 206286 105298
12/92 208844 106590
1/93 210055 107480
2/93 211757 108944
3/93 217369 111241
4/93 213217 108553
5/93 217140 111449
6/93 220354 111774
7/93 222315 111324
8/93 230185 115539
9/93 232418 114653
10/93 233649 117023
11/93 225004 115908
12/93 228469 117309
1/94 235529 121294
2/94 229476 118003
3/94 221605 112868
4/94 221849 114314
5/94 222869 116183
6/94 218523 113340
7/94 223353 117059
8/94 230232 121847
9/94 225627 118870
10/94 227680 121537
11/94 217958 117116
12/94 218721 118850
1/95 221149 121930
2/95 229221 126677
3/95 238917 130409
4/95 245941 134246
5/95 254574 139604
6/95 265393 142841
7/95 278398 147576
8/95 281376 147944
9/95 294404 154184
10/95 289223 153633
11/95 297928 160370
12/95 296766 163459
1/96 302731 169016
2/96 308695 170588
3/96 310486 172231
4/96 317968 174768
5/96 325154 179267
6/96 323951 179950
7/96 306231 172005
8/96 316153 175638
9/96 335091 185515
10/96 337503 190629
11/96 358935 205026
12/96 354843 200965
1/97 375353 213513
2/97 374077 215189
3/97 351557 206364
4/97 368924 218673
5/97 397220 232042
6/97 413308 242358
7/97 450092 261637
8/97 428488 246991
9/97 454026 260510
10/97 433958 251819
11/97 441379 263467
12/97 442570 267988
1/98 445447 270950
2/98 473109 290480
3/98 495061 305343
4/98 494715 308470
5/98 481358 303175
6/98 505233 315481
7/98 505940 312147
8/98 423168 267049
9/98 445173 284171
10/98 482479 307250
11/98 513985 325864
12/98 561271 344630
1/99 591019 359036
2/99 568796 347879
3/99 607361 361794
4/99 616046 375804
5/99 599474 366940
6/99 642996 387248
7/99 618884 375209
8/99 618512 373352
9/99 610595 363129
10/99 646804 386098
11/99 673970 393947
12/99 751476 417117
1/00 723822 396162
2/00 748214 388671
3/00 813683 426670
4/00 760387 413838
5/00 718490 405354
6/00 759947 415337
7/00 761542 408849
8/00 821323 434231
9/00 766459 411312
10/00 734728 409564
11/00 629809 377301
12/00 641019 379152
1/01 668583 392596
2/01 571371 356821
3/01 509434 334229
4/01 568783 360181
5/01 569637 362598
6/01 550725 353776
7/01 530954 350292
8/01 487946 328385
9/01 431149 301869
10/01 450077 307629
11/01 491799 331220
12/01 493078 334123
1/02 483611 329250
2/02 478436 322899
3/02 498243 335044
4/02 481452 314740
5/02 481019 312430
6/02 455188 290183
7/02 418637 267569
8/02 422949 269320
9/02 389832 240080
10/02 411779 261188
11/02 431586 276546
12/02 413503 260308
1/03 399733 253502
2/03 390699 249692
3/03 392418 252110
4/03 420397 272867
5/03 448816 287229
6/03 452272 290899
7/03 458740 296030
8/03 470346 301792
9/03 463008 298597
10/03 478519 315480
11/03 488425 318252
12/03 512748 334931
1/04 517927 341077
2/04 527405 345817
3/04 514483 340600
4/04 519680 335260
5/04 523110 339852
6/04 533049 346458
7/04 516204 334993
8/04 514501 336335
9/04 518823 339979
10/04 524426 345173
11/04 539529 359135
12/04 557280 371352
1/05 545076 362300
2/05 563336 369921
3/05 553308 363377
4/05 541578 356488
5/05 548077 367821
6/05 550708 368348
7/05 569872 382041
8/05 567707 378557
9/05 572078 381621
10/05 559480 375256
================================================================================
Source: Lipper, Inc.
The data shown in the chart include This chart, which is a logarithmic chart,
reinvested distributions, applicable sales presents the fluctuations in the value of
charges, Fund expenses and management fees. the Fund and its indexes. We believe that a
Index results include reinvested dividends, logarithmic chart is more effective than
but they do not reflect sales charges. other types of charts in illustrating
Performance of an index of funds reflects changes in value during the early years
fund expenses and management fees; shown in the chart. The vertical axis, the
performance of a market index does not. one that indicates the dollar value of an
Performance shown in the chart and table(s) investment, is constructed with each segment
does not reflect deduction of taxes a representing a percent change in the value
shareholder would pay on Fund distributions of the investment. In this chart, each
or sale of Fund shares. Performance of the segment represents a doubling, or 100%
indexes does not reflect the effects of change, in the value of the investment. In
taxes. other words, the space between $10,000 and
$20,000 is the same size as the space
between $20,000 and $40,000, the space
between $20,000 and $40,000 is the same as
that between $40,000 and $80,000, and so on.
6
AIM CHARTER FUND
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
applicable sales charges quarter-end, including applicable applicable sales charges
sales charges
CLASS A SHARES Class A Shares 3.21%
Inception (11/26/68) 11.51% CLASS A SHARES Class B Shares 2.85
10 Years 6.21 Inception (11/26/68) 11.61% Class C Shares 2.84
5 Years -6.39 10 Years 6.26 Class R Shares 3.07
1 Year 0.71 5 Years -6.75
1 Year 4.20 ========================================
CLASS B SHARES
Inception (6/26/95) 6.83%
10 Years 6.19 CLASS B SHARES
5 Years -6.35 Inception (6/26/95) 7.13%
1 Year 0.76 10 Years 6.24
5 Years -6.71
CLASS C SHARES 1 Year 4.39
Inception (8/4/97) 1.99%
5 Years -6.01 CLASS C SHARES
1 Year 4.75 Inception (8/4/97) 2.31%
5 Years -6.35
CLASS R SHARES 1 Year 8.46
10 Years 6.57%
5 Years -5.56 CLASS R SHARES
1 Year 6.22 10 Years 6.64%
5 Years -5.91
1 Year 9.98
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE FOR THE MOST RECENT MONTH-END CLASS B SHARES DECLINES FROM 5%
3, 2002. RETURNS SINCE THAT DATE ARE PERFORMANCE. PERFORMANCE FIGURES REFLECT BEGINNING AT THE TIME OF PURCHASE TO 0%
HISTORICAL RETURNS. ALL OTHER RETURNS REINVESTED DISTRIBUTIONS, CHANGES IN NET AT THE BEGINNING OF THE SEVENTH YEAR.
ARE BLENDED RETURNS OF HISTORICAL CLASS ASSET VALUE AND THE EFFECT OF THE THE CDSC ON CLASS C SHARES IS 1% FOR THE
R SHARE PERFORMANCE AND RESTATED CLASS A MAXIMUM SALES CHARGE UNLESS OTHERWISE FIRST YEAR AFTER PURCHASE. CLASS R
SHARE PERFORMANCE (FOR PERIODS PRIOR TO STATED. INVESTMENT RETURN AND PRINCIPAL SHARES DO NOT HAVE A FRONT-END SALES
THE INCEPTION DATE OF CLASS R SHARES) AT VALUE WILL FLUCTUATE SO THAT YOU MAY CHARGE; RETURNS SHOWN ARE AT NET ASSET
NET ASSET VALUE, ADJUSTED TO REFLECT THE HAVE A GAIN OR LOSS WHEN YOU SELL VALUE AND DO NOT REFLECT A 0.75% CDSC
HIGHER RULE 12B-1 FEES APPLICABLE TO SHARES. THAT MAY BE IMPOSED ON A TOTAL
CLASS R SHARES. REDEMPTION OF RETIREMENT PLAN ASSETS
CLASS A SHARE PERFORMANCE REFLECTS THE WITHIN THE FIRST YEAR.
THE PERFORMANCE DATA QUOTED REPRESENT MAXIMUM 5.50% SALES CHARGE, AND CLASS B
PAST PERFORMANCE AND CANNOT GUARANTEE AND CLASS C SHARE PERFORMANCE REFLECTS THE PERFORMANCE OF THE FUND'S SHARE
COMPARABLE FUTURE RESULTS; CURRENT THE APPLICABLE CONTINGENT DEFERRED SALES CLASSES WILL DIFFER DUE TO DIFFERENT
PERFORMANCE MAY BE LOWER OR HIGHER. CHARGE (CDSC) FOR THE PERIOD INVOLVED. SALES CHARGE STRUCTURES AND CLASS
PLEASE VISIT AIMinvestments.com THE CDSC ON EXPENSES.
7
AIM CHARTER FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Equity services to be provided by AIM was has agreed to waive advisory fees of the
Funds (the "Board") oversees the appropriate and that AIM currently is Fund, as discussed below. Based on this
management of AIM Charter Fund (the providing satisfactory services in review, the Board concluded that the
"Fund") and, as required by law, accordance with the terms of the advisory fee rate for the Fund under the
determines annually whether to approve Advisory Agreement. Advisory Agreement was fair and
the continuance of the Fund's advisory reasonable.
agreement with A I M Advisors, Inc. o The performance of the Fund relative
("AIM"). Based upon the recommendation to comparable funds. The Board reviewed o Expense limitations and fee waivers.
of the Investments Committee of the the performance of the Fund during the The Board noted that AIM has
Board, which is comprised solely of past one, three and five calendar years contractually agreed to waive advisory
independent trustees, at a meeting held against the performance of funds advised fees of the Fund through December
on June 30, 2005, the Board, including by other advisors with investment 31, 2009 to the extent necessary so that
all of the independent trustees, strategies comparable to those of the the advisory fees payable by the Fund do
approved the continuance of the advisory Fund. The Board noted that the Fund's not exceed a specified maximum advisory
agreement (the "Advisory Agreement") performance was below the median fee rate, which maximum rate includes
between the Fund and AIM for another performance of such comparable funds for breakpoints and is based on net asset
year, effective July 1, 2005. the one and five year periods and above levels. The Board considered the
such median performance for the three contractual nature of this fee waiver
The Board considered the factors year period. Based on this review, the and noted that it remains in effect
discussed below in evaluating the Board concluded that no changes should until December 31, 2009. The Board
fairness and reasonableness of the be made to the Fund and that it was not considered the effect this fee waiver
Advisory Agreement at the meeting on necessary to change the Fund's portfolio would have on the Fund's estimated
June 30, 2005 and as part of the Board's management team at this time. expenses and concluded that the levels
ongoing oversight of the Fund. In their of fee waivers/expense limitations for
deliberations, the Board and the o The performance of the Fund relative the Fund were fair and reasonable.
independent trustees did not identify to indices. The Board reviewed the
any particular factor that was performance of the Fund during the past o Breakpoints and economies of scale.
controlling, and each trustee attributed one, three and five calendar years The Board reviewed the structure of the
different weights to the various against the performance of the Lipper Fund's advisory fee under the Advisory
factors. Large-Cap Core Index. The Board noted Agreement, noting that it includes two
that the Fund's performance was breakpoints. The Board reviewed the
One of the responsibilities of the comparable to the performance of such level of the Fund's advisory fees, and
Senior Officer of the Fund, who is Index for the one year period, above noted that such fees, as a percentage of
independent of AIM and AIM's affiliates, such Index for the three year period, the Fund's net assets, have decreased as
is to manage the process by which the and below such Index for the five year net assets increased because the
Fund's proposed management fees are period. Based on this review, the Board Advisory Agreement includes breakpoints.
negotiated to ensure that they are concluded that no changes should be made The Board noted that AIM has
negotiated in a manner which is at arm's to the Fund and that it was not contractually agreed to waive advisory
length and reasonable. To that end, the necessary to change the Fund's portfolio fees of the Fund through December
Senior Officer must either supervise a management team at this time. 31,2009 to the extent necessary so that
competitive bidding process or prepare the advisory fees payable by the Fund do
an independent written evaluation. The o Meeting with the Fund's portfolio not exceed a specified maximum advisory
Senior Officer has recommended an managers and investment personnel. With fee rate, which maximum rate includes
independent written evaluation in lieu respect to the Fund, the Board is breakpoints and is based on net asset
of a competitive bidding process and, meeting periodically with such Fund's levels. The Board concluded that the
upon the direction of the Board, has portfolio managers and/or other Fund's fee levels under the Advisory
prepared such an independent written investment personnel and believes that Agreement therefore reflect economies of
evaluation. Such written evaluation also such individuals are competent and able scale and that it was not necessary to
considered certain of the factors to continue to carry out their change the advisory fee breakpoints in
discussed below. In addition, as responsibilities under the Advisory the Fund's advisory fee schedule.
discussed below, the Senior Officer made Agreement.
certain recommendations to the Board in o Investments in affiliated money market
connection with such written evaluation. o Overall performance of AIM. The Board funds. The Board also took into account
considered the overall performance of the fact that uninvested cash and cash
The discussion below serves as a AIM in providing investment advisory collateral from securities lending
summary of the Senior Officer's and portfolio administrative services to arrangements (collectively, "cash
independent written evaluation and the Fund and concluded that such balances") of the Fund may be invested
recommendations to the Board in performance was satisfactory. in money market funds advised by AIM
connection therewith, as well as a pursuant to the terms of an SEC
discussion of the material factors and o Fees relative to those of clients of exemptive order. The Board found that
the conclusions with respect thereto AIM with comparable investment the Fund may realize certain benefits
that formed the basis for the Board's strategies. The Board reviewed the upon investing cash balances in AIM
approval of the Advisory Agreement. advisory fee rate for the Fund under advised money market funds, including a
After consideration of all of the the Advisory Agreement. The Board noted higher net return, increased liquidity,
factors below and based on its informed that, based on the Fund's current assets increased diversification or decreased
business judgment, the Board determined and taking account of the breakpoints in transaction costs. The Board also found
that the Advisory Agreement is in the the Fund's advisory fee schedule, this that the Fund will not receive reduced
best interests of the Fund and its rate (i) was comparable to the advisory services if it invests its cash balances
shareholders and that the compensation fee rates for a variable insurance fund in such money market funds. The Board
to AIM under the Advisory Agreement is advised by AIM and offered to insurance noted that, to the extent the Fund
fair and reasonable and would have been company separate accounts with invests in affiliated money market
obtained through arm's length investment strategies comparable to funds, AIM has voluntarily agreed to
negotiations. those of the Fund; and (ii) was higher waive a portion of the advisory fees it
than the sub-advisory fee rates for an receives from the Fund attributable to
o The nature and extent of the advisory unaffiliated mutual fund for which an such investment. The Board further deter-
services to be provided by AIM. The AIM affiliate serves as sub-advisor, mined that the proposed securities
Board reviewed the services to be provid- although the total management fees paid lending program and related procedures
ed by AIM under the Advisory Agreement. by such unaffiliated mutual fund were with respect to the lending Fund is in
Based on such review, the Board higher than the advisory fee rate for the best interests of the lending Fund
concluded that the range of services to the Fund. The Board noted that AIM has and its respective shareholders. The
be provided by AIM under the Advisory agreed to waive advisory fees of the Board therefore concluded that the
Agreement was appropriate and that AIM Fund, as discussed below. Based on this investment of cash collateral received
currently is providing services in review, the Board concluded that the in connection with the securities
accordance with the terms of the advisory fee rate for the Fund under the lending program in the money market
Advisory Agreement. Advisory Agreement was fair and funds according to the procedures is in
reasonable. the best interests of the lending Fund
and its respective shareholders.
o The quality of services to be provided o Fees relative to those of comparable
by AIM. The Board reviewed the funds with other advisors. The Board
credentials and experience of the offi- reviewed the advisory fee rate for the o Independent written evaluation and
cers and employees of AIM who will Fund under the Advisory Agreement. The recommendations of the Fund's Senior
provide investment advisory services to Board compared effective contractual Officer. The Board noted that, upon
the Fund. In reviewing the qualifica- advisory fee rates at a common asset their direction, the Senior Officer of
tions of AIM to provide investment level and noted that the Fund's rate was the Fund, who is independent of AIM and
advisory services, the Board reviewed above the median rate of the funds AIM's affiliates, had prepared an
the qualifications of AIM's investment advised by other advisors with independent written evaluation in order
personnel and considered such issues as investment strategies comparable to to assist the
AIM's portfolio and product review those of the Fund that the Board
process, various back office support reviewed. The Board noted that AIM
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
(continued)
8
AIM CHARTER FUND
Board in determining the reasonableness the Board considered the fact that AIM, the performance of funds advised by
of the proposed management fees of the along with others in the mutual fund other advisors with investment
AIM Funds, including the Fund. The Board industry, is subject to regulatory strategies comparable to those of the
noted that the Senior Officer's written inquiries and litigation related to a Fund. The Board noted that the Fund's
evaluation had been relied upon by the wide range of issues. The Board also performance was below the median
Board in this regard in lieu of a considered the governance and compliance performance of such comparable funds for
competitive bidding process. In reforms being undertaken by AIM and its the one and five year periods and above
determining whether to continue the affiliates, including maintaining an such median performance for the three
Advisory Agreement for the Fund, the internal controls committee and year period. Based on this review, the
Board considered the Senior Officer's retaining an independent compliance Board concluded that no changes should
written evaluation and the consultant, and the fact that AIM has be made to the Fund and that it was not
recommendation made by the Senior undertaken to cause the Fund to operate necessary to change the Fund's portfolio
Officer to the Board that the Board in accordance with certain governance management team at this time.
consider implementing a process to policies and practices. The Board
assist them in more closely monitoring concluded that these actions indicated a o The performance of the Fund relative
the performance of the AIM Funds. The good faith effort on the part of AIM to to indices. The Board reviewed the
Board concluded that it would be adhere to the highest ethical standards, performance of the Fund during the past
advisable to implement such a process as and determined that the current one, three and five calendar years
soon as reasonably practicable. regulatory and litigation environment to against the performance of the Lipper
which AIM is subject should not prevent Large-Cap Core Index. The Board noted
o Profitability of AIM and its the Board from continuing the Advisory that the Fund's performance was
affiliates. The Board reviewed Agreement for the Fund. comparable to the performance of such
information concerning the profitability Index for the one year period, above
of AIM's (and its affiliates') APPROVAL OF SUB-ADVISORY AGREEMENT such Index for the three year period,
investment advisory and other activi- and below such Index for the five year
ties and its financial condition. The The Board oversees the management of the period. Based on this review, the Board
Board considered the overall Fund and, as required by law, determines concluded that no changes should be made
profitability of AIM, as well as the annually whether to approve the to the Fund and that it was not
profitability of AIM in connection with continuance of the Fund's sub-advisory necessary to change the Fund's portfolio
managing the Fund. The Board noted that agreement. Based upon the recommendation management team at this time.
AIM's operations remain profitable, of the Investments Committee of the
although increased expenses in recent Board, which is comprised solely of o Meetings with the Fund's portfolio
years have reduced AIM's profitability. independent trustees, at a meeting held managers and investment personnel. The
Based on the review of the profitability on June 30, 2005, the Board, including Board is meeting periodically with the
of AIM's and its affiliates' investment all of the independent trustees, Fund's portfolio managers and/or other
advisory and other activities and its approved the continuance of the investment personnel and believes that
financial condition, the Board concluded sub-advisory agreement (the such individuals are competent and able
that the compensation to be paid by the "Sub-Advisory Agreement") between A I M to continue to carry out their respon-
Fund to AIM under its Advisory Agreement Capital Management, Inc. (the sibilities under the Sub-Advisory
was not excessive. "Sub-Advisor") and AIM with respect to Agreement.
the Fund for another year, effective
o Benefits of soft dollars to AIM. The July 1, 2005. o Overall performance of the
Board considered the benefits realized Sub-Advisor. The Board considered the
by AIM as a result of brokerage transac- The Board considered the factors overall performance of the Sub-Advisor
tions executed through "soft dollar" discussed below in evaluating the in providing investment advisory
arrangements. Under these arrangements, fairness and reasonableness of the services to the Fund and concluded that
brokerage commissions paid by the Fund Sub-Advisory Agreement at the meeting on such performance was satisfactory.
and/or other funds advised by AIM are June 30, 2005 and as part of the Board's
used to pay for research and execution ongoing oversight of the Fund. In their o Advisory fees, expense limitations and
services. This research is used by AIM deliberations, the Board and the fee waivers, and breakpoints and
in making investment decisions for the independent trustees did not identify economies of scale. In reviewing these
Fund. The Board concluded that such any particular factor that was factors, the Board considered only the
arrangements were appropriate. controlling, and each trustee attributed advisory fees charged to the Fund by AIM
different weights to the various and did not consider the sub-advisory
o AIM's financial soundness in light of factors. fees paid by AIM to the Sub-Advisor. The
the Fund's needs. The Board considered Board believes that this approach is
whether AIM is financially sound and has The discussion below serves as a appropriate because the sub-advisory
the resources necessary to perform its discussion of the material factors and fees have no effect on the Fund or its
obligations under the Advisory the conclusions with respect thereto share holders, as they are paid by AIM
Agreement, and concluded that AIM has that formed the basis for the Board's rather than the Fund. Furthermore, AIM
the financial resources necessary to approval of the Sub-Advisory Agreement. and the Sub-Advisor are affiliates and
fulfill its obligations under the After consideration of all of the the Board believes that the allocation
Advisory Agreement. factors below and based on its informed of fees between them is a business
business judgment, the Board determined matter, provided that the advisory fees
o Historical relationship between the that the Sub-Advisory Agreement is in charged to the Fund are fair and
Fund and AIM. In determining whether to the best interests of the Fund and its reasonable.
continue the Advisory Agreement for the shareholders.
Fund, the Board also considered the o Profitability of AIM and its
prior relation ship between AIM and the o The nature and extent of the advisory affiliates. The Board reviewed
Fund, as well as the Board's knowledge services to be provided by the information concerning the profitability
of AIM's operations, and concluded that Sub-Advisor. The Board reviewed the of AIM's (and its affiliates')
it was beneficial to maintain the services to be provided by the investment advisory and other activi-
current relationship, in part, because Sub-Advisor under the Sub-Advisory ties and its financial condition. The
of such knowledge. The Board also Agreement. Based on such review, the Board considered the overall
reviewed the general nature of the Board concluded that the range of profitability of AIM, as well as the
non-investment advisory services cur- services to be provided by the profitability of AIM in connection with
rently performed by AIM and its Sub-Advisor under the Sub-Advisory managing the Fund. The Board noted that
affiliates, such as administrative, Agreement was appropriate and that the AIM's operations remain profitable,
transfer agency and distribution Sub-Advisor currently is providing although increased expenses in recent
services, and the fees received by AIM services in accordance with the terms of years have reduced AIM's profitability.
and its affiliates for performing such the Sub-Advisory Agreement. Based on the review of the profitability
services. In addition to reviewing such of AIM's and its affiliates' investment
services, the trustees also considered o The quality of services to be provided advisory and other activities and its
the organizational structure employed by by the Sub-Advisor. The Board reviewed financial condition, the Board concluded
AIM and its affiliates to provide those the credentials and experience of the that the compensation to be paid by the
services. Based on the review of these officers and employees of the Fund to AIM under its Advisory Agreement
and other factors, the Board concluded Sub-Advisor who will provide investment was not excessive.
that AIM and its affiliates were advisory services to the Fund. Based on
qualified to continue to provide the review of these and other factors, o The Sub-Advisor's financial soundness
non-investment advisory services to the the Board concluded that the quality of in light of the Fund's needs. The Board
Fund, including administrative, transfer services to be provided by the considered whether the Sub-Advisor is
agency and distribution services, and Sub-Advisor was appropriate, and that financially sound and has the resources
that AIM and its affiliates currently the Sub-Advisor currently is providing necessary to perform its obligations
are providing satisfactory satisfactory services in accordance with under the Sub-Advisory Agreement, and
non-investment advisory services. the terms of the Sub-Advisory Agreement. concluded that the Sub-Advisor has the
financial resources necessary to fulfill
o Other factors and current trends. In o The performance of the Fund relative its obligations under the Sub-Advisory
determining whether to continue the to comparable funds. The Board reviewed Agreement.
Advisory Agreement for the Fund, the performance of the Fund during the
past one, three and five calendar years
against
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM CHARTER FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception (7/30/91) 8.63% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 10 Years 7.29 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 5 Years -4.88 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered 1 Year 6.98 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, 6 Months* 3.44 SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans ======================================== OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. FULL REPORT FOR INFORMATION ON
AVERAGE ANNUAL TOTAL RETURNS COMPARATIVE BENCHMARKS. PLEASE CONSULT
For periods ended 9/30/05, most recent YOUR FUND PROSPECTUS FOR MORE
calendar quarter-end INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL
Inception (7/30/91) 8.86% 800-451-4246 OR VISIT
10 Years 7.35 AIMINVESTMENTS.COM.
5 Years -5.23
1 Year 10.81
6 Months* 3.60
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND
CLASS EXPENSES.
========================================
NASDAQ SYMBOL CHTVX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM CHT-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
example is based on an investment of PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical informa-
ACTUAL EXPENSES on the Fund's actual expense ratio and tion is useful in comparing ongoing
an assumed rate of return of 5% per year costs only, and will not help you
The table below provides information before expenses, which is not the Fund's determine the relative total costs of
about actual account values and actual actual return. The Fund's actual cumu- owning different funds.
expenses. You may use the information in lative total return after expenses for
this table, together with the amount you the six months ended October 31, 2005,
invested, to estimate the expenses that appears in the table on the front of
you paid over the period. Simply this supplement.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,034.40 $ 3.64 $ 1,021.63 $ 3.62 0.71%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMINVESTMENTS.COM CHT-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-78.05%
AEROSPACE & DEFENSE-1.36%
Northrop Grumman Corp. 614,440 $ 32,964,706
=========================================================================
APPAREL RETAIL-0.22%
TJX Cos., Inc. (The) 244,939 5,273,537
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.37%
Bank of New York Co., Inc. (The) 1,057,479 33,088,518
=========================================================================
BIOTECHNOLOGY-1.00%
Amgen Inc.(a) 320,000 24,243,200
=========================================================================
BUILDING PRODUCTS-1.01%
Masco Corp. 857,147 24,428,689
=========================================================================
COMMUNICATIONS EQUIPMENT-1.45%
Cisco Systems, Inc.(a) 2,014,000 35,144,300
=========================================================================
COMPUTER HARDWARE-1.32%
International Business Machines Corp. 391,163 32,028,426
=========================================================================
COMPUTER STORAGE & PERIPHERALS-1.38%
Lexmark International, Inc.-Class A(a) 803,100 33,344,712
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.15%
Sabre Holdings Corp.-Class A(b) 179,600 3,507,588
=========================================================================
DIVERSIFIED BANKS-1.00%
Bank of America Corp. 555,757 24,308,811
=========================================================================
ELECTRIC UTILITIES-1.01%
FPL Group, Inc. 566,600 24,397,796
=========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.43%
Waste Management, Inc. 1,176,469 34,717,600
=========================================================================
FOOD RETAIL-1.59%
Kroger Co. (The)(a) 1,931,052 38,427,935
=========================================================================
HOMEFURNISHING RETAIL-0.21%
Bed Bath & Beyond Inc.(a) 126,877 5,141,056
=========================================================================
HOUSEHOLD PRODUCTS-0.29%
Kimberly-Clark Corp. 122,937 6,987,739
=========================================================================
INDUSTRIAL CONGLOMERATES-3.84%
General Electric Co. 961,772 32,613,688
- -------------------------------------------------------------------------
Tyco International Ltd. 2,290,906 60,457,009
=========================================================================
93,070,697
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
INDUSTRIAL MACHINERY-1.09%
Dover Corp. 677,200 $ 26,397,256
=========================================================================
INTEGRATED OIL & GAS-3.63%
Exxon Mobil Corp. 1,068,002 59,957,632
- -------------------------------------------------------------------------
Murphy Oil Corp. 598,020 28,017,237
=========================================================================
87,974,869
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.77%
SBC Communications Inc. 1,776,542 42,370,527
- -------------------------------------------------------------------------
Verizon Communications Inc. 784,854 24,730,750
=========================================================================
67,101,277
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.73%
Merrill Lynch & Co., Inc. 510,582 33,055,079
- -------------------------------------------------------------------------
Morgan Stanley 607,872 33,074,316
=========================================================================
66,129,395
=========================================================================
MOVIES & ENTERTAINMENT-1.30%
News Corp.-Class A 2,205,000 31,421,250
=========================================================================
MULTI-LINE INSURANCE-1.27%
American International Group, Inc. 474,000 30,715,200
=========================================================================
OFFICE ELECTRONICS-2.09%
Xerox Corp.(a) 3,721,300 50,498,041
=========================================================================
OIL & GAS DRILLING-1.07%
Nabors Industries, Ltd.(c) 377,300 25,894,099
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-4.61%
BJ Services Co.(c) 1,443,400 50,158,150
- -------------------------------------------------------------------------
Schlumberger Ltd. 275,487 25,005,955
- -------------------------------------------------------------------------
Smith International, Inc. 1,124,002 36,417,665
=========================================================================
111,581,770
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.96%
Apache Corp. 365,200 23,310,716
=========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.27%
Citigroup Inc. 670,000 30,672,600
=========================================================================
PACKAGED FOODS & MEATS-4.52%
Campbell Soup Co. 847,000 24,647,700
- -------------------------------------------------------------------------
ConAgra Foods, Inc. 570,000 13,263,900
- -------------------------------------------------------------------------
General Mills, Inc. 965,233 46,582,145
- -------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
PACKAGED FOODS & MEATS-(CONTINUED)
Kraft Foods Inc.-Class A 878,062 $ 24,849,155
=========================================================================
109,342,900
=========================================================================
PAPER PRODUCTS-1.02%
Georgia-Pacific Corp. 758,808 24,684,024
=========================================================================
PERSONAL PRODUCTS-2.51%
Avon Products, Inc. 951,000 25,667,490
- -------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 1,055,413 35,008,049
=========================================================================
60,675,539
=========================================================================
PHARMACEUTICALS-6.97%
Bristol-Myers Squibb Co. 1,635,000 34,612,950
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 884,000 33,512,440
- -------------------------------------------------------------------------
Merck & Co. Inc. 2,420,000 68,292,400
- -------------------------------------------------------------------------
Wyeth 726,720 32,382,643
=========================================================================
168,800,433
=========================================================================
PROPERTY & CASUALTY INSURANCE-7.14%
ACE Ltd. 870,903 45,374,046
- -------------------------------------------------------------------------
Berkshire Hathaway Inc.-Class A(a) 710 60,989,000
- -------------------------------------------------------------------------
Chubb Corp. (The) 353,763 32,889,346
- -------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 743,900 33,497,817
=========================================================================
172,750,209
=========================================================================
PUBLISHING-2.18%
Gannett Co., Inc. 512,844 32,134,805
- -------------------------------------------------------------------------
Tribune Co. 654,171 20,612,928
=========================================================================
52,747,733
=========================================================================
RAILROADS-1.13%
Union Pacific Corp. 397,000 27,464,460
=========================================================================
REGIONAL BANKS-1.38%
Fifth Third Bancorp 631,400 25,363,338
- -------------------------------------------------------------------------
North Fork Bancorp., Inc. 317,894 8,055,434
=========================================================================
33,418,772
=========================================================================
SEMICONDUCTORS-3.62%
Analog Devices, Inc. 784,356 27,279,902
- -------------------------------------------------------------------------
Intel Corp. 1,316,300 30,933,050
- -------------------------------------------------------------------------
National Semiconductor Corp. 333,329 7,543,235
- -------------------------------------------------------------------------
Xilinx, Inc.(b) 915,000 21,914,250
=========================================================================
87,670,437
=========================================================================
SOFT DRINKS-1.35%
Coca-Cola Co. (The) 765,511 32,748,561
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-4.81%
Computer Associates International, Inc. 1,138,452 $ 31,842,502
- -------------------------------------------------------------------------
Microsoft Corp. 3,287,000 84,475,900
=========================================================================
116,318,402
=========================================================================
Total Domestic Common Stocks (Cost
$1,736,405,718) 1,889,393,253
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-15.34%
BERMUDA-1.91%
Accenture Ltd.-Class A (IT Consulting & Other
Services) 1,195,198 31,445,659
- -------------------------------------------------------------------------
XL Capital Ltd.-Class A (Property & Casualty
Insurance) 228,724 14,652,060
=========================================================================
46,097,719
=========================================================================
FINLAND-1.90%
Nokia Oyj-ADR (Communications Equipment) 2,740,042 46,087,506
=========================================================================
FRANCE-1.86%
Total S.A. (Integrated Oil & Gas)(d) 178,292 44,905,152
=========================================================================
ISRAEL-1.33%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals)(b) 845,818 32,242,582
=========================================================================
JAPAN-0.49%
Nintendo Co., Ltd. (Home Entertainment
Software)(d) 106,200 11,922,192
=========================================================================
NETHERLANDS-5.06%
Heineken N.V. (Brewers)(d) 1,347,106 42,672,596
- -------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics)() 1,839,900 48,079,641
- -------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(d) 450,000 31,677,181
=========================================================================
122,429,418
=========================================================================
UNITED KINGDOM-2.79%
Barclays PLC (Diversified Banks) 2,079,215 20,614,419
- -------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 904,000 46,998,960
=========================================================================
67,613,379
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $324,465,848) $ 371,297,948
=========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
PUT OPTIONS PURCHASED-0.02%
OIL & GAS DRILLING-0.01%
Nabors Industries, Ltd. 2,500 $60.0 Jan-06 $ 304,500
================================================================================================
</Table>
F-2
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE VALUE
- ------------------------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-0.01%
BJ Services Co. 10,000 27.5 Jan-06 $ 208,000
================================================================================================
Total Options Purchased (Cost $2,289,027) 512,500
================================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-3.75%
Liquid Assets Portfolio-Institutional
Class(e) 45,347,942 45,347,942
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 45,347,942 45,347,942
=========================================================================
Total Money Market Funds (Cost
$90,695,884) 90,695,884
=========================================================================
TOTAL INVESTMENTS-97.16% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$2,153,856,477) 2,351,899,585
=========================================================================
</Table>
<Table>
- -------------------------------------------------------------------------
<Caption>
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.52%
Liquid Assets Portfolio-Institutional
Class(e)(f) 12,733,065 $ 12,733,065
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $12,733,065) 12,733,065
=========================================================================
TOTAL INVESTMENTS-97.68% (Cost
$2,166,589,542) 2,364,632,650
=========================================================================
OTHER ASSETS LESS LIABILITIES-2.32% 56,044,378
=========================================================================
NET ASSETS-100.00% $2,420,677,028
_________________________________________________________________________
=========================================================================
</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 October 31, 2005.
(c) A portion of this security is subject to call options written. See Note 1I
and Note 9.
(d) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at October 31, 2005 was $131,177,121,
which represented 5.42% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the 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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $2,063,160,593)* $2,261,203,701
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $103,428,949) 103,428,949
============================================================
Total investments (cost $2,166,589,542) 2,364,632,650
============================================================
Receivables for:
Investments sold 308,018,332
- ------------------------------------------------------------
Investments sold to affiliates 2,580,319
- ------------------------------------------------------------
Fund shares sold 646,165
- ------------------------------------------------------------
Dividends 3,565,729
- ------------------------------------------------------------
Investments matured 325,179
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 193,545
- ------------------------------------------------------------
Other assets 177,910
============================================================
Total assets 2,680,139,829
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 233,384,124
- ------------------------------------------------------------
Investments purchased from affiliates 670,551
- ------------------------------------------------------------
Fund shares reacquired 7,043,364
- ------------------------------------------------------------
Options written, at value (premiums
received $1,334,936) 3,202,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 461,548
- ------------------------------------------------------------
Collateral upon return of securities
loaned 12,733,065
- ------------------------------------------------------------
Accrued distribution fees 964,531
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,923
- ------------------------------------------------------------
Accrued transfer agent fees 763,688
- ------------------------------------------------------------
Accrued operating expenses 234,507
============================================================
Total liabilities 259,462,801
============================================================
Net assets applicable to shares outstanding $2,420,677,028
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,608,605,390
- ------------------------------------------------------------
Undistributed net investment income 13,898,908
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (398,293,453)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 196,466,183
============================================================
$2,420,677,028
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,638,001,670
____________________________________________________________
============================================================
Class B $ 617,534,254
____________________________________________________________
============================================================
Class C $ 107,776,340
____________________________________________________________
============================================================
Class R $ 2,636,756
____________________________________________________________
============================================================
Institutional Class $ 54,728,008
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 127,514,968
____________________________________________________________
============================================================
Class B 50,340,938
____________________________________________________________
============================================================
Class C 8,761,574
____________________________________________________________
============================================================
Class R 206,401
____________________________________________________________
============================================================
Institutional Class 4,139,127
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.85
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.85 divided by
94.50%) $ 13.60
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 12.27
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 12.30
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.77
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 13.22
____________________________________________________________
============================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $12,756,472 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $628,629) $ 59,498,914
- ----------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities
lending income of $161,055, after compensation to
counterparties of $1,372,547) 4,910,909
- ----------------------------------------------------------------------------------
Interest 3,277
==================================================================================
Total investment income 64,413,100
==================================================================================
EXPENSES:
Advisory fees 17,088,466
- ----------------------------------------------------------------------------------
Administrative services fees 539,980
- ----------------------------------------------------------------------------------
Custodian fees 231,236
- ----------------------------------------------------------------------------------
Distribution fees:
Class A 5,031,632
- ----------------------------------------------------------------------------------
Class B 7,662,052
- ----------------------------------------------------------------------------------
Class C 1,250,802
- ----------------------------------------------------------------------------------
Class R 13,784
- ----------------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 7,039,814
- ----------------------------------------------------------------------------------
Transfer agent fees -- Institutional 6,767
- ----------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 114,282
- ----------------------------------------------------------------------------------
Other 944,383
==================================================================================
Total expenses 39,923,198
==================================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (546,997)
==================================================================================
Net expenses 39,376,201
==================================================================================
Net investment income 25,036,899
==================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains (losses) from securities
sold to affiliates of $427,162) 269,242,168
- ----------------------------------------------------------------------------------
Foreign currencies 176,171
==================================================================================
269,418,339
==================================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (116,041,259)
- ----------------------------------------------------------------------------------
Foreign currencies (34,540)
- ----------------------------------------------------------------------------------
Option contracts written (1,867,564)
==================================================================================
(117,943,363)
==================================================================================
Net gain from investment securities, foreign currencies and
option contracts 151,474,976
==================================================================================
Net increase in net assets resulting from operations $ 176,511,875
__________________________________________________________________________________
==================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 25,036,899 $ 8,535,340
- --------------------------------------------------------------------------------------
Net realized gain from investment securities and
foreign currencies 269,418,339 284,944,396
- --------------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
foreign currencies and option contracts (117,943,363) (662,843)
======================================================================================
Net increase in net assets resulting from
operations 176,511,875 292,816,893
======================================================================================
Distributions to shareholders from net investment
income:
Class A (16,183,715) (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 (17,010,384) (4,251,890)
======================================================================================
Share transactions-net:
Class A (307,307,777) (343,025,821)
- --------------------------------------------------------------------------------------
Class B (316,588,625) (360,933,716)
- --------------------------------------------------------------------------------------
Class C (38,230,511) (39,355,393)
- --------------------------------------------------------------------------------------
Class R (44,217) 642,358
- --------------------------------------------------------------------------------------
Institutional Class 50,100,241 1,074,851
======================================================================================
Net increase (decrease) in net assets
resulting from share transactions (612,070,889) (741,597,721)
======================================================================================
Net increase (decrease) in net assets (452,569,398) (453,032,718)
======================================================================================
NET ASSETS:
Beginning of year 2,873,246,426 3,326,279,144
======================================================================================
End of year (including undistributed net
investment income of $13,898,908 and
$5,696,221, respectively) $2,420,677,028 $2,873,246,426
______________________________________________________________________________________
======================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-7
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 discount 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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, of 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
F-8
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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average 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 paid AIM Capital 50% of the amount
paid by the Fund to AIM. Effective October 31, 2005, the master sub-advisory
agreement between AIM and AIM Capital was terminated.
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 year ended October 31, 2005, AIM waived fees of $315,092.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement are included in the Statement of Operations. For
the year ended October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $153,587.
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 year ended
October 31, 2005, AIM was paid $539,980.
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 year ended October 31, 2005, the
Fund paid AISI $7,039,814 for Class A, Class B, Class C and Class R share
classes and $6,767 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
F-9
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. Prior to July 1, 2005, the Fund paid
ADI 0.30% of the average daily net assets of Class A 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. National Association of
Securities Dealers ("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, 2005, the Class
A, Class B, Class C and Class R shares paid $5,031,632, $7,662,052, $1,250,802
and $13,784, 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, 2005, ADI advised the Fund that it retained $172,034 in
front-end sales commissions from the sale of Class A shares and $2,283,
$164,322, $6,617 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.
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 83,058,993 $ 411,552,504 $ (449,263,555) $ -- $ 45,347,942 $2,363,834 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 83,058,993 411,552,504 (449,263,555) -- 45,347,942 2,386,020 --
===================================================================================================================================
Subtotal $166,117,986 $ 823,105,008 $ (898,527,110) $ -- $ 90,695,884 $4,749,854 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 161,506,875 $ (148,773,810) $ -- $ 12,733,065 $ 39,623 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 27,336,279 394,762,002 (422,098,281) -- -- 121,432 --
===================================================================================================================================
Subtotal $ 27,336,279 $ 556,268,877 $ (570,872,091) $ -- $ 12,733,065 $ 161,055 $ --
===================================================================================================================================
Total $193,454,265 $1,379,373,885 $(1,469,399,201) $ -- $103,428,949 $4,910,909 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended October 31, 2005, the Fund
engaged in securities purchases of $29,744,212 and sales of $12,328,642 which
resulted in net realized gains (losses) of $427,162.
F-10
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, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $78,318.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $10,672
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $12,756,472 were
on loan to brokers. The loans were secured by cash collateral of $12,733,065
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $161,055 for securities lending transactions, which are net of
compensation to counterparties.
F-11
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of year -- $ --
- -------------------------------------------------------------------------------------
Written 12,500 1,334,936
=====================================================================================
End of year 12,500 $1,334,936
_____________________________________________________________________________________
=====================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN
UNREALIZED
CONTRACT STRIKE NUMBERS PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 10/31/05 (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-06 $35.0 10,000 $ 711,646 $2,180,000 $(1,468,354)
- --------------------------------------------------------------------------------------------------------------------------------
Nabors Industries, Ltd. Jan-06 70.0 2,500 623,290 1,022,500 (399,210)
================================================================================================================================
Total outstanding options written 12,500 $1,334,936 $3,202,500 $(1,867,564)
________________________________________________________________________________________________________________________________
================================================================================================================================
</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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ---------------------------------------------------------------------------------------
Distributions paid from ordinary income $17,010,384 $4,251,890
_______________________________________________________________________________________
=======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 16,810,215
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 148,273,075
- ----------------------------------------------------------------------------
Temporary book/tax difference (409,993)
- ----------------------------------------------------------------------------
Capital loss carryforward (352,601,659)
- ----------------------------------------------------------------------------
Shares of beneficial interest 2,608,605,390
============================================================================
Total net assets $2,420,677,028
____________________________________________________________________________
============================================================================
</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 (depreciation) on foreign currencies and option
contracts written of $(1,576,925).
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 $267,910,613 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $220,532,759
- -----------------------------------------------------------------------------
October 31, 2011 132,068,900
=============================================================================
Total capital loss carryforward $352,601,659
_____________________________________________________________________________
=============================================================================
</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.
F-12
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, 2005 was $1,354,420,284 and $1,960,860,036, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 253,870,774
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (104,020,774)
===============================================================================
Net unrealized appreciation of investment securities $ 149,850,000
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $2,214,782,650.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on October 31, 2005, undistributed net investment income was
increased by $176,172 and, undistributed net realized gain (loss) was decreased
by $176,172. This reclassification had no effect on the net assets of the Fund.
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
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,762,147 $ 86,715,004 7,951,437 $ 94,832,462
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,540,263 30,896,876 3,877,677 44,222,154
- --------------------------------------------------------------------------------------------------------------------------
Class C 765,158 9,348,763 1,217,568 13,934,813
- --------------------------------------------------------------------------------------------------------------------------
Class R 85,759 1,085,831 95,004 1,120,376
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 4,029,817 52,111,203 515,765 6,344,104
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,116,894 14,139,876 345,517 3,966,625
- --------------------------------------------------------------------------------------------------------------------------
Class B 48,619 591,693 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 7,041 85,898 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class R 1,361 17,157 234 2,681
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,821 49,553 714 8,400
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 9,451,300 120,154,386 12,968,092 155,893,419
- --------------------------------------------------------------------------------------------------------------------------
Class B (9,870,165) (120,154,386) (13,548,346) (155,893,419)
==========================================================================================================================
Reacquired:
Class A (41,404,183) (528,317,043) (50,261,476) (597,718,327)
- --------------------------------------------------------------------------------------------------------------------------
Class B (18,676,632) (227,922,808) (21,841,949) (249,262,451)
- --------------------------------------------------------------------------------------------------------------------------
Class C (3,894,312) (47,665,172) (4,652,957) (53,290,206)
- --------------------------------------------------------------------------------------------------------------------------
Class R (90,205) (1,147,205) (40,399) (480,699)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (156,744) (2,060,515) (434,182) (5,277,653)
==========================================================================================================================
(49,280,061) $(612,070,889) (63,807,301) $(741,597,721)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 7% of the outstanding shares of the
Fund. ADI has an agreement with this entity to sell Fund shares. The Fund,
AIM and/or AIM affiliates may make payments to this entity, which is
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, distribution, third party record keeping and account
servicing. The trust has no knowledge as to whether all or any portion of
the shares owned of record by this entity are also owned beneficially.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.16 $ 11.12 $ 9.57 $ 10.46 $ 18.07
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.15(a)(b) 0.06(a) 0.04(a) 0.01(c) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.65 1.00 1.51 (0.90) (6.70)
=================================================================================================================================
Total from investment operations 0.80 1.06 1.55 (0.89) (6.73)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.11) (0.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88)
=================================================================================================================================
Total distributions (0.11) (0.02) -- -- (0.88)
=================================================================================================================================
Net asset value, end of period $ 12.85 $ 12.16 $ 11.12 $ 9.57 $ 10.46
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 6.59% 9.58% 16.20% (8.51)% (38.75)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,638,002 $1,843,623 $2,008,702 $2,096,866 $3,159,304
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.23%(e) 1.26% 1.30% 1.22% 1.16%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.25%(e) 1.27% 1.30% 1.22% 1.17%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 1.16%(e) 0.54% 0.39% 0.09%(c) (0.24)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 54% 36% 28% 103% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $0.10 and 0.80%, respectively.
(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 adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $1,772,967,271.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.61 $ 10.67 $ 9.24 $ 10.18 $ 17.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05(a)(b) (0.02)(a) (0.03)(a) (0.08)(c) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.62 0.96 1.46 (0.86) (6.53)
=================================================================================================================================
Total from investment operations 0.67 0.94 1.43 (0.94) (6.66)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88)
=================================================================================================================================
Total distributions (0.01) -- -- -- (0.88)
=================================================================================================================================
Net asset value, end of period $ 12.27 $ 11.61 $ 10.67 $ 9.24 $ 10.18
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 5.76% 8.81% 15.48% (9.23)% (39.14)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $617,534 $885,500 $1,149,943 $1,204,617 $1,719,470
_________________________________________________________________________________________________________________________________
=================================================================================================================================
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%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.97%(e) 1.97% 2.00% 1.92% 1.87%
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets 0.44%(e) (0.16)% (0.31)% (0.61)%(c) (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 54% 36% 28% 103% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $0.00 and 0.08%, respectively.
(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 adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $766,205,201.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.64 $ 10.70 $ 9.27 $ 10.21 $ 17.77
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05(a)(b) (0.02)(a) (0.03)(a) (0.08)(c) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.62 0.96 1.46 (0.86) (6.55)
=================================================================================================================================
Total from investment operations 0.67 0.94 1.43 (0.94) (6.68)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88)
=================================================================================================================================
Total distributions (0.01) -- -- -- (0.88)
=================================================================================================================================
Net asset value, end of period $ 12.30 $ 11.64 $ 10.70 $ 9.27 $ 10.21
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(d) 5.75% 8.79% 15.43% (9.21)% (39.14)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $107,776 $138,305 $163,859 $170,444 $248,533
_________________________________________________________________________________________________________________________________
=================================================================================================================================
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%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.97%(e) 1.97% 2.00% 1.92% 1.87%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.44%(e) (0.16)% (0.31)% (0.61)%(c) (0.94)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 54% 36% 28% 103% 78%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $0.00 and 0.08%, respectively.
(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 adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios based on average daily net assets of $125,080,152.
F-16
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------------------------------
JUNE 3,
2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- 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 0.12(a)(b) 0.04(a) 0.02(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.63 1.00 1.50 (1.38)
=====================================================================================================================
Total from investment operations 0.75 1.04 1.52 (1.38)
=====================================================================================================================
Less distributions from net investment income (0.08) (0.02) -- --
=====================================================================================================================
Net asset value, end of period $12.77 $12.10 $11.08 $ 9.56
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 6.22% 9.35% 15.90% (12.61)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,637 $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 0.94%(d) 0.34% 0.19% (0.11)%(e)
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 54% 36% 28% 103%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 $0.07 and 0.58%, respectively.
(c) Includes adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(d) Ratios are based on average daily net assets of $2,756,823.
(e) Annualized.
F-17
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.53 $11.45 $ 9.80 $10.67 $18.33
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22(a)(b) 0.13(a) 0.09(a) 0.06(c) 0.04
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.65 1.03 1.56 (0.93) (6.82)
================================================================================================================
Total from investment operations 0.87 1.16 1.65 (0.87) (6.78)
================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.08) -- -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.88)
================================================================================================================
Total distributions (0.18) (0.08) -- -- (0.88)
================================================================================================================
Net asset value, end of period $ 13.22 $12.53 $11.45 $ 9.80 $10.67
________________________________________________________________________________________________________________
================================================================================================================
Total return(d) 6.98% 10.21% 16.84% (8.15)% (38.46)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $54,728 $3,285 $2,061 $1,457 $1,648
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.71%(e) 0.74% 0.79% 0.79% 0.68%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.73%(e) 0.75% 0.79% 0.83% 0.69%
================================================================================================================
Ratio of net investment income to average net assets 1.68%(e) 1.06% 0.90% 0.52%(c) 0.25%
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 54% 36% 28% 103% 78%
________________________________________________________________________________________________________________
================================================================================================================
</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 $0.17 and 1.32%, respectively.
(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 adjustment in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(e) Ratios are based on average daily net assets of $25,145,182.
NOTE 15--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 16--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on November
14, 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 Premier Equity Fund ("Selling Fund"), a series of AIM Funds Group
("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 February 28, 2006. 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.
F-18
NOTE 17--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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
ss. 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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;
F-19
NOTE 17 -- LEGAL PROCEEDINGS--(CONTINUED)
- 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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of
AIM Charter Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Charter Fund (one of the funds
constituting AIM Equity Funds, hereafter referred to as the "Fund") at October
31, 2005, and the results of its operations, the changes in its net assets and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-21
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2005, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2005, the Fund designates 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 the amounts.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDER (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 20.32%, 22.14%, 19.89%, and 17.63%, respectively.
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1)
AIM Mid Cap Growth Fund FIXED INCOME
AIM Opportunities I Fund
AIM Opportunities II Fund TAXABLE
AIM Opportunities III Fund
AIM Premier Equity Fund AIM Floating Rate Fund
AIM S&P 500 Index Fund AIM High Yield Fund
AIM Select Equity Fund AIM Income Fund
AIM Small Cap Equity Fund AIM Intermediate Government Fund
AIM Small Cap Growth Fund(1) AIM Limited Maturity Treasury Fund
AIM Small Company Growth Fund AIM Money Market Fund
AIM Summit Fund AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money Portfolio
TAX-FREE
INTERNATIONAL/GLOBAL EQUITY AIM High Income Municipal Fund(1)
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund(1)
AIM Global Aggressive Growth Fund =======================================================================================
AIM Global Equity Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Global Growth Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Global Value Fund AND READ IT CAREFULLY BEFORE INVESTING.
AIM International Core Equity Fund =======================================================================================
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
*Domestic equity and income fund
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20,2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com CHT-AR-1 A I M Distributors, Inc.
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
- --------------------------------------------------------------------------------
AIM CONSTELLATION FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM CONSTELLATION FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
<Table>
o Unless otherwise stated, information presented in this report is as of October 31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES o The Fund is not managed to track the The Fund provides a complete list of its
performance of any particular index, holdings four times in each fiscal year,
o Class B shares are not available as an including the indexes defined here, and at the quarter-ends. For the second and
investment for retirement plans consequently, the performance of the Fund fourth quarters, the lists appear in the
maintained pursuant to Section 401 of may deviate significantly from the Fund's semiannual and annual reports to
the Internal Revenue Code, including performance of the indexes. shareholders. For the first and third
401(k) plans, money purchase pension quarters, the Fund files the lists with
plans and profit sharing plans. Plans o A direct investment cannot be made in the Securities and Exchange Commission
that had existing accounts invested in an index. Unless otherwise (SEC) on Form N-Q. The most recent list
Class B shares prior to September indicated, index results include of portfolio holdings is available at
30, 2003, will continue to be allowed to reinvested dividends, and they do not AIMinvestments.com. From our home page,
make additional purchases. reflect sales charges. Performance of an click on Products & Performance, then
index of funds reflects fund expenses; Mutual Funds, then Fund Overview. Select
o Class R shares are available only to performance of a market index does not. your Fund from the drop-down menu and
certain retirement plans. Please see the click on Complete Quarterly Holdings.
prospectus for more information. OTHER INFORMATION Shareholders can also look up the Fund's
Forms N-Q on the SEC's Web site at
PRINCIPAL RISKS OF INVESTING IN THE FUND o The returns shown in management's sec.gov. And copies of the Fund's Forms
discussion of Fund performance are based N-Q may be reviewed and copied at the
o Investing in smaller companies on net asset values calculated for SEC's Public Reference Room at 450 Fifth
involves greater risk than investing in shareholder transactions. Generally Street, N.W., Washington, D.C.
more established companies, such as accepted accounting principles require 20549-0102. You can obtain information
business risk, significant stock price adjustments to be made to the net assets on the operation of the Public Reference
fluctuations and illiquidity. of the Fund at period end for financial Room, including information about
reporting purposes, and as such,the net duplicating fee charges, by calling
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder 202-942-8090 or 800-732-0330, or by
transactions and the returns based on electronic request at the following
o The unmanaged LIPPER MULTI-CAP GROWTH those net asset values may differ from e-mail address: publicinfo@sec.gov. The
FUND INDEX represents an average of the the net asset values and returns SEC file numbers for the Fund are
performance of the 30 largest reported in the Financial Highlights. 811-01424 and 2-25469.
multi-capitalization growth funds
tracked by Lipper, Inc., an independent o Industry classifications used in this A description of the policies and
mutual fund performance monitor. report are generally according to the procedures that the Fund uses to
Global Industry Classification determine how to vote proxies relating
o The unmanaged MSCI WORLD INDEX is a Standard, which was developed by and is to portfolio securities is available
group of global securities tracked by the exclusive property and a service without charge, upon request, from our
Morgan Stanley Capital International. mark of Morgan Stanley Capital Client Services department at
International Inc. and Standard & 800-959-4246 or on the AIM Web site,
o The unmanaged RUSSELL 1000--Registered Poor's. AIMinvestments.com. On the home page,
Trademark-- GROWTH INDEX is a subset of scroll down and click on AIM Funds Proxy
the unmanaged RUSSELL 1000--Registered Policy. The information is also
Trademark-- INDEX, which represents the available on the Securities and Exchange
performance of the stocks of Commission's Web site, sec.gov.
large-capitalization companies; the
Growth subset measures the performance Information regarding how the Fund voted
of Russell 1000 companies with higher proxies related to its portfolio
price/book ratios and higher forecasted securities during the 12 months ended
growth values. June 30, 2005, is available at our Web
site. Go to AIMinvestments.com, access
o The unmanaged Standard & Poor's the About Us tab, click on Required
Composite Index of 500 Stocks (the S&P Notices and then click on Proxy Voting
500--Registered Trademark-- INDEX) is an Activity. Next, select the Fund from the
index of common stocks frequently used drop-down menu. The information is also
as a general measure of U.S. stock available on the Securities and Exchange
market performance. Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares CSTGX
Class B Shares CSTBX
Class C Shares CSTCX
Class R Shares CSTRX
========================================
=====================================================================================
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.
=====================================================================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM CONSTELLATION FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the fiscal year ended October 31, 2005. Of
course, your financial advisor is the person most qualified
to help you decide whether such diversification is
appropriate for you.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
[WILLIAMSON this report. First, on Page 2, is a message from Bruce
PHOTO] Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is a valuable addition to
the reports. The Board is charged with looking out for the
MARK H. WILLIAMSON 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM CONSTELLATION FUND
DEAR AIM FUNDS 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.
[CROCKETT At our most recent meeting in June 2005, your Board
PHOTO] approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
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.
BRUCE L. CROCKETT 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 annual report on pages 8 and
9. 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 investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM CONSTELLATION FUND
<Table>
MANAGEMENT'S DISCUSSION Fundamental analysis seeks to define a
OF FUND PERFORMANCE company's key drivers of success and to
assess their durability. We carefully
====================================================================================== review financial statements and earnings
reports, the company's business model and
PERFORMANCE SUMMARY ========================================== management team, the competitive
environment and market opportunities.
On September 16, 2005, changes were made FUND VS. INDEXES
to your Fund's management team. The new We construct the portfolio by focusing
team consists of Lanny H. Sachnowitz (lead TOTAL RETURNS, 10/31/04-10/31/05, on stocks rather than industries or
manager), Kirk L. Anderson, James G. EXCLUDING APPLICABLE SALES CHARGES. IF sectors. While there are no formal sector
Birdsall and Robert J. Lloyd. They are SALES CHARGES WERE INCLUDED, RETURNS guidelines or constraints, internal
assisted by the Large/Multi-Cap Growth WOULD BE LOWER. controls and proprietary software help us
Team. monitor risk levels and sector
Class A Shares 11.10% concentration.
For the year ended October 31, 2005, Class B Shares 10.28
Class A shares of AIM Constellation Fund, Class C Shares 10.28 Our sell process is designed to
excluding sales charges, outperformed its Class R Shares 10.83 identify deterioration in the underlying
broad market and style-specific indexes. S&P 500 Index (Broad Market Index) 8.72 reasons a stock was initially purchased
Russell 1000 Growth Index and avoid the risk of capital loss.
We believe the Fund outperformed its (Style-specific Index) 8.81 Conditions that may cause us to reduce or
broad market and style-specific indexes Lipper Multi-cap Growth Fund Index sell a position include:
largely because we were significantly (Peer Group Index) 12.86
overweight in health care, energy and o deterioration in business prospects
information technology stocks--and SOURCE: LIPPER, INC.
because, within each of those sectors, the o worsening competitive position
Fund's holdings significantly outperformed ==========================================
those of the indexes. These overweight o slowing earnings growth
positions and strong stock selections were the result of
our quantitative and fundamental research. o extended valuation
Your Fund's long-term performance o finding more attractive investment
appears on Pages 6 and 7. opportunities
======================================================================================
MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST investor expectations or equity valuations.
Despite widespread concern about the
We believe a growth investment strategy is Quantitative analysis helps us narrow potential impact of rising short-term
an essential component of a diversified our investment universe down to a interest rates and historically high
portfolio. manageable list of potential investments. energy prices, the U.S. economy expanded,
we focus on the level, growth rate and inflation remained contained and corporate
Our investment process combines sustainability of earnings, revenue and profits generally rose during the fiscal
quantitative and fundamental analysis to cash flow, ranking investment candidates year covered by this report. Late in the
uncover companies exhibiting long-term, on absolute and relative attractiveness. year, higher energy prices and rising
sustainable earnings and cash flow growth interest rates threatened to crimp
that is not yet reflected in consumer spending, which accounts for
approximately two-thirds of the U.S.
economy.
(continued)
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Managed Health Care 5.1% 1. Apple Computer, Inc. 2.7%
2. Semiconductors 4.7 2. Johnson & Johnson 2.0
[PIE CHART] 3. Pharmaceuticals 4.5 3. QUALCOMM Inc. 1.7
4. Biotechnology 4.5 4. Microchip Technology Inc. 1.7
Information Technology 22.7% 5. Integrated Oil & GAS 3.7 5. Procter & Gamble Co. (The) 1.7
Health Care 20.5% 6. Oil & Gas Exploration & 3.7 6. Alcon, Inc. (Switzerland) 1.7
Energy 13.0% Production 7. Yahoo! Inc. 1.6
Consumer Discretionary 11.4% 7. Computer Hardware 3.5 8. Office Depot, Inc. 1.6
Industrials 11.4% 8. Health Care Equipment 3.3 9. Amgen Inc. 1.6
Financials 9.0% 9. Investment Banking & Brokerage 3.1 10. Exxon Mobil Corp. 1.6
Materials 6.2% 10. Internet Software & Services 3.0
Consumer Staples 4.8%
Money Market Funds Plus TOTAL NET ASSETS $5.3 BILLION
Other Assets Less Liabilities 1.0%
TOTAL NUMBER OF HOLDINGS* 120
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 CONSTELLATION FUND
<Table>
Corporate profits, and stock market balance sheets and to benefit shareholders PARTICULAR SECURITY. THE INFORMATION IS
performance, varied widely by sector in the form of stock buybacks and dividend NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
during the year. Rising prices caused many increases. For the year, your Fund was ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
companies in the energy and utilities significantly overweight energy stocks THE FUND. STATEMENTS OF FACT ARE FROM
sectors to report record earnings and relative to its style-specific index, with SOURCES CONSIDERED RELIABLE, BUT A I M
profits--while profits of companies that refiner VALERO ENERGY and integrated oil ADVISORS, INC. MAKES NO REPRESENTATION OR
use a lot of energy, such as chemical producer CONOCOPHILLIPS among the stocks WARRANTY AS TO THEIR COMPLETENESS OR
companies and airlines, were depressed. benefiting Fund performance. ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
The broad stock market rose for the year. IS NO GUARANTEE OF FUTURE RESULTS, THESE
Our bottom-up research helped us INSIGHTS MAY HELP YOU UNDERSTAND OUR
Strong stock selection within the identify attractive investment INVESTMENT MANAGEMENT PHILOSOPHY.
health care, energy and information opportunities in the IT sector. IT stocks
technology (IT) sectors contributed helping your Fund's performance included See important Fund and index
positively to Fund performance. Internet search engine GOOGLE and APPLE disclosures inside front cover.
COMPUTER. As more people worldwide go
Within the health care sector, our online, Google offers advertisers a LANNY H. SACHNOWITZ,
research led us to managed health care cost-effective way to reach consumers. [SACHNOWITZ senior portfolio
stocks. Many managed care companies have Apple continues to benefit from the PHOTO] manager, is lead
reported strong earnings in recent phenomenal success of its iPod--Registered portfolio manager of
quarters by aggressively controlling Trademark-- music player. AIM Constellation
costs, reducing hospital utilization rates Fund. He joined AIM in 1987 as a money
and switching plan participants from One IT stock that hindered Fund market trader and research analyst. In
name-brand to generic drugs. performance was online auctioneer EBAY. In 1990, Mr. Sachnowitz's trading
AETNA, UNITEDHEALTH GROUP, WELLPOINT and September, the company proposed acquiring responsibilities were expanded to include
CIGNA were among the managed care an Internet phone company, Skype head of equity trading. He was named a
companies that contributed to Fund Technologies. Like many other investors, portfolio manager in 1991. Mr. Sachnowitz
performance. But not all the Fund's health we question the strategic value of the received a B.S. in finance from the
care stocks performed well. One health proposed acquisition, which hurt eBay's University of Southern California and an
care stock that hurt Fund performance was short-term performance. But we continued M.B.A. from the University of Houston.
pharmaceutical giant Pfizer. Overall, the to hold the stock at the close of the year
company's long-term prospects deteriorated because we believed the company's core KIRK L. ANDERSON,
dramatically due to regulatory scrutiny business remains strong, it continues to [ANDERSON portfolio manager, is
and litigation risk, and we eliminated the generate significant cash flow, and it PHOTO] a portfolio manager of
stock from the portfolio. continues to grow faster than most AIM Constellation
companies. Fund. He joined AIM in
Other health care stocks we liked 1994 and was named a portfolio manager in
included GENENTECH, a leader in the IN CLOSING 2003. Mr. Anderson earned a B.A. in
biotechnology industry, and JOHNSON & political science from Texas A&M
JOHNSON, arguably the world's most As the fiscal year ended, we considered University and M.S. in finance from the
diversified health care company. Genentech the fundamentals of large-cap growth University of Houston.
developed and markets Avastin--Registered stocks to be good--and getting better. As
Trademark--, a drug originally approved for a group, large-cap growth companies JAMES G. BIRDSALL,
treatment of colorectal cancer that boasted healthy cash flows, strong balance [BIRDSALL portfolio manager, is
has, more recently, shown promise in the sheets and positive earnings growth. We PHOTO] a portfolio manager of
treatment of other types of cancer. While seek to own stocks of companies with AIM Constellation
Johnson & Johnson develops pharmaceutical managements that use capital for the Fund. He has been
products, it manufactures a broad array of benefit of shareholders. These trends, associated with AIM Investments since 1995
health care products for consumers and together with our quantitative and and was named a portfolio manager in 1999.
medical professionals. fundamental research, led us to invest the Mr. Birdsall received his B.B.A. with a
bulk of Fund assets in stocks of concentration in finance from Stephen F.
Energy has not been considered a large-capitalization companies. At the Austin State University before earning his
traditional growth sector, but supply and close of the year, we believed large-cap M.B.A. with a concentration in finance and
demand characteristics have clearly growth stocks were attractively priced international business from the University
changed in recent years, due largely to relative to other stocks with less of St. Thomas.
explosive economic growth in China and attractive fundamentals. As always, we
India. Worldwide production and refining thank you for your continued investment in ROBERT J. LLOYD,
capacity has struggled to keep pace with AIM Constellation Fund. [LLOYD Chartered Financial
rising demand. We believe any significant PHOTO] Analyst, portfolio
improvement in supply is likely to be THE VIEWS AND OPINIONS EXPRESSED IN manager, is a
years away. MANAGEMENT'S DISCUSSION OF FUND portfolio manager of
PERFORMANCE ARE THOSE OF A I M ADVISORS, AIM Constellation Fund. He joined AIM in
Given these trends, many energy INC. THESE VIEWS AND OPINIONS ARE SUBJECT 2000 and was named portfolio manager in
companies have seen notable growth in TO CHANGE AT ANY TIME BASED ON FACTORS 2001. He served eight years in the U.S.
their revenue and earnings--using the SUCH AS MARKET AND ECONOMIC CONDITIONS. Navy as a Naval Flight Officer flying the
money to improve their THESE VIEWS AND OPINIONS MAY NOT BE RELIED S-3B Viking. Mr. Lloyd received a B.B.A.
UPON AS INVESTMENT ADVICE OR from the University of Notre Dame and an
RECOMMENDATIONS, OR AS AN OFFER FOR A M.B.A. from the University of Chicago.
Assisted by the Large/Multi-Cap Growth
Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE PAGES
6 AND 7.
</Table>
4
AIM CONSTELLATION FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over The hypothetical account values and
the period. Simply divide your account expenses may not be used to estimate the
As a shareholder of the Fund, you incur two value by $1,000 (for example, an $8,600 actual ending account balance or expenses
types of costs: (1) transaction account value divided by $1,000 = 8.6), you paid for the period. You may use this
costs, which may include sales charges then multiply the result by the number information to compare the ongoing costs
(loads) on purchase payments; contingent in the table under the heading entitled of investing in the Fund and other funds.
deferred sales charges on redemptions; and "Actual Expenses Paid During Period" to To do so, compare this 5% hypothetical
redemption fees, if any; and (2) ongoing estimate the expenses you paid on your example with the 5% hypothetical examples
costs, including management fees; account during this period. that appear in the shareholder reports of
distribution and/or service fees (12b-1); the other funds.
and other Fund expenses. This example is HYPOTHETICAL EXAMPLE FOR
intended to help you understand your COMPARISON PURPOSES Please note that the expenses shown in
ongoing costs (in dollars) of investing in the table are meant to highlight your
the Fund and to compare these costs with The table below also provides information ongoing costs only and do not reflect any
ongoing costs of investing in other mutual about hypothetical account values and transactional costs, such as sales charges
funds. The example is based on an hypothetical expenses based on the Fund's (loads) on purchase payments, contingent
investment of $1,000 invested at the actual expense ratio and an assumed rate deferred sales charges on redemptions, and
beginning of the period and held for the of return of 5% per year before redemption fees, if any. Therefore, the
entire period May 1, 2005, through October expenses, which is not the fund's actual hypothetical information is useful in
31, 2005. return. The Fund's actual cumulative total comparing ongoing costs only, and will not
returns at net asset value after expenses help you determine the relative total
ACTUAL EXPENSES for the six months ended October costs of owning different funds. In
31, 2005, appear in the table "Cumulative addition, if these transactional costs
The table below provides information about Total Returns" on Page 7. were included, your costs would have been
actual account values and actual expenses. higher.
You may use the information in this table,
together with the amount you invested, to
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2,3) (10/31/05) PERIOD(2,4) RATIO
A $1,000.00 $1,112.50 $ 6.71 $1,018.85 $ 6.41 1.26%
B 1,000.00 1,108.30 10.58 1,015.17 10.11 1.99
C 1,000.00 1,107.80 10.57 1,015.17 10.11 1.99
R 1,000.00 1,110.90 7.93 1,017.69 7.58 1.49
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
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 October 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half-year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense ratio restated as if the
agreement had been in effect throughout the entire most recent fiscal half year is 1.24% for Class A 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 $6.60 for Class A 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 $6.31 for Class A shares.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM CONSTELLATION FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 4/30/76
[MOUNTAIN CHART]
================================================================================
AIM CONSTELLATION FUND- LIPPER MULTI-CAP S&P 500
DATE CLASS A SHARES GROWTH FUND INDEX INDEX
4/30/76 $ 9450 $ 10000 $ 10000
5/76 9171 9865 9889
6/76 9512 10369 10327
7/76 9327 10147 10277
8/76 9265 9965 10258
9/76 9514 10117 10524
10/76 9111 9768 10327
11/76 9173 9956 10285
12/76 9886 10498 10863
1/77 9080 10151 10349
2/77 8668 9836 10160
3/77 8637 9810 10053
4/77 8826 9916 10095
5/77 8731 9841 9897
6/77 9456 10475 10387
7/77 9204 10313 10227
8/77 9046 10189 10082
9/77 9046 10326 10097
10/77 8573 9922 9704
11/77 9299 10605 10011
12/77 9551 10808 10085
1/78 8605 10154 9507
2/78 6966 10132 9314
3/78 9550 10578 9588
4/78 10968 11507 10453
5/78 12134 12021 10548
6/78 11724 12078 10404
7/78 13426 13045 11010
8/78 14404 13722 11342
9/78 13648 13402 11306
10/78 10338 11365 10320
11/78 11095 11985 10542
12/78 11567 12426 10749
1/79 12293 12941 11224
2/79 11505 12406 10863
3/79 12891 13355 11511
4/79 13269 13564 11584
5/79 13143 13302 11333
6/79 14277 14122 11825
7/79 14812 14561 11983
8/79 16987 15750 12674
9/79 17333 15816 12729
10/79 15631 14727 11914
11/79 18184 16101 12480
12/79 20420 16916 12747
1/80 22846 18160 13540
2/80 23982 17988 13539
3/80 18876 15701 12222
4/80 20294 16374 12788
5/80 21398 17309 13446
6/80 22846 18023 13871
7/80 25997 20015 14836
8/80 27918 20712 14986
9/80 29587 21645 15427
10/80 31383 22269 15739
11/80 36740 24861 17415
12/80 35638 24101 16891
1/81 32613 22698 16184
2/81 32808 23027 16464
3/81 35193 24303 17124
4/81 35024 24380 16792
5/81 37784 25382 16835
6/81 33934 24228 16730
7/81 33968 23956 16765
8/81 29573 22483 15796
9/81 26021 21389 15018
10/81 30655 23306 15829
11/81 30551 23905 16481
12/81 29427 23283 16059
1/82 27811 22751 15850
2/82 25183 21898 14964
3/82 23189 21660 14885
4/82 25262 22821 15559
5/82 23501 22019 15028
6/82 21898 21904 14802
7/82 21116 21740 14540
8/82 23150 23670 16304
9/82 24011 24229 16507
10/82 29017 27285 18407
11/82 33828 29238 19150
12/82 33751 29489 19519
1/83 36488 30329 20245
2/83 38874 32195 20709
3/83 40320 32785 21474
4/83 45013 34820 23167
5/83 48335 35851 22965
6/83 52560 37571 23858
7/83 47945 35912 23155
8/83 45519 35218 23502
9/83 47121 36087 23826
10/83 40590 34357 23551
11/83 44382 35484 24048
12/83 42034 35109 23922
1/84 38360 33349 23788
2/84 34896 31531 22951
3/84 34896 31931 23349
4/84 34687 31858 23570
5/84 32123 30300 22266
6/84 34224 31240 22749
7/84 32712 30446 22467
8/84 38344 33974 24948
9/84 36328 33196 24954
10/84 35906 33142 25051
11/84 33676 32350 24770
12/84 35653 33266 25423
1/85 40951 36542 27404
2/85 42127 37057 27740
3/85 39814 36532 27757
4/85 38257 36023 27732
5/85 41199 38022 29334
6/85 42208 38918 29793
7/85 42124 38902 29750
8/85 40949 38336 29462
9/85 37923 36608 28573
10/85 39690 38088 29893
11/85 43139 40713 31943
12/85 45831 42376 33489
1/86 48351 43320 33676
2/86 53017 47068 36192
3/86 55790 49645 38212
4/86 57302 49318 37782
5/86 62471 52114 39791
6/86 63145 52926 40464
7/86 56837 49002 38202
8/86 59781 51506 41034
9/86 53349 47030 37642
10/86 58182 49671 39813
11/86 59497 50322 40780
12/86 58884 49260 39739
1/87 70738 55365 45091
2/87 78724 59377 46872
3/87 80165 59927 48224
4/87 79355 58908 47797
5/87 79411 59449 48210
6/87 80618 61600 50645
7/87 83673 64668 53211
8/87 88225 66789 55196
9/87 82870 65601 53986
10/87 56766 50154 42361
11/87 51521 46636 38869
12/87 60557 51530 41826
1/88 59413 52160 43584
2/88 65039 55522 45606
3/88 65423 54903 44199
4/88 67713 55300 44688
5/88 66284 54600 45069
6/88 74390 57975 47136
7/88 71623 56696 46957
8/88 67426 54602 45365
9/88 70480 57013 47296
10/88 70001 57038 48612
11/88 67901 55772 47918
12/88 70447 57797 48753
1/89 75773 61851 52320
2/89 74970 60944 51019
3/89 76979 62727 52208
4/89 82807 66672 54916
5/89 87328 70559 57129
6/89 83512 69320 56808
7/89 92322 74711 61933
8/89 98683 77337 63139
9/89 100301 78213 62882
10/89 94855 75085 61424
11/89 96970 76165 62671
12/89 97242 76700 64174
1/90 88792 69926 59868
2/90 93737 71263 60638
3/90 100130 73967 62244
4/90 98318 72062 60693
5/90 112072 79749 66599
6/90 111714 80045 66150
7/90 105435 78203 65939
8/90 90843 70435 59986
9/90 82395 66240 57071
10/90 79503 64784 56830
11/90 90244 69674 60496
12/90 93258 72169 62179
1/91 103516 78053 64880
2/91 111114 83645 69515
3/91 119081 86643 71196
4/91 117628 86089 71366
5/91 126192 90237 74434
6/91 117989 84887 71026
7/91 128124 90398 74334
8/91 135120 93640 76090
9/91 136931 93302 74816
10/91 141394 95520 75820
11/91 137054 92083 72773
12/91 158927 103917 81082
1/92 162233 103898 79573
2/92 164813 105492 80603
3/92 158929 101196 79037
4/92 150601 99604 81355
5/92 151700 100448 81753
6/92 144100 97119 80537
7/92 152804 100695 83825
8/92 147410 98373 82112
9/92 152923 100303 83077
10/92 162358 103338 83363
11/92 175720 109423 86193
12/92 182819 112090 87251
1/93 188085 113843 87979
2/93 176687 110820 89178
3/93 184408 114566 91058
4/93 177788 110664 88858
5/93 191140 116681 91229
6/93 194198 117802 91495
7/93 192605 117838 91127
8/93 201542 123768 94577
9/93 208516 126397 93851
10/93 208766 127871 95791
11/93 204966 124006 94878
12/93 214395 128186 96025
1/94 225672 132448 99287
2/94 226281 130316 96593
3/94 211098 123321 92390
4/94 212449 123433 93574
5/94 209262 123047 95104
6/94 197125 117935 92776
7/94 201895 121315 95821
8/94 216714 128034 99740
9/94 217213 126060 97303
10/94 224316 128527 99486
11/94 213773 123515 95867
12/94 217172 124565 97287
1/95 213002 124531 99808
2/95 224760 129562 103694
3/95 235121 133782 106749
4/95 240553 136512 109890
5/95 247889 140075 114275
6/95 268365 148603 116925
7/95 294638 158094 120801
8/95 296671 159403 121102
9/95 307292 163789 126210
10/95 299333 161713 125759
11/95 302985 167091 131273
12/95 294198 166567 133802
1/96 296552 169095 138351
2/96 311320 174072 139638
3/96 310947 175103 140982
4/96 329883 182886 143059
5/96 340341 187911 146742
6/96 327272 183869 147302
7/96 297981 170546 140797
8/96 316009 178022 143772
9/96 339140 189580 151856
10/96 333002 189139 156043
11/96 349585 199929 167828
12/96 342034 196302 164503
1/97 357050 205728 174775
2/97 341340 200042 176147
3/97 319664 189727 168923
4/97 324939 195739 178998
5/97 357693 212346 189942
6/97 369461 220311 198386
7/97 408993 240600 214167
8/97 403022 234015 202178
9/97 422770 248818 213245
10/97 395670 237816 206131
11/97 391081 239318 215665
12/97 386114 241354 219366
1/98 378816 242409 221790
2/98 415410 262580 237778
3/98 429617 275385 249944
4/98 439885 278578 252503
5/98 418814 267998 248169
6/98 435944 281767 258242
7/98 419858 274902 255513
8/98 338909 224011 218598
9/98 367886 240156 232613
10/98 386648 253662 251505
11/98 410117 271315 266742
12/98 459126 301202 282103
1/99 466794 319721 293895
2/99 433418 303055 284762
3/99 453139 320303 296152
4/99 468500 328082 307621
5/99 466392 321749 300365
6/99 499179 344251 316989
7/99 484154 336497 307134
8/99 481588 333134 305613
9/99 485344 331219 297246
10/99 521308 354555 316047
11/99 567183 382988 322472
12/99 662924 440823 341438
1/00 651124 436351 324285
2/00 737528 506116 318153
3/00 757810 504122 349258
4/00 697109 461855 338754
5/00 657026 430706 331809
6/00 721348 473422 339981
7/00 714640 458560 334671
8/00 809044 508225 355447
9/00 762928 477350 336686
10/00 711888 449623 335256
11/00 576060 375981 308846
12/00 594206 387687 310361
1/01 621718 395549 321366
2/01 525600 337652 292082
3/01 467469 301461 273589
4/01 514730 338261 294833
5/01 509171 336440 296810
6/01 499955 330453 289589
7/01 480457 312619 286737
8/01 438945 285629 268805
9/01 383287 243181 247100
10/01 405058 260593 251815
11/01 446333 285687 271126
12/01 453921 290143 273502
1/02 445705 281945 269513
2/02 426406 264446 264314
3/02 452288 280211 274256
4/02 426011 263195 257636
5/02 417789 255554 255745
6/02 388418 231725 237534
7/02 352878 209965 219023
8/02 351643 208373 220457
9/02 324320 192213 196521
10/02 353087 206899 213800
11/02 367458 219846 226371
12/02 341589 203612 213079
1/03 332332 200251 207508
2/03 330903 198890 204390
3/03 335204 202046 206369
4/03 357596 216811 223360
5/03 375476 232744 235117
6/03 380207 235442 238120
7/03 393970 242744 242320
8/03 409178 252442 247037
9/03 395429 247574 244421
10/03 423347 265113 258241
11/03 432576 269954 260510
12/03 441833 275657 274163
1/04 450051 282532 279194
2/04 453561 286262 283074
3/04 445760 285401 278804
4/04 431585 275831 274433
5/04 440001 282334 278191
6/04 450253 288385 283599
7/04 422112 268030 274214
8/04 414725 264251 275313
9/04 426420 274447 278295
10/04 436910 280347 282547
11/04 456833 295434 293976
12/04 469168 306703 303976
1/05 455796 295638 296567
2/05 464639 298977 302804
3/05 453162 292667 297448
4/05 436305 281925 291809
5/05 456636 299270 301086
6/05 457458 300883 301517
7/05 481292 318664 312726
8/05 480859 317148 309874
9/05 494227 322259 312382
10/05 $485276 $316391 $307172
================================================================================
SOURCE: LIPPER,INC.
The data shown in the chart include shares. Performance of the indexes does representing a percent change in the value
reinvested distributions, applicable sales not reflect the effects of taxes. of the investment. in this chart, each
charges, fund expenses and management segment represents a doubling, or 100%
fees. Index results include reinvested This chart, which is a logarithmic change, in the value of the investment. In
dividends, but they do not reflect sales chart, presents the fluctuations in the other words, the space between $10,000 and
charges. Performance of an index of funds value of the Fund and its indexes. We $20,000 is the same size as the space
reflects fund expenses and management believe that a logarithmic chart is more between $20,000 and $40,000, the space
fees; performance of a market index does effective than other types of charts in between $20,000 and $40,000 is the same as
not. Performance shown in the chart and illustrating changes in value during the that between $40,000 and $80,000, and so
table(s) does not reflect deduction of early years shown in the chart. The on.
taxes a shareholder would pay on fund vertical axis, the one that indicates the
distributions or sale of Fund dollar value of an investment, is
constructed with each segment
</Table>
6
AIM CONSTELLATION FUND
<Table>
========================================== ========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable sales As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 11.25%
Inception (4/30/76) 14.06% CLASS A SHARES Class B Shares 10.83
10 Years 4.36 Inception (4/30/76) 14.18% Class C Shares 10.78
5 Years -8.42 10 Years 4.27 Class R Shares 11.09
1 Year 4.98 5 Years -9.35
1 Year 9.51 ==========================================
CLASS B SHARES
Inception (11/3/97) 1.45% CLASS B SHARES
5 Years -8.32 Inception (11/3/97) 1.70%
1 Year 5.28 5 Years -9.26
1 Year 10.04
CLASS C SHARES
Inception (8/4/97) 1.29% CLASS C SHARES
5 Years -8.03 Inception (8/4/97) 1.54%
1 Year 9.28 5 Years -8.96
1 Year 14.04
CLASS R SHARES
10 Years 4.78% CLASS R SHARES
5 Years -7.50 10 Years 4.69%
1 Year 10.83 5 Years -8.44
1 Year 15.62
========================================== ==========================================
CLASS R SHARES' INCEPTION DATE IS JUNE PERFORMANCE FIGURES REFLECT REINVESTED BEGINNING OF THE SEVENTH YEAR. THE CDSC ON
3, 2002. RETURNS SINCE THAT DATE ARE DISTRIBUTIONS, CHANGES IN NET ASSET VALUE CLASS C SHARES IS 1% FOR THE FIRST YEAR
HISTORICAL RETURNS. ALL OTHER RETURNS ARE AND THE EFFECT OF THE MAXIMUM SALES CHARGE AFTER PURCHASE. CLASS R SHARES DO NOT HAVE
BLENDED RETURNS OF HISTORICAL CLASS R UNLESS OTHERWISE STATED. INVESTMENT RETURN A FRONT-END SALES CHARGE; RETURNS SHOWN
SHARE PERFORMANCE AND RESTATED CLASS A AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT ARE AT NET ASSET VALUE AND DO NOT REFLECT
SHARE PERFORMANCE (FOR PERIODS PRIOR TO YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL A 0.75% CDSC THAT MAY BE IMPOSED ON A
THE INCEPTION DATE OF CLASS R SHARES) AT SHARES. TOTAL REDEMPTION OF RETIREMENT PLAN ASSETS
NET ASSET VALUE, ADJUSTED TO REFLECT THE WITHIN THE FIRST YEAR.
HIGHER RULE 12b-1 FEES APPLICABLE TO CLASS CLASS A SHARE PERFORMANCE REFLECTS THE
R SHARES. MAXIMUM 5.50% SALES CHARGE, AND CLASS B AND THE PERFORMANCE OF THE FUND'S SHARE
CLASS C SHARE PERFORMANCE REFLECTS THE CLASSES WILL DIFFER DUE TO DIFFERENT SALES
THE PERFORMANCE DATA QUOTED REPRESENT APPLICABLE CONTINGENT DEFERRED SALES CHARGE STRUCTURES AND CLASS EXPENSES.
PAST PERFORMANCE AND CANNOT GUARANTEE CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE
COMPARABLE FUTURE RESULTS; CURRENT CDSC ON CLASS B SHARES DECLINES FROM 5%
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE BEGINNING AT THE TIME OF PURCHASE TO 0% AT
VISIT AIMINVESTMENTS.COM FOR THE MOST THE
RECENT MONTH-END PERFORMANCE.
</Table>
7
AIM CONSTELLATION FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Equity AIM currently is providing satisfactory other advisors with investment
Funds (the "Board") oversees the services in accordance with the terms of strategies comparable to those of the
management of AIM Constellation Fund the Advisory Agreement. Fund that the Board reviewed. The Board
(the "Fund") and, as required by law, noted that AIM has agreed to waive
determines annually whether to approve o The performance of the Fund relative advisory fees of the Fund, as discussed
the continuance of the Fund's advisory to comparable funds. The Board reviewed below. Based on this review, the Board
agreement with A I M Advisors, Inc. the performance of the Fund during the concluded that the advisory fee rate for
("AIM"). Based upon the recommendation past one, three and five calendar years the Fund under the Advisory Agreement
of the Investments Committee of the against the performance of funds advised was fair and reasonable.
Board, which is comprised solely of by other advisors with investment
independent trustees, at a meeting held strategies comparable to those of the o Expense limitations and fee waivers.
on June 30, 2005, the Board, including Fund. The Board noted that the Fund's The Board noted that AIM has
all of the independent trustees, approved performance was below the median contractually agreed to waive advisory
the continuance of the advisory performance of such comparable funds for fees of the Fund through December 31,
agreement (the "Advisory Agreement") the one year period and above such 2009 to the extent necessary so that the
between the Fund and AIM for another median performance for the three and advisory fees payable by the Fund do not
year, effective July 1, 2005. five year periods. Based on this review, exceed a specified maximum advisory fee
the Board concluded that no changes rate, which maximum rate includes
The Board considered the factors should be made to the Fund and that it breakpoints and is based on net asset
discussed below in evaluating the was not necessary to change the Fund's levels. The Board considered the
fairness and reasonableness of the portfolio management team at this time. contractual nature of this fee waiver
Advisory Agreement at the meeting on and noted that it remains in effect
June 30, 2005 and as part of the Board's o The performance of the Fund relative until December 31, 2009. The Board
ongoing oversight of the Fund. In their to indices. The Board reviewed the considered the effect this fee waiver
deliberations, the Board and the performance of the Fund during the past would have on the Fund's estimated
independent trustees did not identify one, three and five calendar years expenses and concluded that the levels
any particular factor that was against the performance of the Lipper of fee waivers/expense limitations for
controlling, and each trustee attributed Large-Cap Growth Index. The Board noted the Fund were fair and reasonable.
different weights to the various that the Fund's performance was below
factors. the performance of such Index for the o Breakpoints and economies of scale.
one year period and above such Index for The Board reviewed the structure of the
One of the responsibilities of the the three and five year periods. Based Fund's advisory fee under the Advisory
Senior Officer of the Fund, who is on this review, the Board concluded that Agreement, noting that it includes two
independent of AIM and AIM's affiliates, no changes should be made to the Fund breakpoints. The Board reviewed the
is to manage the process by which the and that it was not necessary to change level of the Fund's advisory fees, and
Fund's proposed management fees are the Fund's portfolio management team at noted that such fees, as a percentage of
negotiated to ensure that they are this time. the Fund's net assets, have decreased as
negotiated in a manner which is at arm's net assets increased because the
length and reasonable. To that end, the o Meeting with the Fund's portfolio Advisory Agreement includes breakpoints.
Senior Officer must either supervise a managers and investment personnel. With The Board noted that AIM has
competitive bidding process or prepare respect to the Fund, the Board is meeting contractually agreed to waive advisory
an independent written evaluation. The periodically with such Fund's portfolio fees of the Fund through December 31,
Senior Officer has recommended an managers and/or other investment 2009 to the extent necessary so that the
independent written evaluation in lieu personnel and believes that such advisory fees payable by the Fund do not
of a competitive bidding process individuals are competent and able to exceed a specified maximum advisory fee
and, upon the direction of the Board, has continue to carry out their rate, which maximum rate includes
prepared such an independent written responsibilities under the Advisory breakpoints and is based on net asset
evaluation. Such written evaluation also Agreement. levels. The Board concluded that the
considered certain of the factors Fund's fee levels under the Advisory
discussed below. In addition, as o Overall performance of AIM. The Board Agreement therefore reflect economies of
discussed below, the Senior Officer made considered the overall performance of scale and that it was not necessary to
certain recommendations to the Board in AIM in providing investment advisory change the advisory fee breakpoints in
connection with such written evaluation. and portfolio administrative services to the Fund's advisory fee schedule.
the Fund and concluded that such
The discussion below serves as a performance was satisfactory. o Investments in affiliated money market
summary of the Senior Officer's funds. The Board also took into account
independent written evaluation and o Fees relative to those of clients of the fact that uninvested cash and cash
recommendations to the Board in AIM with comparable investment collateral from securities lending
connection therewith, as well as a strategies. The Board reviewed the arrangements (collectively, "cash
discussion of the material factors and advisory fee rate for the Fund under the balances") of the Fund may be invested
the conclusions with respect thereto Advisory Agreement. The Board noted in money market funds advised by AIM
that formed the basis for the Board's that, based on the Fund's current assets pursuant to the terms of an SEC
approval of the Advisory Agreement. and taking account of the breakpoints in exemptive order. The Board found that
After consideration of all of the the Fund's advisory fee schedule, this the Fund may realize certain benefits
factors below and based on its informed rate (i) was comparable to the advisory upon investing cash balances in AIM
business judgment, the Board determined fee rates for a variable insurance fund advised money market funds, including a
that the Advisory Agreement is in the advised by AIM and offered to insurance higher net return, increased
best interests of the Fund and its company separate accounts with liquidity, increased diversification or
shareholders and that the compensation investment strategies comparable to decreased transaction costs. The Board
to AIM under the Advisory Agreement is those of the Fund; (ii) was lower than also found that the Fund will not
fair and reasonable and would have been the advisory fee rates for an offshore receive reduced services if it invests
obtained through arm's length fund advised by an AIM affiliate with its cash balances in such money market
negotiations. investment strategies comparable to funds. The Board noted that, to the
those of the Fund; (iii) was higher than extent the Fund invests in affiliated
o The nature and extent of the advisory the sub-advisory fee rates for three money market funds, AIM has voluntarily
services to be provided by AIM. The unaffiliated mutual funds for which an agreed to waive a portion of the
Board reviewed the services to be AIM affiliate serves as sub-advisor, advisory fees it receives from the Fund
provided by AIM under the Advisory although the total management fees paid attributable to such investment. The
Agreement. Based on such review, the by such unaffiliated mutual funds were Board further determined that the
Board concluded that the range of higher than the advisory fee rate for proposed securities lending program and
services to be provided by AIM under the the Fund; and (iv) was higher than the related procedures with respect to the
Advisory Agreement was appropriate and advisory fee rates for three separately lending Fund is in the best interests of
that AIM currently is providing services managed wrap accounts managed by an AIM the lending Fund and its respective
in accordance with the terms of the affiliate with investment strategies shareholders. The Board therefore
Advisory Agreement. comparable to those of the Fund. The concluded that the investment of cash
Board noted that AIM has agreed to waive collateral received in connection with
o The quality of services to be provided advisory fees of the Fund, as discussed the securities lending program in the
by AIM. The Board reviewed the below. Based on this review, the Board money market funds according to the
credentials and experience of the concluded that the advisory fee rate for procedures is in the best interests of
officers and employees of AIM who will the Fund under the Advisory Agreement the lending Fund and its respective
provide investment advisory services to was fair and reasonable. shareholders.
the Fund. In reviewing the
qualifications of AIM to provide o Fees relative to those of comparable o Independent written evaluation and
investment advisory services, the Board funds with other advisors. The Board recommendations of the Fund's Senior
reviewed the qualifications of AIM's reviewed the advisory fee rate for the Officer. The Board noted that, upon their
investment personnel and considered such Fund under the Advisory Agreement. The direction, the Senior Officer of the
issues as AIM's portfolio and product Board compared effective contractual Fund, who is
review process, various back office advisory fee rates at a common asset
support functions provided by AIM and level and noted that the Fund's rate was
AIM's equity and fixed income trading comparable to the median rate of the (continued)
operations. Based on the review of these funds advised by
and other factors, the Board concluded
that the quality of services to be
provided by AIM was appropriate and that
8
AIM CONSTELLATION FUND
independent of AIM and AIM's o Other factors and current trends. In o The performance of the Fund relative
affiliates, had prepared an independent determining whether to continue the to comparable funds. The Board reviewed
written evaluation in order to assist Advisory Agreement for the Fund, the the performance of the Fund during the
the Board in determining the Board considered the fact that AIM, along past one, three and five calendar years
reasonableness of the proposed with others in the mutual fund against the performance of funds advised
management fees of the AIM industry, is subject to regulatory by other advisors with investment
Funds, including the Fund. The Board inquiries and litigation related to a strategies comparable to those of the
noted that the Senior Officer's written wide range of issues. The Board also Fund. The Board noted that the Fund's
evaluation had been relied upon by the considered the governance and compliance performance was below the median
Board in this regard in lieu of a reforms being undertaken by AIM and its performance of such comparable funds for
competitive bidding process. In affiliates, including maintaining an the one year period and above such
determining whether to continue the internal controls committee and median performance for the three and
Advisory Agreement for the Fund, the retaining an independent compliance five year periods. Based on this review,
Board considered the Senior Officer's consultant, and the fact that AIM has the Board concluded that no changes
written evaluation and the undertaken to cause the Fund to operate should be made to the Fund and that it
recommendation made by the Senior in accordance with certain governance was not necessary to change the Fund's
Officer to the Board that the Board policies and practices. The Board portfolio management team at this time.
consider implementing a process to concluded that these actions indicated a
assist them in more closely monitoring good faith effort on the part of AIM to o The performance of the Fund relative
the performance of the AIM Funds. The adhere to the highest ethical to indices. The Board reviewed the
Board concluded that it would be standards, and determined that the performance of the Fund during the past
advisable to implement such a process as current regulatory and litigation one, three and five calendar years
soon as reasonably practicable. environment to which AIM is subject against the performance of the Lipper
should not prevent the Board from Large-Cap Growth Index. The Board noted
o Profitability of AIM and its continuing the Advisory Agreement for that the Fund's performance was below
affiliates. The Board reviewed the Fund. the performance of such Index for the
information concerning the profitability one year period and above such Index for
of AIM's (and its affiliates') APPROVAL OF SUB-ADVISORY AGREEMENT the three and five year periods. Based
investment advisory and other activities on this review, the Board concluded that
and its financial condition. The Board The Board oversees the management of the no changes should be made to the Fund
considered the overall profitability of Fund and, as required by law, determines and that it was not necessary to change
AIM, as well as the profitability of AIM annually whether to approve the the Fund's portfolio management team at
in connection with managing the Fund. continuance of the Fund's sub-advisory this time.
The Board noted that AIM's operations agreement. Based upon the recommendation
remain profitable, although increased of the Investments Committee of the o Meetings with the Fund's portfolio
expenses in recent years have reduced Board, which is comprised solely of managers and investment personnel. The
AIM's profitability. Based on the review independent trustees, at a meeting held Board is meeting periodically with the
of the profitability of AIM's and its on June 30, 2005, the Board, including all Fund's portfolio managers and/or other
affiliates' investment advisory and of the independent trustees, approved the investment personnel and believes that
other activities and its financial continuance of the sub-advisory such individuals are competent and able
condition, the Board concluded that the agreement (the "Sub-Advisory Agreement") to continue to carry out their
compensation to be paid by the Fund to between A I M Capital Management, Inc. responsibilities under the Sub-Advisory
AIM under its Advisory Agreement was not (the "Sub-Advisor") and AIM with respect Agreement.
excessive. to the Fund for another year, effective
July 1, 2005. o Overall performance of the
o Benefits of soft dollars to AIM. The Sub-Advisor. The Board considered the
Board considered the benefits realized The Board considered the factors overall performance of the Sub-Advisor
by AIM as a result of brokerage discussed below in evaluating the in providing investment advisory
transactions executed through "soft fairness and reasonableness of the services to the Fund and concluded that
dollar" arrangements. Under these Sub-Advisory Agreement at the meeting on such performance was satisfactory.
arrangements, brokerage commissions paid June 30, 2005 and as part of the Board's
by the Fund and/or other funds advised ongoing oversight of the Fund. In their o Advisory fees, expense limitations and
by AIM are used to pay for research and deliberations, the Board and the fee waivers, and breakpoints and
execution services. This research is independent trustees did not identify economies of scale. In reviewing these
used by AIM in making investment any particular factor that was factors, the Board considered only the
decisions for the Fund. The Board controlling, and each trustee attributed advisory fees charged to the Fund by AIM
concluded that such arrangements were different weights to the various and did not consider the sub-advisory
appropriate. factors. fees paid by AIM to the Sub-Advisor. The
Board believes that this approach is
o AIM's financial soundness in light of The discussion below serves as a appropriate because the sub-advisory
the Fund's needs. The Board considered discussion of the material factors and fees have no effect on the Fund or its
whether AIM is financially sound and has the conclusions with respect thereto shareholders, as they are paid by AIM
the resources necessary to perform its that formed the basis for the Board's rather than the Fund. Furthermore, AIM
obligations under the Advisory approval of the Sub-Advisory Agreement. and the Sub-Advisor are affiliates and
Agreement, and concluded that AIM has the After consideration of all of the the Board believes that the allocation
financial resources necessary to fulfill factors below and based on its informed of fees between them is a business
its obligations under the Advisory business judgment, the Board determined matter, provided that the advisory fees
Agreement. that the Sub-Advisory Agreement is in charged to the Fund are fair and
the best interests of the Fund and its reasonable.
o Historical relationship between the shareholders.
Fund and AIM. In determining whether to o Profitability of AIM and its
continue the Advisory Agreement for the o The nature and extent of the advisory affiliates. The Board reviewed
Fund, the Board also considered the prior services to be provided by the information concerning the profitability
relationship between AIM and the Fund, as Sub-Advisor. The Board reviewed the of AIM's (and its affiliates')
well as the Board's knowledge of AIM's services to be provided by the investment advisory and other activities
operations, and concluded that it was Sub-Advisor under the Sub-Advisory and its financial condition. The Board
beneficial to maintain the current Agreement. Based on such review, the considered the overall profitability of
relationship, in part, because of such Board concluded that the range of AIM, as well as the profitability of AIM
knowledge. The Board also reviewed the services to be provided by the in connection with managing the Fund.
general nature of the non-investment Sub-Advisor under the Sub-Advisory The Board noted that AIM's operations
advisory services currently performed by Agreement was appropriate and that the remain profitable, although increased
AIM and its affiliates, such as Sub-Advisor currently is providing expenses in recent years have reduced
administrative, transfer agency and services in accordance with the terms AIM's profitability. Based on the review
distribution services, and the fees of the Sub-Advisory Agreement. of the profitability of AIM's and its
received by AIM and its affiliates for affiliates' investment advisory and
performing such services. In addition to o The quality of services to be provided other activities and its financial
reviewing such services, the trustees by the Sub-Advisor. The Board reviewed condition, the Board concluded that the
also considered the organizational the credentials and experience of the compensation to be paid by the Fund to
structure employed by AIM and its officers and employees of the AIM under its Advisory Agreement was not
affiliates to provide those services. Sub-Advisor who will provide investment excessive.
Based on the review of these and other advisory services to the Fund. Based on
factors, the Board concluded that AIM and the review of these and other factors, o The Sub-Advisor's financial soundness
its affiliates were qualified to the Board concluded that the quality of in light of the Fund's needs. The Board
continue to provide non-investment services to be provided by the considered whether the Sub-Advisor is
advisory services to the Fund, including Sub-Advisor was appropriate, and that the financially sound and has the resources
administrative, transfer agency and Sub-Advisor currently is providing necessary to perform its obligations
distribution services, and that AIM and satisfactory services in accordance with under the Sub-Advisory Agreement, and
its affiliates currently are providing the terms of the Sub-Advisory Agreement. concluded that the Sub-Advisor has the
satisfactory non-investment advisory financial resources necessary to fulfill
services. its obligations under the Sub-Advisory
Agreement.
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM CONSTELLATION FUND
===============================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/05 INDICATIVE OF FUTURE RESULTS. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE
The following information has been Inception (4/8/92) 9.53% SHOWN. ALL RETURNS ASSUME REINVESTMENT OF
prepared to provide Institutional 10 Years 5.47 DISTRIBUTIONS AT NET ASSET VALUE.
Class shareholders with a 5 Years - 6.90 INVESTMENT RETURN AND PRINCIPAL VALUE WILL
performance overview specific to 1 Year 11.65 FLUCTUATE SO YOUR SHARES, WHEN REDEEMED,
their holdings. Institutional Class 6 Months* 11.50 MAY BE WORTH MORE OR LESS THAN THEIR
shares are offered exclusively to =============================================== ORIGINAL COST. SEE FULL REPORT FOR
institutional investors, including INFORMATION ON COMPARATIVE BENCHMARKS.
defined contribution plans that meet AVERAGE ANNUAL TOTAL RETURNS PLEASE CONSULT YOUR FUND PROSPECTUS FOR
certain criteria. For periods ended 9/30/05, most recent calendar MORE INFORMATION. FOR THE MOST CURRENT
quarter-end MONTH-END PERFORMANCE, PLEASE CALL
800-451-4246 OR VISIT AIMINVESTMENTS.COM.
Inception (4/8/92) 9.74%
10 Years 5.39
5 Years - 7.84
1 Year 16.48
6 Months* 9.37
* Cumulative total return that has not been
annualized
===============================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET
VALUE (NAV). PERFORMANCE OF INSTITUTIONAL CLASS
SHARES WILL DIFFER FROM PERFORMANCE OF OTHER
SHARE CLASSES DUE TO DIFFERING SALES CHARGES
AND CLASS EXPENSES.
====================================
NASDAQ SYMBOL CSITX
====================================
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.
[YOUR GOALS.
OUR SOLUTIONS.]
- REGISTERED TRADEMARK - [AIM INVESTMENTS LOGO]
AIMINVESTMENTS.COM CST-INS-1 - REGISTERED TRADEMARK -
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE period. Simply divide your account value by The hypothetical account values and
$1,000 (for example, an $8,600 account value expenses may not be used to estimate your
As a shareholder of the Fund, you divided by $1,000 = 8.6), then multiply the actual ending account balance or expenses
incur ongoing costs, including result by the number in the table under the you paid for the period. You may use this
management fees; and other Fund heading entitled "Actual Expenses Paid During information to compare the ongoing costs of
expenses. This example is intended Period" to estimate the expenses you paid on investing in the Fund and other funds. To
to help you understand your ongoing your account during this period. do so, compare this 5% hypothetical example
costs (in dollars) of investing in with the 5% hypothetical examples that
the Fund and to compare these costs HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES appear in the shareholder reports of the
with ongoing costs of investing in other funds.
other mutual funds. The example is The table below also provides information about
based on an investment of $1,000 hypothetical account values and hypothetical Please note that the expenses shown in
invested at the beginning of the expenses based on the Fund's actual expense the table are meant to highlight your
period and held for the entire ratio and an assumed rate of return of 5% per ongoing costs only. Therefore, the
period May 1, 2005 to October 31, year before expenses, which is not the Fund's hypothetical information is useful in
2005. actual return. The Fund's actual cumulative comparing ongoing costs only, and will not
total return after expenses for the six months help you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2005, appears in the table on of owning different funds.
the front of this supplement.
The table below provides information
about actual account values and
actual expenses. You may use the
information in this table, together
with the amount you invested, to
estimate the expenses that you paid
over the
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDINGE EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,115.00 $ 4.05 $ 1,021.37 $3.87 0.76%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMINVESTMENTS.COM CST-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-88.81%
AEROSPACE & DEFENSE-1.49%
Boeing Co. (The) 825,000 $ 53,328,000
- --------------------------------------------------------------------------
General Dynamics Corp. 225,000 26,167,500
==========================================================================
79,495,500
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.72%
Coach, Inc.(a) 1,196,588 38,506,202
==========================================================================
APPLICATION SOFTWARE-2.25%
Amdocs Ltd.(a) 1,550,000 41,028,500
- --------------------------------------------------------------------------
Autodesk, Inc. 1,200,000 54,156,000
- --------------------------------------------------------------------------
NAVTEQ Corp.(a) 625,133 24,455,203
==========================================================================
119,639,703
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.50%
Franklin Resources, Inc. 300,000 26,511,000
==========================================================================
BIOTECHNOLOGY-3.95%
Amgen Inc.(a) 1,113,100 84,328,456
- --------------------------------------------------------------------------
Genentech, Inc.(a) 309,000 27,995,400
- --------------------------------------------------------------------------
Genzyme Corp.(a) 143,042 10,341,937
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 1,230,600 58,145,850
- --------------------------------------------------------------------------
Protein Design Labs, Inc.(a) 1,059,912 29,698,734
==========================================================================
210,510,377
==========================================================================
BROADCASTING & CABLE TV-0.84%
XM Satellite Radio Holdings Inc.-Class
A(a)(b) 1,552,700 44,764,341
==========================================================================
COMMUNICATIONS EQUIPMENT-2.43%
Cisco Systems, Inc.(a) 2,179,167 38,026,464
- --------------------------------------------------------------------------
QUALCOMM Inc. 2,300,000 91,448,000
==========================================================================
129,474,464
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.62%
Best Buy Co., Inc. 750,000 33,195,000
==========================================================================
COMPUTER HARDWARE-3.54%
Apple Computer, Inc.(a) 2,500,000 143,975,000
- --------------------------------------------------------------------------
Dell Inc.(a) 1,400,000 44,632,000
==========================================================================
188,607,000
==========================================================================
COMPUTER STORAGE & PERIPHERALS-0.83%
EMC Corp.(a) 3,145,084 43,905,373
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.19%
Caterpillar Inc. 1,200,000 63,108,000
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
CONSUMER ELECTRONICS-1.84%
Garmin Ltd.(b) 500,000 $ 28,715,000
- --------------------------------------------------------------------------
Harman International Industries, Inc. 693,200 69,222,952
==========================================================================
97,937,952
==========================================================================
CONSUMER FINANCE-1.74%
American Express Co. 750,000 37,327,500
- --------------------------------------------------------------------------
SLM Corp. 1,000,000 55,530,000
==========================================================================
92,857,500
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.97%
Fiserv, Inc.(a) 625,000 27,300,000
- --------------------------------------------------------------------------
Iron Mountain Inc.(a) 1,000,000 39,000,000
- --------------------------------------------------------------------------
Paychex, Inc. 1,000,000 38,760,000
==========================================================================
105,060,000
==========================================================================
DEPARTMENT STORES-1.11%
Federated Department Stores, Inc. 484,914 29,759,172
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 575,000 29,440,000
==========================================================================
59,199,172
==========================================================================
DIVERSIFIED BANKS-0.81%
Bank of America Corp. 990,000 43,302,600
==========================================================================
DIVERSIFIED CHEMICALS-0.86%
Dow Chemical Co. (The) 1,000,000 45,860,000
==========================================================================
DIVERSIFIED METALS & MINING-0.91%
Phelps Dodge Corp. 400,000 48,188,000
==========================================================================
DRUG RETAIL-0.93%
CVS Corp. 2,025,000 49,430,250
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.19%
Emerson Electric Co. 510,500 35,505,275
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 525,000 27,903,750
==========================================================================
63,409,025
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.60%
Agilent Technologies, Inc.(a) 1,000,000 32,010,000
==========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.83%
Monsanto Co. 700,000 44,107,000
==========================================================================
FOOD RETAIL-0.58%
Whole Foods Market, Inc. 214,700 30,944,711
==========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
FOOTWEAR-0.55%
NIKE, Inc.-Class B 349,145 $ 29,345,637
==========================================================================
HEALTH CARE EQUIPMENT-3.29%
Becton, Dickinson and Co. 69,614 3,532,910
- --------------------------------------------------------------------------
Medtronic, Inc. 1,196,000 67,765,360
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 1,171,400 56,309,198
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 1,040,900 47,423,404
==========================================================================
175,030,872
==========================================================================
HEALTH CARE SERVICES-1.53%
Caremark Rx, Inc.(a) 1,550,091 81,224,768
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.59%
Electronic Arts Inc.(a) 550,000 31,284,000
==========================================================================
HOME IMPROVEMENT RETAIL-0.77%
Home Depot, Inc. (The) 1,000,000 41,040,000
==========================================================================
HOUSEHOLD PRODUCTS-1.70%
Procter & Gamble Co. (The) 1,615,950 90,477,041
==========================================================================
HOUSEWARES & SPECIALTIES-0.51%
Jarden Corp.(a) 796,649 26,918,770
==========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.21%
Robert Half International Inc. 1,750,000 64,540,000
==========================================================================
INDUSTRIAL CONGLOMERATES-1.70%
General Electric Co. 1,500,000 50,865,000
- --------------------------------------------------------------------------
Textron Inc. 550,000 39,622,000
==========================================================================
90,487,000
==========================================================================
INDUSTRIAL GASES-0.56%
Air Products and Chemicals, Inc. 520,500 29,793,420
==========================================================================
INDUSTRIAL MACHINERY-1.84%
Eaton Corp. 500,000 29,415,000
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 363,300 30,793,308
- --------------------------------------------------------------------------
Parker Hannifin Corp. 600,000 37,608,000
==========================================================================
97,816,308
==========================================================================
INTEGRATED OIL & GAS-3.72%
ConocoPhillips 1,100,000 71,918,000
- --------------------------------------------------------------------------
Exxon Mobil Corp. 1,500,000 84,210,000
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 534,500 42,161,360
==========================================================================
198,289,360
==========================================================================
INTERNET RETAIL-1.41%
eBay Inc.(a) 1,900,000 75,240,000
==========================================================================
INTERNET SOFTWARE & SERVICES-2.99%
Google Inc.-Class A(a) 199,113 74,097,912
- --------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
INTERNET SOFTWARE & SERVICES-(CONTINUED)
Yahoo! Inc.(a) 2,300,000 $ 85,031,000
==========================================================================
159,128,912
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.06%
Goldman Sachs Group, Inc. (The) 550,000 69,503,500
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 797,400 51,623,676
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 2,750,000 41,800,000
==========================================================================
162,927,176
==========================================================================
IT CONSULTING & OTHER SERVICES-0.28%
Cognizant Technology Solutions Corp.-Class
A(a) 342,946 15,082,765
==========================================================================
MANAGED HEALTH CARE-5.05%
Aetna Inc. 826,800 73,221,408
- --------------------------------------------------------------------------
CIGNA Corp. 364,000 42,176,680
- --------------------------------------------------------------------------
PacifiCare Health Systems, Inc.(a) 479,300 39,475,148
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 926,200 53,617,718
- --------------------------------------------------------------------------
WellPoint, Inc.(a) 810,300 60,513,204
==========================================================================
269,004,158
==========================================================================
MOVIES & ENTERTAINMENT-0.38%
Pixar(a) 400,000 20,292,000
==========================================================================
OIL & GAS DRILLING-2.11%
ENSCO International Inc. 1,062,000 48,416,580
- --------------------------------------------------------------------------
GlobalSantaFe Corp. 750,000 33,412,500
- --------------------------------------------------------------------------
Patterson-UTI Energy, Inc. 900,000 30,717,000
==========================================================================
112,546,080
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.64%
Baker Hughes Inc. 740,000 40,670,400
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 750,000 46,852,500
==========================================================================
87,522,900
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.69%
Apache Corp. 600,000 38,298,000
- --------------------------------------------------------------------------
Burlington Resources Inc. 600,000 43,332,000
- --------------------------------------------------------------------------
Devon Energy Corp. 800,000 48,304,000
- --------------------------------------------------------------------------
Newfield Exploration Co.(a) 600,000 27,198,000
- --------------------------------------------------------------------------
XTO Energy, Inc. 900,666 39,142,944
==========================================================================
196,274,944
==========================================================================
OIL & GAS REFINING & MARKETING-1.80%
Sunoco, Inc. 300,000 22,350,000
- --------------------------------------------------------------------------
Valero Energy Corp. 700,000 73,668,000
==========================================================================
96,018,000
==========================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
PACKAGED FOODS & MEATS-0.48%
Kellogg Co. 577,184 $ 25,494,217
==========================================================================
PHARMACEUTICALS-3.00%
Johnson & Johnson 1,696,100 106,209,782
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 840,000 24,780,000
- --------------------------------------------------------------------------
Wyeth 642,800 28,643,168
==========================================================================
159,632,950
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.99%
Allstate Corp. (The) 1,000,000 52,790,000
==========================================================================
RAILROADS-0.81%
Burlington Northern Santa Fe Corp. 697,789 43,304,785
==========================================================================
RESTAURANTS-0.51%
Brinker International, Inc.(a) 708,722 27,016,483
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.57%
KLA-Tencor Corp. 650,000 30,088,500
==========================================================================
SEMICONDUCTORS-3.87%
Analog Devices, Inc. 2,000,000 69,560,000
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 598,028 14,280,909
- --------------------------------------------------------------------------
Linear Technology Corp. 107,898 3,583,293
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 806,985 27,986,240
- --------------------------------------------------------------------------
Microchip Technology Inc. 3,000,052 90,511,569
==========================================================================
205,922,011
==========================================================================
SOFT DRINKS-0.67%
PepsiCo, Inc. 600,000 35,448,000
==========================================================================
SPECIALIZED FINANCE-0.36%
Chicago Mercantile Exchange Holdings Inc. 52,654 19,226,608
==========================================================================
SPECIALTY CHEMICALS-0.58%
Rohm and Haas Co. 705,100 30,693,003
==========================================================================
SPECIALTY STORES-1.58%
Office Depot, Inc.(a) 3,063,800 84,346,414
==========================================================================
STEEL-1.28%
Nucor Corp. 450,000 26,932,500
- --------------------------------------------------------------------------
United States Steel Corp. 1,134,800 41,454,244
==========================================================================
68,386,744
==========================================================================
SYSTEMS SOFTWARE-2.00%
McAfee Inc.(a) 1,400,000 42,042,000
- --------------------------------------------------------------------------
Microsoft Corp. 2,500,000 64,250,000
==========================================================================
106,292,000
==========================================================================
Total Domestic Common Stocks (Cost
$3,541,883,361) 4,728,948,996
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-10.24%
BERMUDA-0.99%
Ingersoll-Rand Co. Ltd.-Class A (Industrial
Machinery) 1,400,000 $ 52,906,000
==========================================================================
BRAZIL-0.62%
Companhia Vale do Rio Doce-ADR (Steel) 800,000 33,064,000
==========================================================================
CANADA-0.45%
Shoppers Drug Mart Corp. (Drug Retail) 720,100 23,955,572
==========================================================================
ISRAEL-0.74%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 1,039,283 39,617,468
==========================================================================
JAPAN-2.60%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 2,090,000 28,143,097
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.
(Consumer Electronics)(c) 1,441,000 26,453,784
- --------------------------------------------------------------------------
Matsushita Electric Industrial Co., Ltd.-ADR
(Consumer Electronics) 171,000 3,146,400
- --------------------------------------------------------------------------
Millea Holdings, Inc. (Property & Casualty
Insurance)(c) 2,000 36,379,664
- --------------------------------------------------------------------------
Mitsui O.S.K. Lines, Ltd. (Marine)(c) 3,699,000 26,135,220
- --------------------------------------------------------------------------
Mitsui Sumitomo Insurance Co., Ltd. (Property
& Casualty Insurance)(c) 1,400,000 18,077,072
==========================================================================
138,335,237
==========================================================================
SINGAPORE-0.83%
Marvell Technology Group Ltd.
(Semiconductors)(a) 946,000 43,903,860
==========================================================================
SOUTH KOREA-1.05%
Kookmin Bank (Diversified Banks)(c) 487,000 27,995,832
- --------------------------------------------------------------------------
POSCO-ADR (Steel) 546,000 28,004,340
==========================================================================
56,000,172
==========================================================================
SWITZERLAND-2.96%
Alcon, Inc. (Health Care Supplies) 677,400 90,026,460
- --------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 271,320 40,538,561
- --------------------------------------------------------------------------
Serono S.A.-Class B (Biotechnology)(c) 41,765 27,050,992
==========================================================================
157,616,013
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $442,348,728) 545,398,322
==========================================================================
MONEY MARKET FUNDS-0.14%
Liquid Assets Portfolio-Institutional
Class(d) 3,677,810 3,677,810
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 3,677,810 3,677,810
==========================================================================
Total Money Market Funds (Cost
$7,355,620) 7,355,620
==========================================================================
TOTAL INVESTMENTS-99.19% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$3,991,587,709) 5,281,702,938
==========================================================================
</Table>
F-3
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.31%
STIC Prime Portfolio-Institutional
Class(d)(e) 16,220,215 $ 16,220,215
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $16,220,215) 16,220,215
==========================================================================
TOTAL INVESTMENTS-99.50%
(Cost $4,007,807,924) 5,297,923,153
==========================================================================
OTHER ASSETS LESS LIABILITIES-0.50% 26,662,360
==========================================================================
NET ASSETS-100.00% $5,324,585,513
__________________________________________________________________________
==========================================================================
</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 October 31, 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 value of these securities at October 31, 2005 was $190,235,661,
which represented 3.57% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(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 to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost
$3,984,232,089)* $ 5,274,347,318
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $23,575,835) 23,575,835
============================================================
Total investments (cost $4,007,807,924) 5,297,923,153
============================================================
Receivables for:
Investments sold 270,536,032
- ------------------------------------------------------------
Fund shares sold 1,178,459
- ------------------------------------------------------------
Dividends 3,377,940
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 403,361
- ------------------------------------------------------------
Other assets 48,225
============================================================
Total assets 5,573,467,170
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 214,671,161
- ------------------------------------------------------------
Fund shares reacquired 12,984,190
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,070,863
- ------------------------------------------------------------
Collateral upon return of securities
loaned 16,220,215
- ------------------------------------------------------------
Accrued distribution fees 1,382,332
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 9,029
- ------------------------------------------------------------
Accrued transfer agent fees 2,131,089
- ------------------------------------------------------------
Accrued operating expenses 412,778
============================================================
Total liabilities 248,881,657
============================================================
Net assets applicable to shares outstanding $ 5,324,585,513
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 5,400,385,989
- ------------------------------------------------------------
Undistributed net investment income (loss) (942,675)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (1,365,214,732)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,290,356,931
============================================================
$ 5,324,585,513
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 4,461,224,494
____________________________________________________________
============================================================
Class B $ 531,340,912
____________________________________________________________
============================================================
Class C $ 132,055,840
____________________________________________________________
============================================================
Class R $ 7,466,547
____________________________________________________________
============================================================
Institutional Class $ 192,497,720
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 188,833,117
____________________________________________________________
============================================================
Class B 24,156,712
____________________________________________________________
============================================================
Class C 6,005,597
____________________________________________________________
============================================================
Class R 317,184
____________________________________________________________
============================================================
Institutional Class 7,494,125
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 23.63
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $23.63 divided by
94.50%) $ 25.01
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 22.00
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 21.99
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 23.54
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 25.69
____________________________________________________________
============================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $15,938,662 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $372,879) $ 71,020,646
- ---------------------------------------------------------------------------
Dividends from affiliates (includes securities lending
income of $324,196, after compensation to counterparties
of $5,782,142) 2,958,268
- ---------------------------------------------------------------------------
Interest 11,469
===========================================================================
Total investment income 73,990,383
===========================================================================
EXPENSES:
Advisory fees 37,807,698
- ---------------------------------------------------------------------------
Administrative services fees 670,217
- ---------------------------------------------------------------------------
Custodian fees 439,900
- ---------------------------------------------------------------------------
Distribution fees:
Class A 14,562,685
- ---------------------------------------------------------------------------
Class B 5,782,650
- ---------------------------------------------------------------------------
Class C 1,460,772
- ---------------------------------------------------------------------------
Class R 36,651
- ---------------------------------------------------------------------------
Transfer agent fees-A, B, C and R 20,528,296
- ---------------------------------------------------------------------------
Transfer agent fees-Institutional 158,690
- ---------------------------------------------------------------------------
Trustees' and officer's fees and benefits 240,248
- ---------------------------------------------------------------------------
Other 1,476,844
===========================================================================
Total expenses 83,164,651
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (1,467,921)
===========================================================================
Net expenses 81,696,730
===========================================================================
Net investment income (loss) (7,706,347)
===========================================================================
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 $11,788,928) 804,684,454
- ---------------------------------------------------------------------------
Foreign currencies 285,991
===========================================================================
804,970,445
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (159,095,546)
- ---------------------------------------------------------------------------
Foreign currencies 241,665
===========================================================================
(158,853,881)
===========================================================================
Net gain from investment securities and foreign currencies 646,116,564
===========================================================================
Net increase in net assets resulting from operations $ 638,410,217
___________________________________________________________________________
===========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (7,706,347) $ (49,011,984)
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 804,970,445 750,199,227
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (158,853,881) (467,700,236)
================================================================================================
Net increase in net assets resulting from operations 638,410,217 233,487,007
================================================================================================
Share transactions-net:
Class A (1,701,461,900) (1,414,942,300)
- ------------------------------------------------------------------------------------------------
Class B (142,656,379) (88,166,720)
- ------------------------------------------------------------------------------------------------
Class C (45,234,121) (35,344,446)
- ------------------------------------------------------------------------------------------------
Class R 538,613 3,284,897
- ------------------------------------------------------------------------------------------------
Institutional Class 8,339,497 4,128,631
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,880,474,290) (1,531,039,938)
================================================================================================
Net increase (decrease) in net assets (1,242,064,073) (1,297,552,931)
================================================================================================
NET ASSETS:
Beginning of year 6,566,649,586 7,864,202,517
================================================================================================
End of year (including undistributed net investment income
(loss) of $(942,675) and $(907,378), respectively) $ 5,324,585,513 $ 6,566,649,586
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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
F-9
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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of the Fund's average 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 paid AIM Capital 50% of the amount
of AIM's compensation on the sub-advised assets. Effective October 31, 2005, the
master sub-advisory agreement between AIM and AIM Capital was terminated.
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 year ended October 31, 2005, AIM waived fees of $961,833.
At the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to reimburse expenses incurred by the Fund in connection with market
timing matters in the AIM Funds, which may include legal, audit, shareholder
reporting, communications and trustee expenses. These expenses along with the
related expense reimbursement are included in the Statement of Operations. For
the year ended October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $331,896.
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 year ended
October 31, 2005, AIM was paid $670,217.
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 year ended October 31, 2005, the
Fund paid AISI $20,528,296 for Class A, Class B, Class C and Class R share
classes and $158,690 or 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
F-10
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. Prior to July 1, 2005, the Fund paid
ADI 0.30% of the average daily net assets of Class A 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. National Association of
Securities Dealers ("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, 2005, the Class
A, Class B, Class C and Class R shares paid $14,562,685, $5,782,650, $1,460,772
and $36,651, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
October 31, 2005, ADI advised the Fund that it retained $504,333 in front-end
sales commissions from the sale of Class A shares and $5,482, $262,238, $12,383
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.
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 21,040,807 $1,043,961,224 $(1,061,324,221) $ -- $ 3,677,810 $1,310,404 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 21,040,807 1,043,961,224 (1,061,324,221) -- 3,677,810 1,323,668 --
====================================================================================================================================
Subtotal $ 42,081,614 $2,087,922,448 $(2,122,648,442) $ -- $ 7,355,620 $2,634,072 $ --
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 969,136,004 $ 898,782,312 $(1,867,918,316) $ -- $ -- $ 224,359 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,938,485 1,292,862,033 (1,281,580,303) -- 16,220,215 99,837 --
====================================================================================================================================
Subtotal $ 974,074,489 $2,191,644,345 $(3,149,498,619) $ -- $16,220,215 $ 324,196 $ --
====================================================================================================================================
</Table>
* Net of compensation to counterparties.
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 year ended
October 31, 2005.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Dolby
Laboratories
Inc.-
Class A $ -- $ 5,979,335 $ (5,790,071) $ -- $ -- $ -- $(189,264)
====================================================================================================================================
Total $1,016,156,103 $4,285,546,128 $(5,277,937,132) $ -- $23,575,835 $2,958,268 $(189,264)
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
F-11
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, 2005, the Fund
engaged in securities purchases of $44,125,136 and sales of $68,484,383, which
resulted in net realized gains of $11,978,192.
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, 2005, the
Fund received credits from this arrangement, which resulted in the reduction of
the Fund's total expenses of $174,192.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $20,574
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
F-12
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, 2005, securities with an aggregate value of $15,938,662 were
on loan to brokers. The loans were secured by cash collateral of $16,220,215
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $324,196 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term gain distributions paid during the
years ended October 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -------------------------------------------------------------------------------
Unrealized appreciation-investments 1,287,775,562
- -------------------------------------------------------------------------------
Temporary book/tax differences (942,675)
- -------------------------------------------------------------------------------
Capital loss carryforward (1,362,633,363)
- -------------------------------------------------------------------------------
Shares of beneficial interest 5,400,385,989
===============================================================================
Total net assets $ 5,324,585,513
_______________________________________________________________________________
===============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the deferral of losses on certain option contracts. The tax-basis
unrealized appreciation (depreciation) on investments amount includes
appreciation on foreign currencies of $241,702.
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.
F-13
The Fund utilized $801,650,584 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2010 $ 900,865,804
- ------------------------------------------------------------------------------
October 31, 2011 461,767,559
==============================================================================
Total capital loss carryforward $1,362,633,363
______________________________________________________________________________
==============================================================================
</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, 2005 was $3,516,703,467 and $5,422,976,374, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,355,789,228
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (68,255,368)
==============================================================================
Net unrealized appreciation of investment securities $1,287,533,860
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $4,010,389,293.
</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, 2005, undistributed net
investment income (loss) was increased by $7,671,050, undistributed net realized
gain (loss) was decreased by $265,183 and shares of beneficial interest
decreased by $7,405,867. This reclassification had no effect on the net assets
of the Fund.
F-14
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
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2005(A) 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 12,203,227 $ 273,455,970 21,730,966 $ 462,412,977
- ------------------------------------------------------------------------------------------------------------------------------
Class B 1,541,805 32,330,100 2,742,938 54,987,929
- ------------------------------------------------------------------------------------------------------------------------------
Class C 656,788 13,770,982 1,295,928 26,018,679
- ------------------------------------------------------------------------------------------------------------------------------
Class R 144,888 3,262,864 215,406 4,599,852
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,534,960 87,641,249 1,641,747 36,786,966
==============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 364,102 8,195,899 403,007 8,647,784
- ------------------------------------------------------------------------------------------------------------------------------
Class B (389,686) (8,195,899) (428,243) (8,647,784)
==============================================================================================================================
Reacquired:
Class A (87,735,272) (1,983,113,769) (89,250,664) (1,886,003,061)
- ------------------------------------------------------------------------------------------------------------------------------
Class B (7,925,936) (166,790,580) (6,761,489) (134,506,865)
- ------------------------------------------------------------------------------------------------------------------------------
Class C (2,810,025) (59,005,103) (3,085,701) (61,363,125)
- ------------------------------------------------------------------------------------------------------------------------------
Class R (119,678) (2,724,251) (61,955) (1,314,955)
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class (3,197,909) (79,301,752) (1,437,940) (32,658,335)
==============================================================================================================================
(83,732,736) $(1,880,474,290) (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. ADI has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these entities are also owned beneficially.
F-15
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,
-------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.27 $ 20.61 $ 17.20 $ 19.72 $ 43.50
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.13)(b) (0.12)(b) (0.15)(b) (0.12)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.38 0.79 3.53 (2.37) (16.24)
=================================================================================================================================
Total from investment operations 2.36 0.66 3.41 (2.52) (16.36)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42)
=================================================================================================================================
Net asset value, end of period $ 23.63 $ 21.27 $ 20.61 $ 17.20 $ 19.72
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 11.10% 3.20% 19.83% (12.78)% (43.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,461,224 $5,616,072 $6,825,023 $6,780,055 $9,703,277
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.29%(d) 1.27% 1.29% 1.26% 1.14%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.31%(d) 1.29% 1.30% 1.27% 1.17%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.06)%(a)(d) (0.59)% (0.67)% (0.74)% (0.46)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 59% 50% 47% 57% 75%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $(0.09) and (0.36)%, 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.
(d) Ratios are based on average daily net assets of $5,116,753,365.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.95 $ 19.46 $ 16.36 $ 18.89 $ 42.28
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.26)(b) (0.23)(b) (0.27)(b) (0.28)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 0.75 3.33 (2.26) (15.69)
=============================================================================================================================
Total from investment operations 2.05 0.49 3.10 (2.53) (15.97)
=============================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42)
=============================================================================================================================
Net asset value, end of period $ 22.00 $ 19.95 $ 19.46 $ 16.36 $ 18.89
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 10.28% 2.52% 18.95% (13.39)% (43.49)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $531,341 $617,005 $688,587 $625,294 $818,343
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(d) 1.97% 1.99% 1.96% 1.86%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(d) 1.99% 2.00% 1.97% 1.89%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.78)%(a)(d) (1.29)% (1.37)% (1.44)% (1.17)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 59% 50% 47% 57% 75%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $(0.26) and (1.08)%, 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 returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $578,265,020.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.94 $ 19.46 $ 16.36 $ 18.88 $ 42.27
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.19)(a) (0.26)(b) (0.23)(b) (0.27)(b) (0.29)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.24 0.74 3.33 (2.25) (15.68)
=============================================================================================================================
Total from investment operations 2.05 0.48 3.10 (2.52) (15.97)
=============================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42)
=============================================================================================================================
Net asset value, end of period $ 21.99 $ 19.94 $ 19.46 $ 16.36 $ 18.88
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 10.28% 2.47% 18.95% (13.35)% (43.51)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $132,056 $162,707 $193,585 $184,393 $258,786
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(d) 1.97% 1.99% 1.96% 1.86%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(d) 1.99% 2.00% 1.97% 1.89%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.78)%(a)(d) (1.29)% (1.37)% (1.44)% (1.17)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 59% 50% 47% 57% 75%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $(0.26) and (1.08)%, 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 returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $146,077,184.
F-18
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------- 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) (0.06)(a) (0.17)(b) (0.16)(b) (0.07)(b)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.36 0.78 3.53 (2.49)
================================================================================================================
Total from investment operations 2.30 0.61 3.37 (2.56)
================================================================================================================
Net asset value, end of period $23.54 $21.24 $20.63 $ 17.26
________________________________________________________________________________________________________________
================================================================================================================
Total return(c) 10.83% 2.96% 19.52% (12.92)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,467 $6,202 $2,857 $ 226
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%(d) 1.47% 1.49% 1.53%(e)
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%(d) 1.49% 1.50% 1.54%(e)
================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(a)(d) (0.79)% (0.87)% (1.01)%(e)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 59% 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 $(0.13) and (0.58)%, 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 based on average daily net assets of $7,330,237.
(e) Annualized.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.01 $ 22.17 $ 18.40 $ 21.00 $ 45.55
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(a) (0.01)(b) (0.03)(b) (0.06) 0.01
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.58 0.85 3.80 (2.54) (17.14)
=============================================================================================================================
Total from investment operations 2.68 0.84 3.77 (2.60) (17.13)
=============================================================================================================================
Less distributions from net realized gains -- -- -- -- (7.42)
=============================================================================================================================
Net asset value, end of period $ 25.69 $ 23.01 $ 22.17 $ 18.40 $ 21.00
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 11.65% 3.79% 20.49% (12.38)% (42.80)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $192,498 $164,664 $154,150 $122,746 $150,609
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.76%(d) 0.72% 0.75% 0.80% 0.65%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.78%(d) 0.74% 0.76% 0.81% 0.68%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.47%(a)(d) (0.04)% (0.13)% (0.28)% 0.03%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 59% 50% 47% 57% 75%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $0.03 and 0.17%, 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.
(d) Ratios are based on average daily net assets of $158,805,886.
F-19
NOTE 14--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PWC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal registration from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 15--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on November
14, 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 Aggressive Growth Fund and AIM Weingarten Fund ("Selling Funds"),
a series of AIM Equity Funds (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 February 28, 2006. 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.
NOTE 16--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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 ss. 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
F-20
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Constellation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Constellation Fund (one of the
funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDER (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 4.52%, 4.43%, 6.18% and 9.91%, respectively.
<Table>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
*Domestic equity and income fund
TAX-FREE
INTERNATIONAL/GLOBAL EQUITY
AIM High Income Municipal Fund(1)
AIM Asia Pacific Growth Fund AIM Municipal Bond Fund
AIM Developing Markets Fund AIM Tax-Exempt Cash Fund
AIM European Growth Fund AIM Tax-Free Intermediate Fund
AIM European Small Company Fund(1) Premier Tax-Exempt Portfolio
AIM Global Aggressive Growth Fund
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Value Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark 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>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com CST-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>
AIM DIVERSIFIED DIVIDEND FUND
Annual Report to Shareholders o October 31,2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
AIM DIVERSIFIED DIVIDEND FUND SEEKS TO PROVIDE GROWTH OF CAPITAL WITH A
SECONDARY OBJECTIVE OF CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES o The unmanaged RUSSELL 1000 The Fund provides a complete list of its
--Registered Trademark-- Index holdings four times in each fiscal year,
o Class B shares are not available as an represents the performance of the stocks at the quarter-ends. For the second and
investment for retirement plans of large-capitalization companies. fourth quarters, the lists appear in the
maintained pursuant to Section 401 of Fund's semiannual and annual reports to
the Internal Revenue Code, including o The unmanaged LIPPER LARGE-CAP CORE shareholders. For the first and third
401(k) plans, money purchase pension FUND INDEX represents an average of the quarters, the Fund files the lists with
plans and profit sharing plans. Plans performance of the 30 largest the Securities and Exchange Commission
that had existing accounts invested in large-capitalization core equity funds (SEC) on Form N-Q. The most recent list
Class B shares prior to September 30, tracked by Lipper, Inc., an independent of portfolio holdings is available at
2003, will continue to be allowed to mutual fund performance monitor. AIMinvestments.com. From our home page,
make additional purchases. click on Products & Performance, then
o The Fund is not managed to track the Mutual Funds, then Fund Overview. Select
o Investor Class shares are closed to performance of any particular index, your Fund from the drop-down menu and
most investors. For more information on including the indexes defined here, and click on Complete Quarterly Holdings.
who may continue to invest in the consequently, the performance of the Shareholders can also look up the Fund's
Investor Class shares, please see the Fund may deviate significantly from the Forms N-Q on the SEC's Web site at
prospectus. performance of the indexes. sec.gov. And copies of the Fund's Forms
N-Q may be reviewed and copied at the
o Class R shares are available only to o A direct investment cannot be made in SEC's Public Reference Room at 450 Fifth
certain retirement plans. Please see the an index. Unless otherwise indicated, Street, N.W., Washington, D.C.
prospectus for more information. index results include reinvested 20549-0102. You can obtain information
dividends, and they do not reflect sales on the operation of the Public Reference
PRINCIPAL RISKS OF INVESTING IN THE FUND charges. Performance of an index of Room, including information about
funds reflects fund expenses; duplicating fee charges, by calling
o The Fund may invest up to 25% of its performance of a market index does not. 202-942-8090 or 800-732-0330,or by
assets in the securities of non-U.S. electronic request at the following
issuers. International investing OTHER INFORMATION e-mail address: publicinfo@sec.gov. The
presents certain risks not associated SEC file numbers for the Fund are
with investing solely in the United o The returns shown in management's 811-01424 and 2-25469.
States. These include risks relating to discussion of Fund performance are based
fluctuations in the value of the U.S. on net asset values calculated for A description of the policies and
dollar relative to the values of other shareholder transactions. Generally procedures that the Fund uses to
currencies, the custody arrangements accepted accounting principles require determine how to vote proxies relating
made for the fund's foreign holdings, adjustments to be made to the net assets to portfolio securities is available
differences in accounting, political of the Fund at period end for financial without charge, upon request, from our
risks and the lesser degree of public reporting purposes, and as such, the net Client Services department at
information required to be provided by asset values for shareholder 800-959-4246 or on the AIM Web site,
non-U.S. companies. transactions and the returns based on AIMinvestments.com. On the home page,
those net asset values may differ from scroll down and click on AIM Funds Proxy
ABOUT INDEXES USED IN THIS REPORT the net asset values and returns Policy. The information is also
reported in the Financial Highlights. available on the Securities and Exchange
o The unmanaged Standard & Poor's Commission's Web site, sec.gov.
Composite Index of 500 Stocks (the S&P o Industry classifications used in this
500 --Registered Trademark-- INDEX) is report are generally according to the Information regarding how the Fund voted
an index of common stocks frequently Global Industry Classification Standard, proxies related to its portfolio
used as a general measure of U.S. stock which was developed by and is the securities during the 12 months ended
market performance. exclusive property and a service mark of June 30,2005,is available at our Web
Morgan Stanley Capital International site. Go to AIMinvestments.com, access
o The unmanaged MSCI WORLD INDEX is a Inc. and Standard & Poor's. the About Us tab, click on Required
group of global securities tracked by Notices and then click on Proxy Voting
Morgan Stanley Capital International. Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
=========================================
FUND NASDAQ SYMBOLS
Class A Shares LCEAX
Class B Shares LCEDX
Class C Shares LCEVX
Class R Shares DDFRX
Investor Class Shares LCEIX
=========================================
================================================================================
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 DIVERSIFIED DIVIDEND FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
ROBERT H. GRAHAM
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
[WILLIAMSON diversification of a stock portfolio using the performance
PHOTO] data for the fiscal year ended October 31, 2005. Of course,
your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
MARK H. WILLIAMSON For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President, A I M Advisors, Inc.
AIM Funds
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM DIVERSIFIED DIVIDEND FUND
DEAR AIM FUNDS 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.
[CROCKETT At our most recent meeting in June 2005, your Board
PHOTO] approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
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%
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM DIVERSIFIED DIVIDEND FUND
MANAGEMENT'S DISCUSSION fair valuation with an estimated
OF FUND PERFORMANCE two-year price target for each stock.
=========================================================================================
PERFORMANCE SUMMARY ============================================ 3. Finally, we select companies we
FUND VS. INDEXES believe will provide the best
For the fiscal year ended October combination of dividend income, price
31, 2005, your Fund's performance was in TOTAL RETURNS, 10/31/04-10/31/05, appreciation and the potential for lower
line with that of the broad market, as EXCLUDING APPLICABLE SALES CHARGES. IF risk.
represented by the S&P 500 Index. The SALES CHARGES WERE INCLUDED, RETURNS
Fund's holdings in the financials, WOULD BE LOWER. We consider selling or trimming a
energy and utilities sectors provided stock when it no longer meets our
the strongest contributions for the Class A Shares 8.92% investment criteria, including when:
year. The Fund slightly lagged the
Russell 1000 Index due to its holdings Class B Shares 8.28 o a stock reaches its target price
in health care and its underweight
position in information technology. Class C Shares 8.20 o the company's fundamental business
Consistent with our own long-term prospects deteriorate
investment horizon, we encourage Class R Shares* 8.76
shareholders to avoid placing undue o a more attractive opportunity presents
emphasis on short-term relative Investor Class Shares* 8.94 itself
performance and instead measure the
success of our investment process over S&P 500 Index (Broad Market Index) 8.72 MARKET CONDITIONS AND YOUR FUND
the long term. Our goal is to produce
consistent, strong risk-adjusted returns Russell 1000 Index Despite widespread concern about the
for long-term investors. (Style-specific Index) 10.47 potential impact of rising short-term
interest rates and historically high
Your Fund's long-term performance Lipper Large-Cap Core Fund Index energy prices, the U.S. economy
appears on Pages 6 and 7. (Peer Group Index) 8.67 expanded, inflation remained contained
and corporate profits generally rose
SOURCE: LIPPER, INC. during the fiscal year covered by this
============================================ report. Late in the year, higher energy
prices and rising interest rates
*SHARE CLASS INCEPTED DURING THE ANNUAL threatened to crimp consumer spending,
REPORT PERIOD. SEE PAGE 7 FOR A DETAILED which accounts for approximately
EXPLANATION OF FUND PERFORMANCE. two-thirds of the U.S. economy.
=========================================================================================
HOW WE INVEST We manage risk through a valuation There was wide variance in corporate
framework, careful stock selection and a profits during the year. Rising
We focus on balancing long-term capital rigorous buy and sell discipline. commodity prices caused many companies
appreciation, dividend income and in the energy and utilities sectors to
capital preservation. We seek 1. We look for dividend-paying companies report record earnings and
undervalued companies that are returning with strong profitability, solid balance profits--while profits of companies that
capital to shareholders via dividends sheets and capital allocation policies use a lot of energy, such as chemical
and share repurchases. Every stock in that support sustained or increasing companies and airlines, were depressed.
AIM Diversified Dividend Fund pays a dividends and share repurchases. Not surprisingly, energy and utilities
dividend, and the Fund pays a quarterly stocks led the market with strong
dividend to shareholders. 2. We apply fundamental research, double-digit returns, while consumer
including financial statement analysis
and meetings with companies' management,
to determine a (continued)
========================================== =========================================== =========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Pharmaceuticals 9.4% 1. General Electric Co. 2.6%
[PIE CHART] 2. Integrated Oil & Gas 4.3 2. Emerson Electric Co. 2.0
Information Technology 10.4% 3. Aerospace & Defense 3.9 3. United Technologies Corp. 2.0
Consumer Staples 9.0% 4. Investment Banking & Brokerage 3.9 4. Morgan Stanley 2.0
Energy 5.9% 5. Regional Banks 3.8 5. Johnson & Johnson 1.9
Materials 5.7% 6. Industrial Machinery 3.4 6. Merrill Lynch & Co., Inc. 1.9
Utilities 3.7% 7. Asset Management and 7. Citigroup Inc. 1.9
Telecommunication Services 2.4% Custody Banks 3.2 8. Dominion Resources, Inc. 1.9
Money Market Funds Plus 8. Semiconductors 3.1 9. St. Paul Travelers Cos., 1.8
Other Assets Less Liabilities 4.3% 9. Property & Casualty Insurance 3.0 Inc. (The)
Financials 20.8% 10. Computer Hardware 2.9 10. Microsoft Corp. 1.8
Industrials 13.2% TOTAL NET ASSETS $1.9 billion
Consumer Discretionary 12.6% TOTAL NUMBER OF HOLDINGS* 89
Health Care 12.0%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== =========================================== =========================================
3
AIM DIVERSIFIED DIVIDEND FUND
discretionary stocks lagged, one of only not infringe on the patents of one of THE VIEWS AND OPINIONS EXPRESSED IN
two sectors that declined for the year. Abbott's branded drugs. While MANAGEMENT'S DISCUSSION OF FUND
disappointing, neither of these outcomes PERFORMANCE ARE THOSE OF A I M ADVISORS,
Consistent with our bottom-up has meaningful impact on our view of the INC. THESE VIEWS AND OPINIONS ARE
approach to portfolio construction, we company's fundamental outlook. We have SUBJECT TO CHANGE AT ANY TIME BASED ON
do not make investments or position the not changed our positive, long-term view FACTORS SUCH AS MARKET AND ECONOMIC
Fund based on short-term scenarios and of the company. We believe Abbott's CONDITIONS. THESE VIEWS AND OPINIONS MAY
their impact on economic factors such as pipeline remains underappreciated, and NOT BE RELIED UPON AS INVESTMENT ADVICE
energy prices. Our goal is to produce we continue to expect that the market OR RECOMMENDATIONS, OR AS AN OFFER FOR A
consistent returns over the long term by will reward future successes. PARTICULAR SECURITY. THE INFORMATION IS
adhering to our investment process in NOT A COMPLETE ANALYSIS OF EVERY ASPECT
all market environments. We consistently GANNET CO., the largest newspaper OF ANY MARKET, COUNTRY, INDUSTRY,
seek undervalued companies with dividend publisher in the U.S., was another SECURITY OR THE FUND. STATEMENTS OF FACT
income and price appreciation potential. individual detractor to Fund ARE FROM SOURCES CONSIDERED RELIABLE,
Rather than participate in the hazardous performance. The publishing industry has BUT A I M ADVISORS, INC. MAKES NO
practice of timing short-term market faced a number of challenges this year, REPRESENTATION OR WARRANTY AS TO THEIR
cycles, we focus on analyzing companies' including diminished advertising and COMPLETENESS OR ACCURACY. ALTHOUGH
strength and their total return tough comparisons with last year's HISTORICAL PERFORMANCE IS NO GUARANTEE
potential. political and Olympic advertising. OF FUTURE RESULTS, THESE INSIGHTS MAY
Gannett's stock price was also HELP YOU UNDERSTAND OUR INVESTMENT
During the Fund's fiscal year, strong negatively affected by the company's MANAGEMENT PHILOSOPHY.
stock selection within the financials, pre-announcement of lower-than-expected
energy and utilities sectors contributed earnings for second-quarter 2005. As of See important Fund and index
positively to Fund performance. Within fiscal year-end, we continued to hold disclosures inside front cover.
energy, OCCIDENTAL PETROLEUM was among the stock, viewing the company's
top contributors to Fund performance for management, with its track record of MEGGAN M. WALSH,
the year. The company primarily engages growing free cash flow and implementing Chartered Financial
in the exploration for, development, aggressive stock buybacks, to be [WALSH Analyst, senior
production and marketing of crude oil disciplined and cost conscious. We also PHOTO] portfolio manager,
and natural gas in the United States, viewed the company as both attractively is portfolio manager
Latin America and the Middle East. The valued and solidly competitive with its of AIM Diversified
company benefited as oil and natural gas market-share gaining newspaper, U.S.A. Dividend Fund.
prices reached new highs in the wake of Today, and its emphasis on small and mid She has been in the investment industry
hurricane-related supply disruptions markets where there is less competition. since 1987, and she joined AIM in 1991.
along the U.S. Gulf Coast. Additionally, Ms. Walsh received a B.S. in finance
the market recognized Occidental's Because we adhere to a bottom-up from the University of Maryland and an
best-in-class return on capital and its process, changes to the portfolio are M.B.A. from Loyola.
position as low-cost leader in the stock specific and based on valuation
integrated oil and gas industry. opportunities rather than relative
sector weights. Our process led us to Assisted by the Diversified Dividend
Within financials, brokerage firm reduce our exposure of select holdings Team
MERRILL LYNCH also benefited Fund in energy as valuation targets were
performance for the period. The company eclipsed after several years of sector
has the largest retail brokerage outperformance and the risk-to-reward
franchise while retail investor activity opportunity became implicit in their
appears to be stabilizing. Over the past current valuations. In general, proceeds
few years, management has embarked on a from such sales were allocated to
restructuring program to focus on measured investments across sectors
profitability as well as growth. They where we see more attractive long-term
have succeeded in improving operating wealth creation opportunities.
margins and efficiencies company wide.
They maintain peer-leading excess IN CLOSING
capital and have recently undertaken a
significant share-repurchase program. At the close of the fiscal year, the
Fund was positioned in line with its
On the other hand, relative to the mandate as a core fund. It had exposure
Russell 1000 Index, the Fund's holdings to all broad market sectors, and we
in the health care sector returned less focused on dividend-paying companies
than the index. In particular, ABBOTT supported by relatively predictable cash
LABORATORIES delivered a disappointing flow and improving capital allocation
second quarter to investors because of practices. As a result of this
lower-than-expected earnings. The stock positioning, the Fund continued to [RIGHT ARROW GRAPHIC]
continued to react negatively due to two benefit from a trend of dividend
separate announcements: a negative increases.
review from the FDA for its cancer drug FOR A PRESENTATION OF YOUR FUND'S
and a court ruling that a competitor's Thank you for your investment in AIM LONG-TERM PERFORMANCE, PLEASE SEE PAGES
generic offering does Diversified Dividend Fund. 6 AND 7.
4
AIM DIVERSIFIED DIVIDEND FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE actual account values and actual year before expenses, which is not the
expenses. You may use the information in Fund's actual return. The Fund's actual
this table, together with the amount you cumulative total returns at net asset
As a shareholder of the Fund, you incur invested, to estimate the expenses that value after expenses for the period
two types of costs: (1) transaction you paid over the period. Simply divide ended October 31, 2005, appear in the
costs, which may include sales charges your account value by $1,000 (for table "Cumulative Total Returns" on Page
(loads) on purchase payments; contingent example, an $8,600 account value divided 7.
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the
and redemption fees, if any; and (2) result by the number in the table under The hypothetical account values and
ongoing costs, including management the heading entitled "Actual Expenses expenses may not be used to estimate the
fees; distribution and/or service fees Paid During Period" to estimate the actual ending account balance or
(12b-1); and other Fund expenses. This expenses you paid on your account during expenses you paid for the period. You
example is intended to help you this period (July 15, 2005, through may use this information to compare the
understand your ongoing costs (in October 31, 2005 for the Investor Class ongoing costs of investing in the Fund
dollars) of investing in the Fund and to shares and October 25, 2005, through and other funds. To do so, compare this
compare these costs with ongoing costs October 31, 2005 for the Class R 5% hypothetical example with the 5%
of investing in other mutual funds. With shares). Because the actual ending hypothetical examples that appear in the
the exception of the actual ending account value and expense information in shareholder reports of the other funds.
account value and expenses of the the example is not based upon a
Investor and R Class shares, the example six-month period for the Investor and R Please note that the expenses shown
is based on an investment of $1,000 Class shares, the ending account value in the table are meant to highlight your
invested at the beginning of the period and expense information may not provide ongoing costs only and do not reflect
and held for the entire period May 1, a meaningful comparison to mutual funds any transactional costs, such as sales
2005, through October 31, 2005. The that provide such information for a full charges (loads) on purchase payments,
actual ending account value and expenses six-month period. contingent deferred sales charges on
of the Investor and R Class shares in redemptions, and redemption fees, if
the below example are based on an HYPOTHETICAL EXAMPLE FOR any. Therefore, the hypothetical
investment of $1,000 invested on July COMPARISON PURPOSES information is useful in comparing
15, 2005, and October 25, 2005, ongoing costs only and will not help you
respectively (the date the share classes The table below also provides determine the relative total costs of
commenced sales), and held through information about hypothetical account owning different funds. In addition, if
October 31, 2005. values and hypothetical expenses based these transactional costs were included,
on the Fund's actual expense ratio and your costs would have been higher.
ACTUAL EXPENSES an assumed rate of return of 5% per
The table below provides information
about
====================================================================================================================================
HYPOTHETICAL(3)
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
A $1,000.00 $1,027.70 $5.11 $1,020.16 $5.09 1.00%
B 1,000.00 1,024.60 8.42 1,016.89 8.39 1.65
C 1,000.00 1,024.70 8.42 1,016.89 8.39 1.65
R 1,000.00 1,010.00 0.24 1,018.90 6.36 1.25
Investor 1,000.00 979.20 2.87 1,020.32 4.94 0.97
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
2005 (July 15, 2005, through October 31, 2005, for the Investor Class shares and October 25, 2005, through October 31, 2005, for
the Class R shares), after actual expenses and will differ from the hypothetical ending account value which is based on the
Fund's expense ratio and a hypothetical annual return of 5% before expenses. The Fund's actual cumulative total returns at net
asset value after expenses for the period ended October 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half-year. For the Investor Class shares, actual expenses are
equal to the annualized expense ratio indicated above multiplied by the average account value over the period, multiplied by 109
(July 15, 2005, through October 31, 2005)/365. For the Class R shares, actual expenses are equal to the annualized expense ratio
indicated above multiplied by the average account value over the period, multiplied by 7 (October 25, 2005, through October 31,
2005)/365. Because the Investor and R share classes have not been in existence for a full six-month period, the actual ending
account value and expense information shown may not provide a meaningful comparison to Fund expense information of classes that
show such data for a full six-month period and, because the actual ending account value and expense information in the expense
example covers a short time period, return and expense data may not be indicative of return and expense data for longer time
periods.
(3) Hypothetical expenses are equal to the annualized expense ratio indicated
above multiplied by the average account value over the period, multiplied by
184/365 to reflect a one-half year period. The hypothetical ending account [ARROW
value and expenses may be used to compare ongoing costs of investing in the BUTTON For More Information Visit
Investor and R Class shares of the Fund and other funds because such data is IMAGE] AIMinvestments.com
based on a full six-month period.
5
AIM DIVERSIFIED DIVIDEND FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND AND INDEX DATA FROM 12/31/01
[MOUNTAIN CHART]
DATE AIM DIVERSIFIED DIVIDEND AIM DIVERSIFIED DIVIDEND AIM DIVERSIFIED DIVIDEND RUSSELL S&P 500 LIPPER LARGE-CAP
FUND-CLASS A SHARES FUND-CLASS B SHARES FUND-CLASS C SHARES 1000 INDEX INDEX CORE FUND INDEX
12/31/01 $9450 $10000 $10000 $10000 $10000 $10000
1/02 9545 10100 10100 9873 9854 9842
2/02 9479 10020 10020 9676 9664 9677
3/02 9857 10420 10410 10074 10028 10007
4/02 9583 10120 10120 9497 9420 9483
5/02 9573 10110 10109 9413 9351 9414
6/02 9082 9580 9580 8718 8685 8764
7/02 8355 8820 8809 8073 8008 8113
8/02 8440 8890 8890 8115 8061 8180
9/02 7798 8220 8210 7244 7185 7385
10/02 8223 8650 8650 7846 7817 7959
11/02 8601 9049 9040 8305 8277 8314
12/02 8232 8659 8650 7835 7791 7877
1/03 7920 8319 8321 7645 7587 7670
2/03 7769 8159 8151 7527 7473 7568
3/03 7854 8239 8240 7604 7545 7632
4/03 8393 8809 8801 8218 8167 8194
5/03 8903 9340 9331 8687 8597 8591
6/03 8968 9403 9395 8801 8706 8676
7/03 9082 9513 9505 8977 8860 8813
8/03 9272 9703 9695 9159 9032 8983
9/03 9233 9658 9649 9065 8937 8867
10/03 9736 10178 10169 9597 9442 9301
11/03 9878 10319 10309 9712 9525 9379
12/03 10447 10910 10901 10177 10024 9830
1/04 10552 11010 11001 10370 10208 9969
2/04 10781 11242 11232 10514 10350 10087
3/04 10691 11148 11139 10370 10194 9929
4/04 10768 11219 11209 10183 10034 9775
5/04 10806 11249 11239 10330 10171 9874
6/04 11012 11467 11457 10516 10369 10051
7/04 10763 11195 11186 10147 10026 9695
8/04 10926 11367 11347 10197 10066 9701
9/04 11018 11445 11435 10325 10175 9812
10/04 11036 11466 11456 10492 10331 9945
11/04 11402 11838 11828 10941 10749 10322
12/04 11893 12343 12333 11337 11114 10645
1/05 11716 12157 12138 11052 10843 10404
2/05 12001 12435 12426 11300 11071 10599
3/05 11834 12259 12251 11121 10876 10404
4/05 11695 12115 12096 10916 10669 10173
5/05 11882 12300 12292 11303 11009 10502
6/05 11970 12382 12364 11349 11024 10538
7/05 12337 12764 12746 11791 11434 10913
8/05 12189 12599 12580 11689 11330 10813
9/05 12129 12537 12518 11797 11422 10938
10/05 12020 12213 12393 11590 11231 10807
SOURCE: LIPPER, INC.
The data shown in the chart include reinvested distributions, applicable sales
charges, Fund expenses and management fees. Index results include reinvested
dividends, but they do not reflect sales charges. Results for Class B shares are
calculated as if a hypothetical shareholder had liquidated his entire investment
in the Fund at the close of the reporting period and paid the applicable
contingent deferred sales charges. Performance of an index of funds reflects
fund expenses and management fees; performance of a market index does not.
Performance shown in the chart and table(s) does not reflect deduction of taxes
a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
6
AIM DIVERSIFIED DIVIDEND FUND
========================================== =========================================== =========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 2.77%
Inception (12/31/01) 4.92% CLASS A SHARES
1 Year 2.91 Inception (12/31/01) 5.29% Class B Shares 2.46
1 Year 4.02
CLASS B SHARES Class C Shares 2.47
Inception (12/31/01) 5.35% CLASS B SHARES
1 Year 3.28 Inception (12/31/01) 5.76% Investor Class Shares 2.80
1 Year 4.55
CLASS C SHARES Class R Shares 2.70
Inception (12/31/01) 5.76% CLASS C SHARES =========================================
1 Year 7.20 Inception (12/31/01) 6.17%
1 Year 8.47
INVESTOR CLASS SHARES
Inception 6.48% INVESTOR CLASS SHARES
1 Year 8.94 Inception 6.89%
1 Year 10.12
CLASS R SHARES
Inception 6.31%
1 Year 8.76
========================================== ===========================================
INVESTOR CLASS SHARES' INCEPTION DATE IS THE PERFORMANCE DATA QUOTED REPRESENT CLASS R SHARES DO NOT HAVE A FRONT-END
JULY 15, 2005. RETURNS SINCE THAT DATE PAST PERFORMANCE AND CANNOT GUARANTEE SALES CHARGE; RETURNS SHOWN ARE AT NET
ARE HISTORICAL RETURNS. ALL OTHER COMPARABLE FUTURE RESULTS; CURRENT ASSET VALUE AND DO NOT REFLECT A 0.75%
RETURNS ARE BLENDED RETURNS OF PERFORMANCE MAY BE LOWER OR HIGHER. CDSC THAT MAY BE IMPOSED ON A TOTAL
HISTORICAL INVESTOR CLASS SHARE PLEASE VISIT AIMINVESTMENTS.COM FOR THE REDEMPTION OF RETIREMENT PLAN ASSETS
PERFORMANCE AND RESTATED CLASS A SHARE MOST RECENT MONTH-END PERFORMANCE. WITHIN THE FIRST YEAR. INVESTOR CLASS
PERFORMANCE (FOR PERIODS PRIOR TO THE PERFORMANCE FIGURES REFLECT REINVESTED SHARES DO NOT HAVE A FRONT-END SALES
INCEPTION DATE OF INVESTOR CLASS SHARES) DISTRIBUTIONS, CHANGES IN NET ASSET CHARGE OR A CDSC; THEREFORE, PERFORMANCE
AT NET ASSET VALUE AND REFLECT THE VALUE AND THE EFFECT OF THE MAXIMUM IS AT NET ASSET VALUE.
HIGHER RULE 12b-1 FEES APPLICABLE TO SALES CHARGE UNLESS OTHERWISE STATED.
CLASS A SHARES. CLASS A SHARES' INVESTMENT RETURN AND PRINCIPAL VALUE THE PERFORMANCE OF THE FUND'S SHARE
INCEPTION DATE IS DECEMBER 31, 2001. WILL FLUCTUATE SO THAT YOU MAY HAVE A CLASSES WILL DIFFER DUE TO DIFFERENT
GAIN OR LOSS WHEN YOU SELL SHARES. SALES CHARGE STRUCTURES AND CLASS
CLASS R SHARES' INCEPTION DATE IS EXPENSES.
OCTOBER 25, 2005. RETURNS SINCE THAT CLASS A SHARE PERFORMANCE REFLECTS
DATE ARE HISTORICAL RETURNS. ALL OTHER THE MAXIMUM 5.50% SALES CHARGE, AND HAD THE ADVISOR NOT WAIVED FEES
RETURNS ARE BLENDED RETURNS OF CLASS B AND CLASS C SHARE PERFORMANCE AND/OR REIMBURSED EXPENSES, PERFORMANCE
HISTORICAL CLASS R SHARE PERFORMANCE AND REFLECTS THE APPLICABLE CONTINGENT WOULD HAVE BEEN LOWER.
RESTATED CLASS A SHARE PERFORMANCE (FOR DEFERRED SALES CHARGE (CDSC) FOR THE
PERIODS PRIOR TO THE INCEPTION DATE OF PERIOD INVOLVED. THE CDSC ON CLASS B
CLASS R SHARES) AT NET ASSET VALUE, SHARES DECLINES FROM 5% BEGINNING AT THE
ADJUSTED TO REFLECT THE HIGHER RULE TIME OF PURCHASE TO 0% AT THE BEGINNING
12b-1 FEES APPLICABLE TO CLASS R SHARES. OF THE SEVENTH YEAR. THE CDSC ON CLASS C
CLASS A SHARES' INCEPTION DATE IS SHARES IS 1% FOR THE FIRST YEAR AFTER
DECEMBER 31, 2001. PURCHASE.
7
AIM DIVERSIFIED DIVIDEND FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Equity o The quality of services to be provided Fund's rate was below the median rate of
Funds (the "Board") oversees the by AIM. The Board reviewed the the funds advised by other advisors with
management of AIM Diversified Dividend credentials and experience of the investment strategies comparable to
Fund (the "Fund") and, as required by officers and employees of AIM who will those of the Fund that the Board
law, determines annually whether to provide investment advisory services to reviewed. The Board noted that AIM has
approve the continuance of the Fund's the Fund. In reviewing the agreed to waive advisory fees of the
advisory agreement with A I M Advisors, qualifications of AIM to provide Fund and to limit the Fund's total
Inc. ("AIM"). Based upon the investment advisory services, the Board operating expenses, as discussed below.
recommendation of the Investments reviewed the qualifications of AIM's Based on this review, the Board
Committee of the Board, which is investment personnel and considered such concluded that the advisory fee rate for
comprised solely of independent issues as AIM's portfolio and product the Fund under the Advisory Agreement
trustees, at a meeting held on June 30, review process, various back office was fair and reasonable.
2005, the Board, including all of the support functions provided by AIM and
independent trustees, approved the AIM's equity and fixed income trading o Expense limitations and fee waivers.
continuance of the advisory agreement operations. Based on the review of these The Board noted that AIM has
(the "Advisory Agreement") between the and other factors, the Board concluded contractually agreed to waive advisory
Fund and AIM for another year, effective that the quality of services to be fees of the Fund through June 30, 2006
July 1, 2005. provided by AIM was appropriate and that to the extent necessary so that the
AIM currently is providing satisfactory advisory fees payable by the Fund do not
The Board considered the factors services in accordance with the terms of exceed a specified maximum advisory fee
discussed below in evaluating the the Advisory Agreement. rate, which maximum rate includes
fairness and reasonableness of the breakpoints and is based on net asset
Advisory Agreement at the meeting on o The performance of the Fund relative levels. The Board considered the
June 30, 2005 and as part of the Board's to comparable funds. The Board reviewed contractual nature of this fee waiver
ongoing oversight of the Fund. In their the performance of the Fund during the and noted that it remains in effect
deliberations, the Board and the past one and three calendar years until June 30, 2006. The Board noted
independent trustees did not identify against the performance of funds advised that AIM has contractually agreed to
any particular factor that was by other advisors with investment waive fees and/or limit expenses of the
controlling, and each trustee attributed strategies comparable to those of the Fund through October 31, 2005 in an
different weights to the various Fund. The Board noted that the Fund's amount necessary to limit total annual
factors. performance in such periods was above operating expenses to a specified
the median performance of such percentage of average daily net assets
One of the responsibilities of the comparable funds. Based on this review, for each class of the Fund. The Board
Senior Officer of the Fund, who is the Board concluded that no changes also noted that AIM has voluntarily
independent of AIM and AIM's affiliates, should be made to the Fund and that it agreed to waive fees and/or limit
is to manage the process by which the was not necessary to change the Fund's expenses of the Fund in an amount
Fund's proposed management fees are portfolio management team at this time. necessary to limit total annual
negotiated to ensure that they are operating expenses to a specified
negotiated in a manner which is at arm's o The performance of the Fund relative percentage of average daily net assets
length and reasonable. To that end, the to indices. The Board reviewed the for each class of the Fund that is lower
Senior Officer must either supervise a performance of the Fund during the past than the contractual agreement. The
competitive bidding process or prepare one and three calendar years against the Board considered the contractual and
an independent written evaluation. The performance of the Lipper Large-Cap Core voluntary nature of these fee
Senior Officer has recommended an Index. The Board noted that the Fund's waivers/expense limitations and noted
independent written evaluation in lieu performance in such periods was above that the contractual agreement remains
of a competitive bidding process and, the performance of such Index. Based on in effect until October 31, 2005 and
upon the direction of the Board, has this review, the Board concluded that no that the voluntary agreement can be
prepared such an independent written changes should be made to the Fund and terminated at any time by AIM without
evaluation. Such written evaluation also that it was not necessary to change the further notice to investors. The Board
considered certain of the factors Fund's portfolio management team at this considered the effect these fee
discussed below. In addition, as time. waivers/expense limitations would have
discussed below, the Senior Officer made on the Fund's estimated expenses and
certain recommendations to the Board in o Meeting with the Fund's portfolio concluded that the levels of fee
connection with such written evaluation. managers and investment personnel. With waivers/expense limitations for the Fund
respect to the Fund, the Board is were fair and reasonable.
The discussion below serves as a meeting periodically with such Fund's
summary of the Senior Officer's portfolio managers and/or other o Breakpoints and economies of scale.
independent written evaluation and investment personnel and believes that The Board reviewed the structure of the
recommendations to the Board in such individuals are competent and able Fund's advisory fee under the Advisory
connection therewith, as well as a to continue to carry out their Agreement, noting that it includes two
discussion of the material factors and responsibilities under the Advisory breakpoints. The Board reviewed the
the conclusions with respect thereto Agreement. level of the Fund's advisory fees, and
that formed the basis for the Board's noted that such fees, as a percentage of
approval of the Advisory Agreement. o Overall performance of AIM. The Board the Fund's net assets, would decrease as
After consideration of all of the considered the overall performance of net assets increase because the Advisory
factors below and based on its informed AIM in providing investment advisory and Agreement includes breakpoints. The
business judgment, the Board determined portfolio administrative services to the Board noted that, due to the Fund's
that the Advisory Agreement is in the Fund and concluded that such performance current asset levels and the way in
best interests of the Fund and its was satisfactory. which the advisory fee breakpoints have
shareholders and that the compensation been structured, the Fund has yet to
to AIM under the Advisory Agreement is o Fees relative to those of clients of benefit from the breakpoints. The Board
fair and reasonable and would have been AIM with comparable investment noted that AIM has contractually agreed
obtained through arm's length strategies. The Board noted that AIM to waive advisory fees of the Fund
negotiations. does not serve as an advisor to other through June 30, 2006 to the extent
mutual funds or other clients with necessary so that the advisory fees
o The nature and extent of the advisory investment strategies comparable to payable by the Fund do not exceed a
services to be provided by AIM. The those of the Fund. specified maximum advisory fee rate,
Board reviewed the services to be which maximum rate includes breakpoints
provided by AIM under the Advisory o Fees relative to those of comparable and is based on net asset levels. The
Agreement. Based on such review, the funds with other advisors. The Board Board concluded that the Fund's fee
Board concluded that the range of reviewed the advisory fee rate for the levels under the Advisory Agreement
services to be provided by AIM under the Fund under the Advisory Agreement. The therefore would reflect economies of
Advisory Agreement was appropriate and Board compared effective contractual scale at higher asset levels and that it
that AIM currently is providing services advisory fee rates at a common asset
in accordance with the terms of the level and noted that the
Advisory Agreement. (continued)
8
AIM DIVERSIFIED DIVIDEND FUND
was not necessary to change the advisory financial condition, the Board concluded
fee breakpoints in the Fund's advisory that the compensation to be paid by the
fee schedule. Fund to AIM under its Advisory Agreement
was not excessive.
o Investments in affiliated money market
funds. The Board also took into account o Benefits of soft dollars to AIM. The
the fact that uninvested cash and cash Board considered the benefits realized
collateral from securities lending by AIM as a result of brokerage
arrangements (collectively, "cash transactions executed through "soft
balances") of the Fund may be invested dollar" arrangements. Under these
in money market funds advised by AIM arrangements, brokerage commissions paid
pursuant to the terms of an SEC by the Fund and/or other funds advised
exemptive order. The Board found that by AIM are used to pay for research and
the Fund may realize certain benefits execution services. This research is
upon investing cash balances in AIM used by AIM in making investment
advised money market funds, including a decisions for the Fund. The Board
higher net return, increased liquidity, concluded that such arrangements were
increased diversification or decreased appropriate.
transaction costs. The Board also found
that the Fund will not receive reduced o AIM's financial soundness in light of
services if it invests its cash balances the Fund's needs. The Board considered
in such money market funds. The Board whether AIM is financially sound and has
noted that, to the extent the Fund the resources necessary to perform its
invests in affiliated money market obligations under the Advisory
funds, AIM has voluntarily agreed to Agreement, and concluded that AIM has
waive a portion of the advisory fees it the financial resources necessary to
receives from the Fund attributable to fulfill its obligations under the
such investment. The Board further Advisory Agreement.
determined that the proposed securities
lending program and related procedures o Historical relationship between the
with respect to the lending Fund is in Fund and AIM. In determining whether to
the best interests of the lending Fund continue the Advisory Agreement for the
and its respective shareholders. The Fund, the Board also considered the
Board therefore concluded that the prior relationship between AIM and the
investment of cash collateral received Fund, as well as the Board's knowledge
in connection with the securities of AIM's operations, and concluded that
lending program in the money market it was beneficial to maintain the
funds according to the procedures is in current relationship, in part, because
the best interests of the lending Fund of such knowledge. The Board also
and its respective shareholders. reviewed the general nature of the
non-investment advisory services
o Independent written evaluation and currently performed by AIM and its
recommendations of the Fund's Senior affiliates, such as administrative,
Officer. The Board noted that, upon transfer agency and distribution
their direction, the Senior Officer of services, and the fees received by AIM
the Fund, who is independent of AIM and and its affiliates for performing such
AIM's affiliates, had prepared an services. In addition to reviewing such
independent written evaluation in order services, the trustees also considered
to assist the Board in determining the the organizational structure employed by
reasonableness of the proposed AIM and its affiliates to provide those
management fees of the AIM Funds, services. Based on the review of these
including the Fund. The Board noted that and other factors, the Board concluded
the Senior Officer's written evaluation that AIM and its affiliates were
had been relied upon by the Board in qualified to continue to provide
this regard in lieu of a competitive non-investment advisory services to the
bidding process. In determining whether Fund, including administrative, transfer
to continue the Advisory Agreement for agency and distribution services, and
the Fund, the Board considered the that AIM and its affiliates currently
Senior Officer's written evaluation and are providing satisfactory
the recommendation made by the Senior non-investment advisory services.
Officer to the Board that the Board
consider implementing a process to o Other factors and current trends. In
assist them in more closely monitoring determining whether to continue the
the performance of the AIM Funds. The Advisory Agreement for the Fund, the
Board concluded that it would be Board considered the fact that AIM,
advisable to implement such a process as along with others in the mutual fund
soon as reasonably practicable. industry, is subject to regulatory
inquiries and litigation related to a
o Profitability of AIM and its wide range of issues. The Board also
affiliates. The Board reviewed considered the governance and compliance
information concerning the profitability reforms being undertaken by AIM and its
of AIM's (and its affiliates') affiliates, including maintaining an
investment advisory and other activities internal controls committee and
and its financial condition. The Board retaining an independent compliance
considered the overall profitability of consultant, and the fact that AIM has
AIM, as well as the profitability of AIM undertaken to cause the Fund to operate
in connection with managing the Fund. in accordance with certain governance
The Board noted that AIM's operations policies and practices. The Board
remain profitable, although increased concluded that these actions indicated a
expenses in recent years have reduced good faith effort on the part of AIM to
AIM's profitability. Based on the review adhere to the highest ethical standards,
of the profitability of AIM's and its and determined that the current
affiliates' investment advisory and regulatory and litigation environment to
other activities and its which AIM is subject should not prevent
the Board from continuing the Advisory
Agreement for the Fund.
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM DIVERSIFIED DIVIDEND FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception 6.49% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 1 Year 9.01 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 6 Months* 2.86 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans *Cumulative total return that has not OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. been annualized FULL REPORT FOR INFORMATION ON
COMPARATIVE BENCHMARKS. PLEASE CONSULT
======================================== YOUR FUND PROSPECTUS FOR MORE
INFORMATION. FOR THE MOST CURRENT
INSTITUTIONAL CLASS SHARES HAVE NO SALES MONTH-END PERFORMANCE, PLEASE CALL
CHARGE; THEREFORE, PERFORMANCE IS AT NET 800-451-4246 OR VISIT
ASSET VALUE (NAV). AIMINVESTMENTS.COM.
INSTITUTIONAL CLASS SHARES'
INCEPTION DATE IS OCTOBER 25, 2005.
RETURNS SINCE THAT DATE ARE HISTORICAL
RETURNS. ALL OTHER RETURNS ARE BLENDED
RETURNS OF HISTORICAL INSTITUTIONAL
CLASS SHARE PERFORMANCE AND RESTATED
CLASS A SHARE PERFORMANCE (FOR PERIODS
PRIOR TO THE INCEPTION DATE OF
INSTITUTIONAL CLASS SHARES) AT NET ASSET
VALUE AND REFLECT THE HIGHER RULE 12B-1
FEES APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS DECEMBER 31,
2001. PERFORMANCE OF INSTITUTIONAL CLASS
SHARES WILL DIFFER FROM PERFORMANCE OF
OTHER SHARE CLASSES DUE TO DIFFERING
SALES CHARGES AND CLASS EXPENSES.
========================================
NASDAQ SYMBOL DDFIX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM DDI-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE may use the information in this table, hypothetical expenses based on the
together with the amount you invested, Fund's actual expense ratio and an
As a shareholder of the Fund, you incur to estimate the expenses that you paid assumed rate of return of 5% per year
ongoing costs, including management over the period. Simply divide your before expenses, which is not the Fund's
fees and other Fund expenses. This account value by $1,000 (for example, an actual return. The hypothetical account
example is intended to help you $8,600 account value divided by $1,000 = values and expenses may not be used to
understand your ongoing costs (in 8.6), then multiply the result by the estimate the actual ending account
dollars) of investing in the Fund and to number in the table under the heading balance or expenses you paid for the
compare these costs with ongoing costs entitled "Actual Expenses Paid During period. You may use this information to
of investing in other mutual funds. The Period" to estimate the expenses you compare the ongoing costs of investing
actual ending account value and expenses paid on your account during the period, in the Fund and other funds. To do so,
in the below example are based on an October 25,2005, through October 31, compare this 5% hypothetical example
investment of $1,000 invested on October 2005. Because the actual ending account with the 5% hypothetical examples that
25, 2005 (the date the share class value and expense information in the appear in the shareholder reports of the
commenced operations) and held through example is not based upon a six month other funds.
October 31, 2005. The hypothetical period, the ending account value and
ending account value and expenses in the expense information may not provide a Please note that the expenses
below example are based on an investment meaningful comparison to mutual funds shown in the table are meant to
of $1,000 invested at the beginning of that provide such information for a full highlight your ongoing costs only.
the period and held for the entire six six month period. Therefore, the hypothetical information
month period May 1, 2005, through is useful in comparing ongoing costs
October 31, 2005. HYPOTHETICAL EXAMPLE FOR COMPARISON only, and will not help you determine
PURPOSES the relative total costs of owning
ACTUAL EXPENSES different funds.
The table below also provides
The table below provides information information about hypothetical account
about actual account values and actual values and
expenses. You
====================================================================================================================================
ACTUAL HYPOTHETICAL(3)
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (10/25/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD RATIO
Institutional(4) $ 1,000.00 $ 1,010.80 $ 0.13 $ 1,021.83 $ 3.41 0.67%
(1) The actual ending account value is based on the actual total return of the Fund for the period October 25, 2005, through
October 31, 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 over the six month period May 1, 2005, through
October 31, 2005.
(2) Actual expenses are equal to the annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 7 (October 25, 2005, through October 31, 2005)/365. Because the share class has not been in existence
for a full six month period, the actual ending account value and expense information shown may not provide a meaningful
comparison to fund expense information of classes that show such data for a full six month period and, because the actual
ending account value and expense information in the expense example covers a short time period, return and expense data may
not be indicative of return and expense data for longer time periods.
(3) Hypothetical expenses are equal to the annualized as indicated above multiplied by the average account value over the period,
multiplied by 184/365 to reflect a one-half year period. The hypothetical ending account value and expenses may be used to
compare ongoing costs of investing the Institutional Class shares of the Fund and other funds because such data is based on a
full six month period.
(4) Institutional Class shares commenced operations October 25, 2005.
====================================================================================================================================
AIMINVESTMENT.COM DDI-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS-95.72%
AEROSPACE & DEFENSE-3.92%
Honeywell International Inc. 473,100 $ 16,180,020
- ---------------------------------------------------------------------------
Raytheon Co. 542,400 20,041,680
- ---------------------------------------------------------------------------
United Technologies Corp. 744,600 38,183,088
===========================================================================
74,404,788
===========================================================================
ALUMINUM-0.60%
Alcoa Inc. 464,800 11,289,992
===========================================================================
APPAREL RETAIL-2.74%
Limited Brands, Inc. 1,576,600 31,547,766
- ---------------------------------------------------------------------------
TJX Cos., Inc. (The) 945,400 20,354,462
===========================================================================
51,902,228
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.83%
V. F. Corp. 301,300 15,742,925
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.18%
Bank of New York Co., Inc. (The) 777,600 24,331,104
- ---------------------------------------------------------------------------
Federated Investors, Inc.-Class B 409,600 14,340,096
- ---------------------------------------------------------------------------
State Street Corp. 390,400 21,561,792
===========================================================================
60,232,992
===========================================================================
AUTO PARTS & EQUIPMENT-1.32%
Johnson Controls, Inc. 368,300 25,062,815
===========================================================================
BREWERS-1.37%
Anheuser-Busch Cos., Inc. 627,400 25,886,524
===========================================================================
CASINOS & GAMING-0.77%
International Game Technology 550,441 14,581,182
===========================================================================
COMMUNICATIONS EQUIPMENT-0.73%
QUALCOMM Inc. 348,300 13,848,408
===========================================================================
COMPUTER HARDWARE-2.90%
Hewlett-Packard Co. 906,800 25,426,672
- ---------------------------------------------------------------------------
International Business Machines Corp. 360,000 29,476,800
===========================================================================
54,903,472
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.37%
Deere & Co. 429,200 26,043,856
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.85%
Automatic Data Processing, Inc. 290,000 13,531,400
- ---------------------------------------------------------------------------
First Data Corp. 531,300 21,491,085
===========================================================================
35,022,485
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
DISTRIBUTORS-0.70%
Genuine Parts Co. 300,300 $ 13,324,311
===========================================================================
DIVERSIFIED BANKS-2.39%
Bank of America Corp. 422,500 18,480,150
- ---------------------------------------------------------------------------
U.S. Bancorp 419,200 12,399,936
- ---------------------------------------------------------------------------
Wachovia Corp. 287,500 14,524,500
===========================================================================
45,404,586
===========================================================================
DIVERSIFIED CHEMICALS-1.68%
E. I. du Pont de Nemours and Co. 308,100 12,844,689
- ---------------------------------------------------------------------------
PPG Industries, Inc. 317,200 19,022,484
===========================================================================
31,867,173
===========================================================================
DRUG RETAIL-0.85%
Walgreen Co. 355,100 16,132,193
===========================================================================
ELECTRIC UTILITIES-1.07%
Exelon Corp. 388,800 20,229,264
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.04%
Emerson Electric Co. 555,500 38,635,025
===========================================================================
FOREST PRODUCTS-1.11%
Weyerhaeuser Co. 332,600 21,066,884
===========================================================================
GENERAL MERCHANDISE STORES-1.32%
Target Corp. 449,900 25,054,931
===========================================================================
HEALTH CARE EQUIPMENT-2.58%
Baxter International Inc. 505,000 19,306,150
- ---------------------------------------------------------------------------
Medtronic, Inc. 522,400 29,599,184
===========================================================================
48,905,334
===========================================================================
HOME IMPROVEMENT RETAIL-1.23%
Home Depot, Inc. (The) 569,500 23,372,280
===========================================================================
HOUSEHOLD APPLIANCES-0.54%
Snap-on Inc. 286,500 10,319,730
===========================================================================
HOUSEHOLD PRODUCTS-1.49%
Colgate-Palmolive Co. 234,800 12,435,008
- ---------------------------------------------------------------------------
Kimberly-Clark Corp. 279,600 15,892,464
===========================================================================
28,327,472
===========================================================================
HYPERMARKETS & SUPER CENTERS-0.78%
Wal-Mart Stores, Inc. 312,400 14,779,644
===========================================================================
INDUSTRIAL CONGLOMERATES-2.55%
General Electric Co. 1,428,000 48,423,480
===========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
INDUSTRIAL GASES-1.58%
Praxair, Inc. 607,957 $ 30,039,155
===========================================================================
INDUSTRIAL MACHINERY-3.35%
Illinois Tool Works Inc. 336,617 28,531,657
- ---------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd.-Class A (Bermuda) 609,200 23,021,668
- ---------------------------------------------------------------------------
Pentair, Inc. 370,500 12,037,545
===========================================================================
63,590,870
===========================================================================
INSURANCE BROKERS-1.14%
Marsh & McLennan Cos., Inc. 743,800 21,681,770
===========================================================================
INTEGRATED OIL & GAS-4.30%
Eni S.p.A. (Italy)(a) 334,800 8,956,733
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 450,500 25,291,070
- ---------------------------------------------------------------------------
Occidental Petroleum Corp. 285,900 22,551,792
- ---------------------------------------------------------------------------
TOTAL S.A. (France)(a) 98,151 24,720,602
===========================================================================
81,520,197
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.42%
BellSouth Corp. 1,148,300 29,878,766
- ---------------------------------------------------------------------------
SBC Communications Inc. 667,300 15,915,105
===========================================================================
45,793,871
===========================================================================
INVESTMENT BANKING & BROKERAGE-3.89%
Merrill Lynch & Co., Inc. 552,600 35,775,324
- ---------------------------------------------------------------------------
Morgan Stanley 697,800 37,967,298
===========================================================================
73,742,622
===========================================================================
MULTI-UTILITIES-2.65%
Dominion Resources, Inc. 464,800 35,361,984
- ---------------------------------------------------------------------------
Public Service Enterprise Group Inc. 42,200 2,653,958
- ---------------------------------------------------------------------------
Wisconsin Energy Corp. 322,000 12,181,260
===========================================================================
50,197,202
===========================================================================
OIL & GAS DRILLING-0.67%
GlobalSantaFe Corp. 282,900 12,603,195
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.94%
Schlumberger Ltd. 196,700 17,854,459
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.87%
Citigroup Inc. 774,000 35,433,720
===========================================================================
PACKAGED FOODS & MEATS-2.14%
General Mills, Inc. 582,600 28,116,276
- ---------------------------------------------------------------------------
Sara Lee Corp. 700,300 12,500,355
===========================================================================
40,616,631
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-9.38%
Abbott Laboratories 698,700 $ 30,079,035
- ---------------------------------------------------------------------------
Bristol-Myers Squibb Co. 403,100 8,533,627
- ---------------------------------------------------------------------------
Johnson & Johnson 587,800 36,808,036
- ---------------------------------------------------------------------------
Lilly (Eli) and Co. 595,500 29,649,945
- ---------------------------------------------------------------------------
Merck & Co. Inc. 446,100 12,588,942
- ---------------------------------------------------------------------------
Pfizer Inc. 1,476,780 32,105,197
- ---------------------------------------------------------------------------
Wyeth 629,600 28,054,976
===========================================================================
177,819,758
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.97%
Chubb Corp. (The) 14,200 1,320,174
- ---------------------------------------------------------------------------
MBIA Inc. 344,000 20,034,560
- ---------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 776,300 34,956,789
===========================================================================
56,311,523
===========================================================================
PUBLISHING-1.40%
Gannett Co., Inc. 423,000 26,505,180
===========================================================================
REGIONAL BANKS-3.79%
Cullen/Frost Bankers, Inc. 65,400 3,454,428
- ---------------------------------------------------------------------------
Fifth Third Bancorp 660,500 26,532,285
- ---------------------------------------------------------------------------
North Fork Bancorp., Inc. 734,300 18,607,162
- ---------------------------------------------------------------------------
SunTrust Banks, Inc. 321,000 23,266,080
===========================================================================
71,859,955
===========================================================================
RESTAURANTS-0.95%
Outback Steakhouse, Inc. 475,900 17,922,394
===========================================================================
SEMICONDUCTORS-3.13%
Intel Corp. 732,000 17,202,000
- ---------------------------------------------------------------------------
Linear Technology Corp. 728,000 24,176,880
- ---------------------------------------------------------------------------
Texas Instruments Inc. 630,800 18,009,340
===========================================================================
59,388,220
===========================================================================
SOFT DRINKS-0.64%
Coca-Cola Co. (The) 285,070 12,195,295
===========================================================================
SPECIALIZED CONSUMER SERVICES-0.79%
H&R Block, Inc. 599,800 14,911,028
===========================================================================
SPECIALTY CHEMICALS-0.70%
Ecolab Inc. 403,000 13,331,240
===========================================================================
SYSTEMS SOFTWARE-1.78%
Microsoft Corp. 1,313,500 33,756,950
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.58%
Fannie Mae 361,800 17,192,736
- ---------------------------------------------------------------------------
Hudson City Bancorp, Inc. 1,076,300 12,743,392
===========================================================================
29,936,128
===========================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
TOBACCO-1.75%
Altria Group, Inc. 441,900 $ 33,164,595
===========================================================================
Total Common Stocks (Cost $1,725,152,109) 1,814,939,932
===========================================================================
<Caption>
PRINCIPAL
AMOUNT
NOTES-0.01%
ELECTRIC UTILITIES-0.01%
Kansas City Power & Light Co., Sr. Unsec.
Notes,
7.13%, 12/15/05(b) $ 160,000 160,474
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.00%
General Electric Capital Corp.-Series A,
Medium Term Global Notes,
2.85%, 01/30/06(b) 100,000 99,640
===========================================================================
Total Notes (Cost $260,918) 260,114
===========================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
U.S. TREASURY NOTES-0.31%
3.38%, 02/28/07(b) $ 3,000,000 $ 2,960,640
- ---------------------------------------------------------------------------
3.38%, 02/15/08(b) 3,000,000 2,932,500
===========================================================================
5,893,140
===========================================================================
Total U.S. Treasury Notes (Cost
$5,957,264) 5,893,140
===========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-4.15%
Liquid Assets Portfolio-Institutional
Class(c) 39,379,766 39,379,766
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 39,379,766 39,379,766
===========================================================================
Total Money Market Funds (Cost
$78,759,532) 78,759,532
===========================================================================
TOTAL INVESTMENTS-100.19% (Cost
$1,810,129,823) 1,899,852,718
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.19%) (3,637,786)
===========================================================================
NET ASSETS-100.00% $1,896,214,932
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
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 value of these securities at October 31, 2005 was $33,677,335,
which represented 1.78% of the Fund's Net Assets. 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 value of these securities at October 31, 2005
was $6,153,254, which represented 0.32% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,731,370,291) $1,821,093,186
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $78,759,532) 78,759,532
============================================================
Total investments (cost $1,810,129,823) 1,899,852,718
============================================================
Foreign currencies, at value (cost $154,570) 153,873
- ------------------------------------------------------------
Receivables for:
Investments sold 1,807,758
- ------------------------------------------------------------
Fund shares sold 964,598
- ------------------------------------------------------------
Dividends and interest 2,262,327
- ------------------------------------------------------------
Fund expenses absorbed 304,810
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 545,246
- ------------------------------------------------------------
Other assets 147,858
============================================================
Total assets 1,906,039,188
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 6,095,405
- ------------------------------------------------------------
Fund shares reacquired 1,976,556
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 712,427
- ------------------------------------------------------------
Accrued distribution fees 423,640
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,447
- ------------------------------------------------------------
Accrued transfer agent fees 333,409
- ------------------------------------------------------------
Accrued operating expenses 279,372
============================================================
Total liabilities 9,824,256
============================================================
Net assets applicable to shares outstanding $1,896,214,932
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,783,311,909
- ------------------------------------------------------------
Undistributed net investment income (307,559)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
futures contracts and option contracts 23,488,384
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 89,722,198
============================================================
$1,896,214,932
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 212,028,964
____________________________________________________________
============================================================
Class B $ 92,394,084
____________________________________________________________
============================================================
Class C $ 45,513,307
____________________________________________________________
============================================================
Class R $ 10,052
____________________________________________________________
============================================================
Investor Class $1,546,220,784
____________________________________________________________
============================================================
Institutional Class $ 47,741
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 17,502,479
____________________________________________________________
============================================================
Class B 7,693,331
____________________________________________________________
============================================================
Class C 3,794,552
____________________________________________________________
============================================================
Class R 830
____________________________________________________________
============================================================
Investor Class 127,652,843
____________________________________________________________
============================================================
Institutional Class 3,940
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 12.11
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $12.11 divided by
94.50%) $ 12.81
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 12.01
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 11.99
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 12.11
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 12.11
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 12.12
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $46,644) $ 14,229,794
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 1,600,839
- --------------------------------------------------------------------------
Interest 154,353
==========================================================================
Total investment income 15,984,986
==========================================================================
EXPENSES:
Advisory fees 4,020,620
- --------------------------------------------------------------------------
Administrative services fees 185,133
- --------------------------------------------------------------------------
Custodian fees 72,223
- --------------------------------------------------------------------------
Distribution fees:
Class A 400,129
- --------------------------------------------------------------------------
Class B 738,627
- --------------------------------------------------------------------------
Class C 321,360
- --------------------------------------------------------------------------
Investor Class 1,032,271
- --------------------------------------------------------------------------
Transfer agent fees 1,302,920
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 41,405
- --------------------------------------------------------------------------
Other 427,014
==========================================================================
Total expenses 8,541,702
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (945,849)
==========================================================================
Net expenses 7,595,853
==========================================================================
Net investment income 8,389,133
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains from securities sold
to affiliates of $227,835) 27,045,350
- --------------------------------------------------------------------------
Foreign currencies 5,778
- --------------------------------------------------------------------------
Futures contracts 75,142
- --------------------------------------------------------------------------
Option contracts written 93,334
==========================================================================
27,219,604
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (57,200,759)
- --------------------------------------------------------------------------
Foreign currencies (697)
- --------------------------------------------------------------------------
Futures contracts (9,390)
==========================================================================
(57,210,846)
==========================================================================
Net gain (loss) from investment securities, foreign
currencies, futures contracts and option contracts (29,991,242)
==========================================================================
Net increase (decrease) in net assets resulting from
operations $(21,602,109)
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
October 31, 2005
<Table>
<Caption>
2005 2004
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,389,133 $ 742,750
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 27,219,604 3,210,309
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (57,210,846) 4,353,104
============================================================================================
Net increase (decrease) in net assets resulting from
operations (21,602,109) 8,306,163
============================================================================================
Distributions to shareholders from net investment income:
Class A (1,900,682) (500,393)
- --------------------------------------------------------------------------------------------
Class B (595,295) (204,810)
- --------------------------------------------------------------------------------------------
Class C (251,639) (63,792)
- --------------------------------------------------------------------------------------------
Investor Class (5,537,164) --
============================================================================================
Total distributions from net investment income (8,284,780) (768,995)
============================================================================================
Distributions to shareholders from net realized gains:
Class A (1,261,433) --
- --------------------------------------------------------------------------------------------
Class B (887,849) --
- --------------------------------------------------------------------------------------------
Class C (318,378) --
============================================================================================
Total distributions from net realized gains (2,467,660) --
============================================================================================
Decrease in net assets resulting from distributions (10,752,440) (768,995)
============================================================================================
Share transactions-net:
Class A 146,191,618 37,536,817
- --------------------------------------------------------------------------------------------
Class B 44,099,057 21,106,883
- --------------------------------------------------------------------------------------------
Class C 29,372,653 8,543,492
- --------------------------------------------------------------------------------------------
Class R 10,000 --
- --------------------------------------------------------------------------------------------
Investor Class 1,584,319,461 --
- --------------------------------------------------------------------------------------------
Institutional Class 47,507 --
============================================================================================
Net increase in net assets resulting from share
transactions 1,804,040,296 67,187,192
============================================================================================
Net increase in net assets 1,771,685,747 74,724,360
============================================================================================
NET ASSETS:
Beginning of year 124,529,185 49,804,825
============================================================================================
End of year (including undistributed net investment income
(loss) of $307,559 and $(8,903), respectively) $1,896,214,932 $124,529,185
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is growth of capital with a
secondary objective of current income.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-7
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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
F-8
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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee 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 July 18, 2005, the Trustees approved a reduction to the advisory
fee payable to AIM. The reduced annual rate of the Fund's average daily net
assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $350 million 0.60%
- --------------------------------------------------------------------
Next $350 million 0.55%
- --------------------------------------------------------------------
Next $1.3 billion 0.50%
- --------------------------------------------------------------------
Next $2 billion 0.45%
- --------------------------------------------------------------------
Next $2 billion 0.40%
- --------------------------------------------------------------------
Next $2 billion 0.375%
- --------------------------------------------------------------------
Over $8 billion 0.35%
___________________________________________________________________
====================================================================
</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, Class C, Class R, Investor
Class and Institutional Class shares to 1.00%, 1.65%, 1.65%, 1.25%, 1.00% and
0.75% of average daily net assets, respectively. Also, AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of Class A, Class B, Class C, Class R, Investor Class and Institutional
F-9
Class shares to 1.40%, 2.15%, 2.15%, 1.65%, 1.40% and 1.15% of average daily net
assets, respectively, through October 31, 2006. 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; 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.
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.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $843,835 and
reimbursed $61,645 of class level expenses of Class A, Class B, Class C, Class R
and Investor Class shares in proportion to the net assets of each class.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$21,254.
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 year ended
October 31, 2005, AIM was paid $185,133.
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 year ended October 31, 2005, the
Fund paid AISI $1,302,920 for Class A, Class B, Class C, Class R and Investor
Class share classes and $0 for Institutional Class shares.
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
Class A, Class B, Class C and Class R 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. Prior to July 1, 2005, the Fund paid
ADI 0.35% of the average daily net assets of Class A 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. National Association of
Securities Dealers ("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, 2005, the Class
A, Class B, Class C, Class R and Investor Class shares paid $400,129, $738,627,
$321,360, $0 and $1,032,271, 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, 2005, ADI advised the Fund that it retained $147,003 in
front-end sales commissions from the sale of Class A shares and $5,673, $34,151
and $4,078 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.
F-10
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 8,365,886 $139,899,440 $(108,885,560) $ -- $39,379,766 $ 799,031 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 8,365,886 139,899,440 (108,885,560) -- 39,379,766 801,808 --
===================================================================================================================================
Total $16,731,772 $279,798,880 $(217,771,120) $ -- $78,759,532 $1,600,839 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2005, the Fund
engaged in securities purchases of $393,147 and sales of $3,535,500, which
resulted in net realized gains of $227,835.
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, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $19,115.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $3,346
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, 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 as a compensating balance in the account so the custodian can be
F-11
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 1,704 157,662
- ------------------------------------------------------------------------------------
Closed (1,228) (109,746)
- ------------------------------------------------------------------------------------
Exercised (476) (47,916)
====================================================================================
End of year -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- -------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 9,650,189 $768,995
- -------------------------------------------------------------------------------------
Long-term capital gain 1,102,251 --
=====================================================================================
Total distributions $10,752,440 $768,995
_____________________________________________________________________________________
=====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 13,754,507
- ----------------------------------------------------------------------------
Undistributed long-term gain 11,051,120
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 88,584,213
- ----------------------------------------------------------------------------
Temporary book/tax differences (486,817)
- ----------------------------------------------------------------------------
Shares of beneficial interest 1,783,311,909
============================================================================
Total net assets $1,896,214,932
____________________________________________________________________________
============================================================================
</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 on certain securities. The
tax-basis unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on foreign currencies of $(697).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund did not have a capital loss carryforward as of October 31, 2005.
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 year ended
October 31, 2005 was $463,336,286 and $58,741,505, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $169,818,962
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (81,234,052)
==============================================================================
Net unrealized appreciation of investment securities $ 88,584,910
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,811,267,808.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distribution, foreign
currency transactions, non-deductible merger expenses and other
reclassifications, on October 31, 2005, undistributed net investment income was
decreased by $63,005, undistributed net realized gain (loss) was decreased by
$1,015,637 and shares of beneficial interest increased by $1,078,642. Further,
as a result of tax deferrals acquired in the reorganization of AIM Core Stock
Fund into the Fund, undistributed net investment income was decreased by
$340,004, undistributed net realized gain (loss) was decreased by $2,537,117 and
shares of beneficial interest increased by $2,877,121. This reclassification had
no effect on the net assets of the Fund.
F-13
NOTE 12--SHARE INFORMATION
The Fund currently consists of 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2005(A) 2004
----------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 13,366,462 $ 162,870,472 4,322,865 $ 48,449,001
- -------------------------------------------------------------------------------------------------------------------------
Class B 5,147,569 61,668,926 2,496,183 27,796,432
- -------------------------------------------------------------------------------------------------------------------------
Class C 2,592,218 30,951,388 891,143 9,870,802
- -------------------------------------------------------------------------------------------------------------------------
Class R 830 10,000 -- --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class 785,388 9,516,788 -- --
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,940 47,507 -- --
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 240,678 2,899,503 41,472 465,571
- -------------------------------------------------------------------------------------------------------------------------
Class B 111,219 1,322,000 16,701 185,244
- -------------------------------------------------------------------------------------------------------------------------
Class C 43,783 520,338 5,270 58,491
- -------------------------------------------------------------------------------------------------------------------------
Investor Class 414,470 5,093,831 -- --
=========================================================================================================================
Issued in connection with acquisitions:(b)
Class A 805,015 9,990,447 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class B 126,959 1,560,956 -- --
- -------------------------------------------------------------------------------------------------------------------------
Class C 427,503 5,254,987 -- --
- -------------------------------------------------------------------------------------------------------------------------
Investor Class 134,782,259 1,672,062,947 -- --
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 415,881 5,018,665 186,137 2,093,587
- -------------------------------------------------------------------------------------------------------------------------
Class B (419,467) (5,018,665) (187,728) (2,093,587)
=========================================================================================================================
Reacquired:
Class A (2,857,287) (34,587,469) (1,198,931) (13,471,342)
- -------------------------------------------------------------------------------------------------------------------------
Class B (1,287,821) (15,434,160) (432,094) (4,781,206)
- -------------------------------------------------------------------------------------------------------------------------
Class C (616,105) (7,354,060) (125,008) (1,385,801)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class (8,329,274) (102,354,105) -- --
=========================================================================================================================
145,754,220 $1,804,040,296 6,016,010 $ 67,187,192
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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. ADI has an agreement with this entity to sell Fund shares. The
Fund, AIM and/or AIM affiliates may make payments to this entity, which is
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as
securities brokerage, distribution, third party record keeping and account
services. The Trust has no knowledge as to whether all or any portion of the
shares owned of record by the entity is also owned beneficially.
(b) As of the opening of business on July 18, 2005, the Fund acquired all of the
net assets of AIM Core Stock Fund pursuant to a plan of reorganization
approved by the Trustees of the Fund on March 23, 2005 and AIM Core Stock
Fund shareholders on June 28, 2005. The acquisition was accomplished by a
tax-free exchange of 136,141,736 shares of the Fund for 169,144,399 shares
of AIM Core Stock Fund outstanding as of the close of business on July 15,
2005. AIM Core Stock Fund's net assets at that date of $1,688,869,337,
including $137,673,754 of unrealized appreciation, were combined with those
of the Fund. The aggregate net assets of the Fund immediately before the
acquisition were $279,480,415.
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
------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------- 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) 0.17(a) 0.14 0.06(b) (0.03)(b)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.85 1.23 1.54 (1.27)
====================================================================================================================
Total from investment operations 1.02 1.37 1.60 (1.30)
====================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.15) (0.04) --
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
====================================================================================================================
Total distributions (0.39) (0.15) (0.04) --
====================================================================================================================
Net asset value, end of period $ 12.11 $ 11.48 $ 10.26 $ 8.70
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 8.92% 13.36% 18.39% (13.00)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $212,029 $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 1.15%(d) 1.70% 2.12% 4.26%(e)
====================================================================================================================
Ratio of net investment income (loss) to average net assets 1.27%(a)(d) 1.27% 0.65% (0.34)%(e)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(f) 22% 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 by Microsoft Corp. on December 2, 2004. Net investment
income per share excluding the special dividend remains the same and the
ratio of net investment income to average net assets excluding the
special dividend is 1.24%.
(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 based on average daily net assets of $133,133,263.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------- 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) 0.09(a) 0.07 0.00(b) (0.08)(b)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.85 1.21 1.53 (1.27)
===================================================================================================================
Total from investment operations 0.94 1.28 1.53 (1.35)
===================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.07) (0.01) --
- -------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
===================================================================================================================
Total distributions (0.31) (0.07) (0.01) --
===================================================================================================================
Net asset value, end of period $ 12.01 $ 11.38 $ 10.17 $ 8.65
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(c) 8.28% 12.63% 17.67% (13.50)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $92,394 $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 1.85%(d) 2.35% 2.77% 4.91%(e)
===================================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(a)(d) 0.62% 0.00% (0.99)%(e)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(f) 22% 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 by Microsoft Corp. on December 2, 2004. Net investment
income per share excluding the special dividend remains the same and the
ratio of net investment income to average net assets excluding the
special dividend is 0.59%.
(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 based on average daily net assets of $73,862,700.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------- 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) 0.09(a) 0.07 0.00(b) (0.08)(b)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.84 1.21 1.52 (1.27)
==================================================================================================================
Total from investment operations 0.93 1.28 1.52 (1.35)
==================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.07) (0.01) --
- ------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.21) -- -- --
==================================================================================================================
Total distributions (0.31) (0.07) (0.01) --
==================================================================================================================
Net asset value, end of period $ 11.99 $ 11.37 $10.16 $ 8.65
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(c) 8.20% 12.64% 17.55% (13.50)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,513 $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 1.85%(d) 2.35% 2.77% 4.91%(e)
==================================================================================================================
Ratio of net investment income (loss) to average net assets 0.62%(a)(d) 0.62% 0.00% (0.99)%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(f) 22% 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 by Microsoft Corp. on December 2, 2004. Net investment
income per share excluding the special dividend remains the same and the
ratio of net investment income to average net assets excluding the
special dividend is 0.59%.
(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 based on average daily net assets of $32,135,980.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-------------
OCTOBER 25,
2005
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2005
- ---------------------------------------------------------------------------
Net asset value, beginning of period $11.99
- ---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- ---------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.12
===========================================================================
Total from investment operations 0.12
===========================================================================
Net asset value, end of period $12.11
___________________________________________________________________________
===========================================================================
Total return 1.00%(a)
___________________________________________________________________________
===========================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
___________________________________________________________________________
===========================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.25%(b)
- ---------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%(b)
===========================================================================
Ratio of net investment income to average net assets 1.03%(b)
___________________________________________________________________________
===========================================================================
Portfolio turnover rate(c) 22%
___________________________________________________________________________
===========================================================================
</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 annualized and based on average daily net assets of $9,974.
()(c)Not annualized for periods less than one-year.
<Table>
<Caption>
INVESTOR CLASS
--------------
JULY 15, 2005
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2005
- ----------------------------------------------------------------------------
Net asset value, beginning of period $ 12.36
- ----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05
- ----------------------------------------------------------------------------
Net losses on securities (both realized and unrealized) (0.26)
============================================================================
Total from investment operations (0.21)
============================================================================
Less dividends from net investment income (0.04)
============================================================================
Net asset value, end of period $ 12.11
____________________________________________________________________________
============================================================================
Total return (1.68)%(a)
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,546,221
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.97%(b)
- ----------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.09%(b)
============================================================================
Ratio of net investment income to average net assets 1.30%(b)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(c) 22%
____________________________________________________________________________
============================================================================
</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 annualized and based on average daily net assets of
$1,555,583,393.
(c) Not annualized for periods less than one-year.
F-18
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
OCTOBER 25, 2005
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2005
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $11.99
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00
- ---------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.13
=================================================================================
Total from investment operations 0.13
=================================================================================
Net asset value, end of period $12.12
_________________________________________________________________________________
=================================================================================
Total return 1.08%(a)
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 48
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.68%(b)
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.80%(b)
=================================================================================
Ratio of net investment income to average net assets 1.59%(b)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate 22%
_________________________________________________________________________________
=================================================================================
</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 annualized and based on average daily net assets of $15,358.
NOTE 14--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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.
F-19
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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 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
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 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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
F-20
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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.
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-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and
Shareholders of AIM Diversified Dividend Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Diversified Dividend Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2005, 63.72% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $2,187,251 for the
Fund's tax year ended October 31, 2005, of which, 100% is 15% rate gain.
For its tax year ended October 31, 2005 the fund designates 65.43%, 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, 0.90% was derived from U.S. Treasury
Obligations.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 10.38%, 14.23%, 9.97% and 7.44%, respectively.
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund DIVERSIFIED PORTFOLIOS
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund(1) AIM Income Allocation Fund
AIM Large Cap Basic Value Fund AIM Technology Fund AIM International Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
* Domestic equity and income fund
INTERNATIONAL/GLOBAL EQUITY TAX-FREE
AIM Asia Pacific Growth Fund AIM High Income Municipal Fund(1)
AIM Developing Markets Fund AIM Municipal Bond Fund
AIM European Growth Fund AIM Tax-Exempt Cash Fund
AIM European Small Company Fund(1) AIM Tax-Free Intermediate Fund
AIM Global Aggressive Growth Fund Premier Tax-Exempt Portfolio
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Value Fund =======================================================================================
AIM International Core Equity Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
AIM International Growth Fund THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL
AIM International Small Company Fund(1) ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
AIM Trimark Fund =======================================================================================
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund. If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com DDI-AR-1 A I M Distributors,Inc.
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
- ------------------------------------------------------------------------------
AIM LARGE CAP BASIC VALUE FUND
Annual Report to Shareholders o October 31,2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM LARGE CAP BASIC VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES o The unmanaged LIPPER LARGE-CAP VALUE lowest common percentage method. This
FUND INDEX represents an average of the method compares each security's percentage
o Class B shares are not available as an performance of the 30 largest of total net assets in both portfolios and
investment for retirement plans maintained large-capitalization value funds tracked adds the lower percentages of the two
pursuant to Section 401 of the Internal by Lipper, Inc., an independent mutual portfolios to determine commonality.
Revenue Code, including 401(k) plans, fund performance monitor.
money purchase pension plans and profit o Industry classifications used in this
sharing plans. Plans that had existing o The unmanaged RUSSELL 1000--Registered report are generally according to the
accounts invested in Class B shares prior Trademark-- VALUE INDEX is a subset of the Global Industry Classification Standard,
to September 30, 2003, will continue to be unmanaged RUSSELL 1000--Registered which was developed by and is the
allowed to make additional purchases. Trademark-- INDEX, which represents the exclusive property and a service mark of
performance of the stocks of Morgan Stanley Capital International Inc.
o Class R shares are available only to large-capitalization companies; the Value and Standard & Poor's.
certain retirement plans. Please see the subset measures the performance of Russell
prospectus for more information. 1000 companies with lower price/book The Fund provides a complete list of its
ratios and lower forecasted growth values. holdings four times in each fiscal year,at
o Investor Class shares are closed to most the quarter-ends. For the second and
investors. For more information on who may o The unmanaged MSCI WORLD INDEX is a fourth quarters, the lists appear in the
continue to invest in the Investor Class group of global securities tracked by Fund's semiannual and annual reports to
shares, please see the prospectus. Morgan Stanley Capital International. shareholders. For the first and third
quarters, the Fund files the lists with
PRINCIPAL RISKS OF INVESTING IN THE FUND o The Fund is not managed to track the the Securities and Exchange Commission
performance of any particular index, (SEC) on Form N-Q. The most recent list of
o The Fund may invest up to 25% of its including the indexes defined here, and portfolio holdings is available at
assets in the securities of non-U.S. consequently, the performance of the Fund AIMinvestments.com. From our home
issuers. International investing presents may deviate significantly from the page, click on Products & Performance,
certain risks not associated with performance of the indexes. then Mutual Funds, then Fund Overview.
investing solely in the United States. Select your Fund from the drop-down menu
These include risks relating to o A direct investment cannot be made in an and click on Complete Quarterly Holdings.
fluctuations in the value of the U.S. index. Unless otherwise indicated, index Shareholders can also look up the Fund's
dollar relative to the values of other results include reinvested dividends, and Forms N-Q on the SEC's Web site at
currencies, the custody arrangements made they do not reflect sales charges. sec.gov. And copies of the Fund's Forms
for the Fund's foreign holdings, Performance of an index of funds reflects N-Q may be reviewed and copied at the
differences in accounting, political risks fund expenses; performance of a market SEC's Public Reference Room at 450 Fifth
and the lesser degree of public index does not. Street, N.W., Washington, D.C. 20549-0102.
information required to be provided by You can obtain information on the
non-U.S. companies. OTHER INFORMATION operation of the Public Reference
Room, including information about
o Although the Fund's return during o The returns shown in management's duplicating fee charges, by calling
certain periods was positively impacted by discussion of Fund performance are based 202-942-8090 or 800-732-0330, or by
its investments in initial public on net asset values calculated for electronic request at the following e-mail
offerings (IPOs), there can be no shareholder transactions. Generally address: publicinfo@sec.gov. The SEC file
assurance that the Fund will have accepted accounting principles require numbers for the Fund are 811-01424 and
favorable IPO investment opportunities in adjustments to be made to the net assets 2-25469.
the future. of the Fund at period end for financial
reporting purposes, and as such, the net A description of the policies and
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder transactions procedures that the Fund uses to determine
and the returns based on those net asset how to vote proxies relating to portfolio
o The unmanaged Standard & Poor's values may differ from the net asset securities is available without
Composite Index of 500 Stocks (the S&P 500 values and returns reported in the charge, upon request, from our Client
- --Registered Trademark-- INDEX) is an index Financial Highlights. Services department at 800-959-4246 or on
of common stocks frequently used as a the AIM Web site, AIMinvestments.com. On
general measure of U.S. stock market o Commonality measures the similarity of the home page, scroll down and click on
performance. holdings between two portfolios using the AIM Funds Proxy Policy. The information is
also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended June
30, 2005, is available at our Web site. Go
to AIMinvestments.com, access the About Us
tab, click on Required Notices and then
click on Proxy Voting Activity.
Next, select the Fund from the drop-down
menu. The information is also available on
the Securities and Exchange Commission's
Web site, sec.gov.
====================================================================================== ==========================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND FUND NASDAQ SYMBOLS
PROSPECTUS,WHICH CONTAINS MORE COMPLETE INFORMATION,INCLUDING SALES CHARGES AND
EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class A Shares LCBAX
Class B Shares LCBBX
====================================================================================== Class C Shares LCBCX
Class R Shares LCBRX
Investor Class Shares LCINX
==========================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM LARGE CAP BASIC VALUE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the fiscal year ended October 31, 2005. Of course,
your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
[WILLIAMSON affected your Fund and how your Fund was managed during the
PHOTO] fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
MARK H. WILLIAMSON the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM LARGE CAP BASIC VALUE FUND
DEAR AIM FUNDS 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
[CROCKETT approved voluntary fee reductions from A I M Advisors, Inc.
PHOTO] (AIM) that save shareholders approximately $20.8 million
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
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM LARGE CAP BASIC VALUE FUND
<Table>
MANAGEMENT'S DISCUSSION gains in the period, but health care
OF FUND PERFORMANCE stocks made the greatest contribution to
overall Fund performance due to the
======================================================================================= success of our diversified investments in
drug distributors, health maintenance
PERFORMANCE SUMMARY ========================================== organizations and hospitals.
For the fiscal year ended October 31, FUND VS. INDEXES Health care holdings WELLPOINT,
2005, Class A shares of AIM Large Cap MCKESSON and CARDINAL HEALTH were among
Basic Value Fund at net asset value TOTAL RETURNS, 10/31/04-10/31/05, the biggest contributors to Fund
slightly outperformed the S&P 500 Index, EXCLUDING APPLICABLE SALES CHARGES. IF performance. The performance of
and underperformed the Russell 1000 Value APPLICABLE SALES CHARGES WERE INCLUDED, pharmaceutical distributors McKesson and
Index. Long term Fund performance RETURNS WOULD BE LOWER. Cardinal Health was in sharp contrast to
information appears on Pages 6 and 7. the prior fiscal year in which both stocks
Since Fund inception (June 30, 1999) and Class A Shares 9.38% suffered double-digit declines. Both
excluding applicable sales charges, companies rallied in the current period in
Class A shares have outperformed the Class B Shares 8.65 response to the progress made in the
Lipper Large-Cap Value Fund Index, industry's ongoing transition to a
returning an average of 5.47% per year Class C Shares 8.65 fee-for-service platform, a move that will
versus an average of 1.40% per year for substantially reduce their exposure to the
the index--an average annual total return Class R Shares 9.18 inherent volatility of drug pricing.
difference of more than four percentage Energy service and equipment providers
points. Investor Class Shares 9.54 HALLIBURTON and TRANSOCEAN rose more than
60% in the period as oil and natural gas
Fund returns for the fiscal year were S&P 500 Index prices reached new highs in the wake of
largely driven by strength in both the (Broad Market Index) 8.72 hurricane-related supply disruptions along
health care and energy sectors. Class A the U.S. Gulf Coast.
shares slightly outperformed the S&P 500 Russell 1000 Value Index
Index due to the strong returns we (Style-Specific Index) 11.86 Our largest detractors to performance
experienced in these two sectors, and the were FANNIE MAE, PFIZER and TYCO
Fund also benefited from our higher weight Lipper Large-Cap Value Fund Index INTERNATIONAL. Fannie Mae was the most
in the health care sector. The Fund (Peer Group Index) 9.96 significant detractor from Fund
underperformed the Russell 1000 Value performance in the period, but little has
Index, as returns in several sectors SOURCE: LIPPER,INC. changed since our mid-year commentary. The
including industrials, consumer staples company continues the arduous process of
and financials were ========================================== restating its historical results caused by
a change in the interpretation of
all below those of the benchmark. The accounting standards. We continue to
absence of any holdings in the utility believe that Fannie Mae's estimated
sector, one of the best performing sectors intrinsic value will be driven by future
of the market, also contributed to regulatory capital requirements and not
underperformance. We have chosen to invest the non-economic impact of accounting
in other investments outside the sector restatements. And based on a variety of
that offer more compelling upside existing capital standards,
opportunities with lower investment risk.
(continued)
=======================================================================================
CURRENT PERIOD ANALYSIS surging gasoline prices and the ongoing
fear of a housing bubble seemed to
The U.S. economy continued to expand dominate the popular press, but not even
throughout the fiscal year, with corporate the combined effect of these events could
profits generally improving amid a stop the equity markets from achieving
backdrop of rising short-term interest strong single-digit returns. The energy
rates and record high oil and natural gas sector posted the biggest
prices. Hurricanes,
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Health Care Distributors 7.0% 1. Cardinal Health,Inc. 4.3%
2. Pharmaceuticals 7.0 2. Halliburton Co. 3.8
[PIE CHART] 3. Oil & Gas Equipment & Services 6.3 3. WellPoint,Inc. 3.6
4. Other Diversified Financial 4. Tyco International Ltd. 3.4
Health Care 21.1% Services 6.0 5. Sanofi-Aventis (France) 3.2
Financials 20.1% 5. Industrial Conglomerates 5.4 6. Citigroup Inc. 3.2
Industrials 15.8% 7. JPMorgan Chase & Co. 2.9
Consumer Discretionary 13.0% TOTAL NET ASSETS $381.4 MILLION 8. Omnicom Group Inc. 2.9
Energy 8.6% 9. First Data Corp. 2.9
Consumer Staples 8.0% TOTAL NUMBER OF HOLDINGS* 46 10. Computer Associates
Information Technology 7.3% International,Inc. 2.9
Materials 3.8%
Money Market Funds Plus
Other Assets Less Liabilities 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>
3
AIM LARGE CAP BASIC VALUE FUND
<Table>
we believe that Fannie Mae continues to be generated by the business. The Fund's The views and opinions expressed in
an attractive investment opportunity. philosophy is based on two elements that management's discussion of Fund
we believe have extensive empirical performance are those of A I M Advisors,
Pfizer fell more than 20% in the period evidence: Inc. These views and opinions are subject
as the company continued to address many to change at any time based on factors
ongoing challenges, including patent o companies have a measurable estimated such as market and economic conditions.
expirations, generic substitution, intrinsic value. Importantly, this fair These views and opinions may not be relied
diminished pricing power and declining value is independent of the company's upon as investment advice or
demand for its Cox-2 antiinflammatory stock price recommendations, or as an offer for a
drug, Celebrex --Registered Trademark--. particular security. The information is
We believe these challenges may make it o market prices are more volatile than not a complete analysis of every aspect of
difficult for Pfizer to grow earnings in business values, partly because investors any market, country, industry, security or
the near term. Still, we see a long-term regularly overreact to negative news the Fund. Statements of fact are from
opportunity for the world's largest drug sources considered reliable, but A I M
company as we believe these and other Since our application of this strategy Advisors, Inc. makes no representation or
issues are already discounted in the is highly disciplined and relatively warranty as to their completeness or
company's historically low valuation. unique, it is important to understand the accuracy. Although historical performance
benefits and limitations of our process. is no guarantee of future results, these
Tyco was one of your Fund's best First, the investment strategy is intended insights may help you understand our
performing stocks in both 2003 and 2004, to preserve your capital while growing it investment management philosophy.
having nearly tripled from the lows at above-market rates over the long term.
reached over three years ago. The company Second, we have little portfolio See important Fund and index
has clearly emerged from an accounting commonality with popular benchmarks and disclosures inside front cover.
scandal that dates back to 2002. The stock most of our peers. Third, short-term
fell as the pace of both sales and relative performance will differ from the
operating improvement began to moderate. benchmarks and have little information BRET W. STANLEY,
While we are disappointed in recent value simply because we don't own the [STANLEY Chartered Financial
results, the ongoing turnaround of this exact same stocks (low commonality). PHOTO] Analyst, senior
company remains intact and we believe the portfolio manager, is
stock represents one of the more PORTFOLIO ASSESSMENT lead manager of AIM
compelling opportunities in the portfolio. Large Cap Basic Value Fund and the head of
We believe the single most important AIM's Value Investment Management Unit.
We made a few changes to the portfolio indicator of the way AIM Large Cap Basic Prior to joining AIM in 1998, served as a
since the Fund's semiannual report. We Value Fund is positioned for potential vice president and portfolio manager for
sold our remaining shares in MOTOROLA and success is not our historical investment another investment firm. Mr. Stanley
initiated a new position in MOLSON COORS results or popular statistical measures, received a B.B.A. in finance from The
BREWING. In February 2005, Adolph Coors but rather the portfolio's estimated University of Texas at Austin and an M.S.
Co. merged with Molson Inc. to form Molson intrinsic value. Since we can estimate the in finance from the University of Houston.
Coors Brewing Co. We believe the company intrinsic value of each holding in the
will realize significant merger-related portfolio, we can also estimate the R. CANON COLEMAN II,
cost savings over the next few years, and intrinsic value of the entire Fund. The [COLEMAN II Chartered Financial
the industry will likely offer moderate difference between market price and PHOTO] Analyst, portfolio
but stable unit growth. estimated intrinsic value is about average manager, is manger of
for your Fund for the past several years. AIM Large Cap Basic
Another new purchase for the Fund was However, we believe this estimated Value Fund. He joined AIM in 2000. He
CEMEX, a global leader in the production intrinsic value content is significantly previously worked as a CPA. Mr. Coleman
of aggregates, cement and ready-mix greater than what is available in the earned a B.S. and an M.S. in accounting
concrete. The recent acquisition of market. While there is no assurance that from the University of Florida. He also
UK-based RMC GROUP doubled the company's market value will ever reflect our has an M.B.A. from The Wharton School at
sales while providing significant cost estimate of portfolio intrinsic value, as the University of Pennsylvania.
savings and complimentary product lines managers and shareholders we believe this
for the combined entity. Additionally, the provides the best indication that your MATTHEW W.SEINSHEIMER,
cement industry continues to benefit from Fund is positioned to potentially achieve [SEINSHEIMER Chartered Financial
global growth trends as well as the its objective of long-term growth of PHOTO] Analyst, senior
structural advantages related to the capital. portfolio manager, is
cement business, where new capacity has manager of AIM Large
proven difficult to build, and IN CLOSING Cap Basic Value Fund. He began his
transportation issues typically limit investment career in 1992 as a
trade to regional markets. While results in the period modestly fixed-income trader. He joined AIM as a
trailed those of our peers, we know that senior analyst in 1998. He received a
INVESTMENT PROCESS AND EVALUATION normal market volatility limits our B.B.A. from Southern Methodist University
ability to measure success over short and an M.B.A. from The University of Texas
We seek to create wealth by maintaining a periods of time. Over longer periods, at Austin.
long-term investment horizon and investing though, we have demonstrated the potential
in companies that are selling at a to turn market volatility and investor MICHAEL J. SIMON,
significant discount to their estimated overreaction into capital appreciation. As [SIMON Chartered Financial
intrinsic value--a value that is based on always, we continued to work hard on your PHOTO] Analyst, senior
the future cash flows behalf, and we thank you for your portfolio manager, is
investment and for sharing our long-term manager of AIM Large
horizon. Cap Basic Value Fund. Prior to joining AIM
in 2001, Mr. Simon worked as a vice
president, equity analyst and portfolio
manager at another investment firm. He
received a B.B.A. in finance from Texas
Christian University and an M.B.A. from
the University of Chicago.
Assisted by the Basic Value Team
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE,PLEASE SEE PAGES 6
AND 7.
</Table>
4
AIM LARGE CAP BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE with the amount you invested, to estimate The hypothetical account values and
the expenses that you paid over the expenses may not be used to estimate the
As a shareholder of the Fund, you incur period. Simply divide your account value actual ending account balance or expenses
two types of costs: (1) transaction costs, by $1,000 (for example, an $8,600 account you paid for the period. You may use this
which may include sales charges (loads) on value divided by $1,000 = 8.6), then information to compare the ongoing costs
purchase payments; contingent deferred multiply the result by the number in the of investing in the Fund and other funds.
sales charges on redemptions; and table under the heading entitled "Actual To do so, compare this 5% hypothetical
redemption fees, if any; and (2) ongoing Expenses Paid During Period" to estimate example with the 5% hypothetical examples
costs, including management fees; the expenses you paid on your account that appear in the shareholder reports of
distribution and/or service fees (12b-1); during this period. the other funds.
and other Fund expenses. This example is
intended to help you understand your HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
ongoing costs (in dollars) of investing in COMPARISON PURPOSES the table are meant to highlight your
the Fund and to compare these costs with ongoing costs only and do not reflect any
ongoing costs of investing in other mutual The table below also provides information transactional costs, such as sales charges
funds. The example is based on an about hypothetical account values and (loads) on purchase payments, contingent
investment of $1,000 invested at the hypothetical expenses based on the Fund's deferred sales charges on redemptions, and
beginning of the period and held for the actual expense ratio and an assumed rate redemption fees, if any. Therefore, the
entire period May 1, 2005, through October of return of 5% per year before expenses, hypothetical information is useful in
31, 2005. which is not the Fund's actual return. The comparing ongoing costs only, and will not
Fund's actual cumulative total returns at help you determine the relative total
ACTUAL EXPENSES net asset value after expenses for the six costs of owning different funds. In
months ended October 31, 2005, appear in addition, if these transactional costs
The table below provides information about the table "Cumulative Total Returns" on were included, your costs would have been
actual account values and actual expenses. page 6. higher.
You may use the information in this table,
together
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2,3) (10/31/05) PERIOD(2,4) RATIO
A $1,000.00 $1,033.60 $ 6.66 $1,018.65 $ 6.61 1.30%
B 1,000.00 1,030.00 10.28 1,015.07 10.21 2.01
C 1,000.00 1,030.00 10.28 1,015.07 10.21 2.01
R 1,000.00 1,033.10 7.74 1,017.59 7.68 1.51
Investor 1,000.00 1,034.40 6.46 1,018.85 6.41 1.26
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
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 October 31, 2005, appear in the table "Cumulative Total Returns" on Page 6.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. Also effective on July 1, 2005, the advisor
contractually agreed to limit expenses to 1.22%, 1.97%, 1.97%, 1.47% and 1.22% for Class A, B, C, R and Investor class shares,
respectively. The annualized expense ratios restated as if the agreement had been in effect throughout the entire most recent
fiscal half year are 1.22%, 1.97%, 1.97%, 1.47% and 1.22% for Class A, B, C and R shares and Investor Class shares,
respectively.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal half
year are $6.25, $10.08, $10.08, $7.53 and $6.26 for Class A, B, C and R shares and Investor Class shares, respectively.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal
half year are $6.21, $10.01, $10.01, $7.48 and $6.21 for Class A, B, C and R shares and Investor Class shares, respectively.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM LARGE CAP BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 6/30/99
<Table>
[MOUNTAIN CHART]
========================================================================================
AIM LARGE CAP BASIC LIPPER LARGE-CAP RUSSELL 1000 S&P 500
VALUE FUND- VALUE FUND VALUE INDEX INDEX
DATE CLASS A SHARES INDEX
6/30/99 $ 9450 $10000 $10000 $10000
7/99 9100 9716 9707 9689
8/99 8874 9539 9347 9641
9/99 8458 9186 9020 9377
10/99 8883 9629 9540 9970
11/99 9242 9662 9465 10173
12/99 9697 9960 9511 10771
1/00 9424 9539 9200 10230
2/00 9269 9138 8517 10037
3/00 10331 9974 9556 11018
4/00 10292 9863 9445 10687
5/00 10555 9871 9544 10468
6/00 10233 9762 9108 10725
7/00 10457 9718 9222 10558
8/00 11091 10280 9735 11213
9/00 11266 10118 9824 10621
10/00 11744 10199 10066 10576
11/00 11335 9761 9692 9743
12/00 11805 10154 10178 9791
1/01 12138 10239 10217 10138
2/01 11962 9745 9933 9214
3/01 11560 9367 9582 8631
4/01 12178 9897 10052 9301
5/01 12541 10057 10277 9363
6/01 12502 9783 10050 9136
7/01 12492 9717 10028 9046
8/01 11953 9262 9627 8480
9/01 10670 8539 8949 7795
10/01 10728 8594 8872 7944
11/01 11610 9146 9388 8553
12/01 11953 9284 9609 8628
1/02 11717 9112 9535 8502
2/02 11492 9062 9550 8338
3/02 12207 9462 10002 8652
4/02 11786 9059 9659 8128
5/02 11727 9071 9707 8068
6/02 10611 8438 9150 7493
7/02 9699 7709 8299 6909
8/02 9826 7761 8362 6955
9/02 8464 6864 7432 6200
10/02 9013 7368 7983 6745
11/02 9737 7830 8486 7141
12/02 9179 7457 8117 6722
1/03 8905 7279 7921 6546
2/03 8592 7097 7710 6448
3/03 8562 7093 7722 6510
4/03 9385 7692 8402 7046
5/03 10208 8165 8944 7417
6/03 10316 8258 9056 7512
7/03 10552 8373 9191 7644
8/03 10915 8515 9334 7793
9/03 10757 8419 9243 7711
10/03 11159 8884 9809 8147
11/03 11394 8993 9942 8218
12/03 12119 9545 10555 8649
1/04 12364 9689 10741 8808
2/04 12686 9894 10971 8930
3/04 12637 9775 10875 8795
4/04 12363 9595 10609 8658
5/04 12363 9665 10717 8776
6/04 12725 9878 10970 8947
7/04 11941 9640 10816 8651
8/04 11882 9710 10970 8685
9/04 11980 9825 11140 8779
10/04 12107 9929 11325 8913
11/04 12734 10361 11897 9274
12/04 13214 10690 12296 9589
1/05 12999 10482 12078 9356
2/05 13204 10776 12478 9553
3/05 13027 10601 12307 9384
4/05 12812 10391 12086 9206
5/05 13057 10634 12377 9498
6/05 13174 10742 12513 9512
7/05 13546 11092 12875 9866
8/05 13312 11044 12819 9776
9/05 13429 11151 12999 9855
10/05 $13248 $10918 $12669 $ 9690
========================================================================================
SOURCE: LIPPER,INC.
The data shown in the chart include chart is more effective than other types
reinvested distributions, applicable sales of charts in illustrating changes in value
charges, Fund expenses and management during the early years shown in the chart.
fees. Index results include reinvested The vertical axis, the one that indicates
dividends, but they do not reflect sales the dollar value of an investment, is
charges. Performance of an index of funds constructed with each segment representing
reflects fund expenses and management a percent change in the value of the
fees; performance of a market index does investment. In this chart, each segment
not. Performance shown in the chart and represents a doubling, or 100% change, in
table(s) does not reflect deduction of the value of the investment. In other
taxes a shareholder would pay on Fund words, the space between $5,000 and
distributions or sale of Fund shares. $10,000 is the same size as the space
Performance of the indexes does not between $10,000 and $20,000.
reflect the effects of taxes. This chart,
which is a logarithmic chart, presents the
fluctuations in the value of the Fund and
its indexes. We believe that a logarithmic ==========================================
CUMULATIVE TOTAL RETURNS
6 months ended 10/31/05, excluding
applicable sales charges
Class A Shares 3.36%
Class B Shares 3.00
Class C Shares 3.00
Class R Shares 3.31
Investor Class Shares 3.44
==========================================
</Table>
6
AIM LARGE CAP BASIC VALUE FUND
<Table>
=======================================================================================
AVERAGE ANNUAL TOTAL RETURNS, FUND VS. LIPPER LARGE CAP VALUE FUND INDEX CLASS R SHARES' INCEPTION DATE IS JUNE 3,
2002. RETURNS SINCE THAT DATE ARE
As of 10/31/05, including applicable sales charges HISTORICAL RETURNS. ALL OTHER RETURNS ARE
BLENDED RETURNS OF HISTORICAL CLASS R
CLASS A SHARES LIPPER LARGE CAP VALUE FUND INDEX SHARE PERFORMANCE AND RESTATED CLASS A
Inception (6/30/99) 4.54% (Index data from 6/30/99) 1.40% SHARE PERFORMANCE (FOR PERIODS PRIOR TO
5 Years 1.28 5 Years 1.37 THE INCEPTION DATE OF CLASS R SHARES) AT
1 Year 3.36 1 Year 9.96 NET ASSET VALUE, ADJUSTED TO REFLECT THE
HIGHER RULE 12b-1 FEES APPLICABLE TO CLASS
CLASS B SHARES R SHARES. CLASS A SHARES' INCEPTION DATE
Inception (8/1/00) 3.52% (Index data from 7/31/00) 2.24% IS JUNE 30, 1999.
5 Years 1.39 5 Years 1.37
1 Year 3.65 1 Year 9.96 INVESTOR CLASS SHARES' INCEPTION DATE
IS SEPTEMBER 30, 2003. RETURNS SINCE THAT
CLASS C SHARES DATE ARE HISTORICAL RETURNS. ALL OTHER
Inception (8/1/00) 3.68% (Index data from 7/31/00) 2.24% RETURNS ARE BLENDED RETURNS OF HISTORICAL
5 Years 1.76 5 Years 1.37 INVESTOR CLASS SHARE PERFORMANCE AND
1 Year 7.65 1 Year 9.96 RESTATED CLASS A SHARE PERFORMANCE (FOR
PERIODS PRIOR TO THE INCEPTION DATE OF
CLASS R SHARES INVESTOR CLASS SHARES) AT NET ASSET VALUE
Inception 5.30% (Index data from 5/31/02) 5.58% AND REFLECT THE HIGHER RULE 12b-1 FEES
5 Years 2.26 5 Years 1.37 APPLICABLE TO CLASS A SHARES. CLASS A
1 Year 9.18 1 Year 9.96 SHARES' INCEPTION DATE IS JUNE 30, 1999.
INVESTOR CLASS SHARES THE PERFORMANCE DATA QUOTED REPRESENT
Inception 5.51% Inception (9/30/03) 1.40% PAST PERFORMANCE AND CANNOT GUARANTEE
5 Years 2.48 5 Years 1.37 COMPARABLE FUTURE RESULTS; CURRENT
1 Year 9.54 1 Year 9.96 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
VISIT AIMINVESTMENTS.COM FOR THE MOST
======================================================================================= RECENT MONTH-END PERFORMANCE. PERFORMANCE
FIGURES REFLECT REINVESTED DISTRIBUTIONS,
======================================================================================= CHANGES IN NET ASSET VALUE AND THE EFFECT
OF THE MAXIMUM SALES CHARGE UNLESS
AVERAGE ANNUAL TOTAL RETURNS, FUND VS. LIPPER LARGE CAP VALUE FUND INDEX OTHERWISE STATED.
As of 9/30/05, most recent calendar quarter end, including applicable sales charges CLASS A SHARE PERFORMANCE REFLECTS THE
MAXIMUM 5.50% SALES CHARGE, AND CLASS B
AND CLASS C SHARE PERFORMANCE REFLECTS THE
CLASS A SHARES LIPPER LARGE CAP VALUE FUND INDEX APPLICABLE CONTINGENT DEFERRED SALES
Inception (6/30/99) 4.83% (Index data from 6/30/99) 1.76% CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE
5 Years 2.42 5 Years 1.96 CDSC ON CLASS B SHARES DECLINES FROM 5%
1 Year 5.95 1 Year 13.50 BEGINNING AT THE TIME OF PURCHASE TO 0% AT
THE BEGINNING OF THE SEVENTH YEAR. THE
CLASS B SHARES CDSC ON CLASS C SHARES IS 1% FOR THE FIRST
Inception (8/1/00) 3.87% (Index data from 7/31/00) 2.70% YEAR AFTER PURCHASE. CLASS R SHARES DO NOT
5 Years 2.52 5 Years 1.96 HAVE A FRONT-END SALES CHARGE; RETURNS
1 Year 6.25 1 Year 13.50 SHOWN ARE AT NET ASSET VALUE AND DO NOT
REFLECT A 0.75% CDSC THAT MAY BE IMPOSED
CLASS C SHARES ON A TOTAL REDEMPTION OF RETIREMENT PLAN
Inception (8/1/00) 4.03% (Index data from 7/31/00) 2.70% ASSETS WITHIN THE FIRST YEAR. INVESTOR
5 Years 2.89 5 Years 1.96 CLASS SHARES DO NOT HAVE A FRONT-END SALES
1 Year 10.35 1 Year 13.50 CHARGE OR A CDSC; THEREFORE, PERFORMANCE
IS AT NET ASSET VALUE.
CLASS R SHARES
Inception 5.61% (Index data from 5/31/02) 1.76% THE PERFORMANCE OF THE FUND'S SHARE
5 Years 3.40 5 Years 1.96 CLASSES WILL DIFFER DUE TO DIFFERENT SALES
1 Year 11.81 1 Year 13.50 CHARGE STRUCTURES AND CLASS EXPENSES.
INVESTOR CLASS SHARES
Inception 5.81% Inception (9/30/03) 15.08%
5 Years 3.61 5 Years 1.96
1 Year 12.08 1 Year 13.50
=======================================================================================
</Table>
7
AIM LARGE CAP BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Equity Funds o The quality of services to be provided o Fees relative to those of comparable
(the "Board") oversees the management of by AIM. The Board reviewed the credentials funds with other advisors. The Board
AIM Large Cap Basic Value Fund (the and experience of the officers and reviewed the advisory fee rate for the
"Fund") and, as required by law, employees of AIM who will provide Fund under the Advisory Agreement. The
determines annually whether to approve the investment advisory services to the Fund. Board compared effective contractual
continuance of the Fund's advisory In reviewing the qualifications of AIM to advisory fee rates at a common asset level
agreement with A I M Advisors, Inc. provide investment advisory services, the and noted that the Fund's rate was below
("AIM"). Based upon the recommendation of Board reviewed the qualifications of AIM's the median rate of the funds advised by
the Investments Committee of the Board, investment personnel and considered such other advisors with investment strategies
which is comprised solely of independent issues as AIM's portfolio and product comparable to those of the Fund that the
trustees, at a meeting held on June 30, review process, various back office Board reviewed. The Board noted that AIM
2005, the Board, including all of the support functions provided by AIM and has agreed to waive advisory fees of the
independent trustees, approved the AIM's equity and fixed income trading Fund and to limit the Fund's total
continuance of the advisory agreement (the operations. Based on the review of these operating expenses, as discussed below.
"Advisory Agreement") between the Fund and and other factors, the Board concluded Based on this review, the Board concluded
AIM for another year, effective July 1, that the quality of services to be that the advisory fee rate for the Fund
2005. provided by AIM was appropriate and that under the Advisory Agreement was fair and
AIM currently is providing satisfactory reasonable.
The Board considered the factors services in accordance with the terms of
discussed below in evaluating the fairness the Advisory Agreement. o Expense limitations and fee waivers. The
and reasonableness of the Advisory Board noted that AIM has contractually
Agreement at the meeting on June 30, 2005 o The performance of the Fund relative to agreed to waive advisory fees of the Fund
and as part of the Board's ongoing comparable funds. The Board reviewed the through June 30, 2006 to the extent
oversight of the Fund. In their performance of the Fund during the past necessary so that the advisory fees
deliberations, the Board and the one, three and five calendar years against payable by the Fund do not exceed a
independent trustees did not identify any the performance of funds advised by other specified maximum advisory fee rate, which
particular factor that was controlling, advisors with investment strategies maximum rate includes breakpoints and is
and each trustee attributed different comparable to those of the Fund. The Board based on net asset levels. The Board
weights to the various factors. noted that the Fund's performance for the considered the contractual nature of this
one and three year periods was below the fee waiver and noted that it remains in
One of the responsibilities of the median performance of such comparable effect until June 30, 2006. The Board
Senior Officer of the Fund, who is funds and above such median performance noted that AIM has contractually agreed to
independent of AIM and AIM's affiliates, for the five year period. Based on this waive fees and/or limit expenses of the
is to manage the process by which the review, the Board concluded that no Fund through June 30, 2006 in an amount
Fund's proposed management fees are changes should be made to the Fund and necessary to limit total annual operating
negotiated to ensure that they are that it was not necessary to change the expenses to a specified percentage of
negotiated in a manner which is at arm's Fund's portfolio management team at this average daily net assets for each class of
length and reasonable. To that end, the time. the Fund. The Board considered the
Senior Officer must either supervise a contractual nature of this fee
competitive bidding process or prepare an o The performance of the Fund relative to waiver/expense limitation and noted that
independent written evaluation. The Senior indices. The Board reviewed the it remains in effect through June 30,
Officer has recommended an independent performance of the Fund during the past 2006. The Board considered the effect
written evaluation in lieu of a one, three and five calendar years against these fee waivers/expense limitations
competitive bidding process and, upon the the performance of the Lipper Large-Cap would have on the Fund's estimated
direction of the Board, has prepared such Value Fund Index. The Board noted that the expenses and concluded that the levels of
an independent written evaluation. Such Fund's performance for the one and three fee waivers/expense limitations for the
written evaluation also considered certain year periods was below the performance of Fund were fair and reasonable.
of the factors discussed below. In such Index and above such Index for the
addition, as discussed below, the Senior five year period. Based on this review, o Breakpoints and economies of scale. The
Officer made certain recommendations to the Board concluded that no changes should Board reviewed the structure of the Fund's
the Board in connection with such written be made to the Fund and that it was not advisory fee under the Advisory Agreement,
evaluation. necessary to change the Fund's portfolio noting that it includes two breakpoints.
management team at this time. The Board reviewed the level of the Fund's
The discussion below serves as a advisory fees, and noted that such fees,
summary of the Senior Officer's o Meeting with the Fund's portfolio as a percentage of the Fund's net assets,
independent written evaluation and managers and investment personnel. With would decrease as net assets increase
recommendations to the Board in connection respect to the Fund, the Board is meeting because the Advisory Agreement includes
therewith, as well as a discussion of the periodically with such Fund's portfolio breakpoints. The Board noted that, due to
material factors and the conclusions with managers and/or other investment personnel the Fund's current asset levels and the
respect thereto that formed the basis for and believes that such individuals are way in which the advisory fee breakpoints
the Board's approval of the Advisory competent and able to continue to carry have been structured, the Fund has yet to
Agreement. After consideration of all of out their responsibilities under the benefit from the breakpoints. The Board
the factors below and based on its Advisory Agreement. noted that AIM has contractually agreed to
informed business judgment, the Board waive advisory fees of the Fund through
determined that the Advisory Agreement is o Overall performance of AIM. The Board June 30, 2006 to the extent necessary so
in the best interests of the Fund and its considered the overall performance of AIM that the advisory fees payable by the Fund
shareholders and that the compensation to in providing investment advisory and do not exceed a specified maximum advisory
AIM under the Advisory Agreement is fair portfolio administrative services to the fee rate, which maximum rate includes
and reasonable and would have been Fund and concluded that such performance breakpoints and is based on net asset
obtained through arm's length was satisfactory. levels. The Board concluded that the
negotiations. Fund's fee levels under the Advisory
o Fees relative to those of clients of AIM Agreement therefore would reflect
o The nature and extent of the advisory with comparable investment strategies. The economies of scale at higher asset levels
services to be provided by AIM. The Board noted that AIM does not serve as an and that it was not necessary to change
Board reviewed the services to be advisor to other mutual funds or other the advisory fee breakpoints in the Fund's
provided by AIM under the Advisory clients with investment strategies advisory fee schedule.
Agreement. Based on such review, the comparable to those of the Fund.
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 (continued)
in accordance with the terms of the
Advisory Agreement.
</Table>
8
AIM LARGE CAP BASIC VALUE FUND
<Table>
o Investments in affiliated money market o Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage transactions
collateral from securities lending executed through "soft dollar"
arrangements (collectively, "cash arrangements. Under these arrangements,
balances") of the Fund may be invested in brokerage commissions paid by the Fund
money market funds advised by AIM pursuant and/or other funds advised by AIM are used
to the terms of an SEC exemptive order. to pay for research and execution
The Board found that the Fund may realize services. This research is used by AIM in
certain benefits upon investing cash making investment decisions for the Fund.
balances in AIM advised money market The Board concluded that such arrangements
funds, including a higher net return, were appropriate.
increased liquidity, increased
diversification or decreased transaction o AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to the obligations under the Advisory Agreement,
extent the Fund invests in affiliated and concluded that AIM has the financial
money market funds, AIM has voluntarily resources necessary to fulfill its
agreed to waive a portion of the advisory obligations under the Advisory Agreement.
fees it receives from the Fund
attributable to such investment. The Board o Historical relationship between the Fund
further determined that the proposed and AIM. In determining whether to
securities lending program and related continue the Advisory Agreement for the
procedures with respect to the lending Fund, the Board also considered the prior
Fund is in the best interests of the relationship between AIM and the Fund, as
lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with the relationship, in part, because of such
securities lending program in the money knowledge. The Board also reviewed the
market funds according to the procedures general nature of the non-investment
is in the best interests of the lending advisory services currently performed by
Fund and its respective shareholders. AIM and its affiliates, such as
administrative, transfer agency and
o Independent written evaluation and distribution services, and the fees
recommendations of the Fund's Senior received by AIM and its affiliates for
Officer. The Board noted that, upon their performing such services. In addition to
direction, the Senior Officer of the Fund, reviewing such services, the trustees also
who is independent of AIM and AIM's considered the organizational structure
affiliates, had prepared an independent employed by AIM and its affiliates to
written evaluation in order to assist the provide those services. Based on the
Board in determining the reasonableness of review of these and other factors, the
the proposed management fees of the AIM Board concluded that AIM and its
Funds, including the Fund. The Board noted affiliates were qualified to continue to
that the Senior Officer's written provide non-investment advisory services
evaluation had been relied upon by the to the Fund, including administrative,
Board in this regard in lieu of a transfer agency and distribution services,
competitive bidding process. In and that AIM and its affiliates currently
determining whether to continue the are providing satisfactory non-investment
Advisory Agreement for the Fund, the Board advisory services.
considered the Senior Officer's written
evaluation and the recommendation made by o Other factors and current trends. In
the Senior Officer to the Board that the determining whether to continue the
Board consider implementing a process to Advisory Agreement for the Fund, the Board
assist them in more closely monitoring the considered the fact that AIM, along with
performance of the AIM Funds. The Board others in the mutual fund industry, is
concluded that it would be advisable to subject to regulatory inquiries and
implement such a process as soon as litigation related to a wide range of
reasonably practicable. issues. The Board also considered the
governance and compliance reforms being
o Profitability of AIM and its affiliates. undertaken by AIM and its affiliates,
The Board reviewed information concerning including maintaining an internal controls
the profitability of AIM's (and its committee and retaining an independent
affiliates') investment advisory and other compliance consultant, and the fact that
activities and its financial condition. AIM has undertaken to cause the Fund to
The Board considered the overall operate in accordance with certain
profitability of AIM, as well as the governance policies and practices. The
profitability of AIM in connection with Board concluded that these actions
managing the Fund. The Board noted that indicated a good faith effort on the part
AIM's operations remain profitable, of AIM to adhere to the highest ethical
although increased expenses in recent standards, and determined that the current
years have reduced AIM's profitability. regulatory and litigation environment to
Based on the review of the profitability which AIM is subject should not prevent
of AIM's and its affiliates' investment the Board from continuing the Advisory
advisory and other activities and its Agreement for the Fund.
financial condition, the Board concluded
that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
was not excessive.
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM LARGE CAP BASIC VALUE FUND
===============================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/05 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been RETURNS MAY BE MORE OR LESS THAN THOSE
prepared to provide Institutional Inception 5.61% SHOWN. ALL RETURNS ASSUME REINVESTMENT OF
Class shareholders with a 5 Years 2.60 DISTRIBUTIONS AT NET ASSET VALUE.
performance overview specific to 1 Year 10.10 INVESTMENT RETURN AND PRINCIPAL VALUE WILL
their holdings. Institutional Class 6 Months* 3.65 FLUCTUATE SO YOUR SHARES, WHEN REDEEMED,
shares are offered exclusively to =============================================== MAY BE WORTH MORE OR LESS THAN THEIR
institutional investors, including ORIGINAL COST. SEE FULL REPORT FOR
defined contribution plans that meet AVERAGE ANNUAL TOTAL RETURNS INFORMATION ON COMPARATIVE BENCHMARKS.
certain criteria. For periods ended 9/30/05, most recent calendar PLEASE CONSULT YOUR FUND PROSPECTUS FOR
quarter-end MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL
Inception 5.91% 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
5 Years 3.73
1 Year 12.64
6 Months* 3.37
* Cumulative total return that has not been
annualized
===============================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET
VALUE (NAV).
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS
APRIL 30, 2004. RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER RETURNS ARE
BLENDED RETURNS OF HISTORICAL INSTITUTIONAL
CLASS SHARE PERFORMANCE AND RESTATED CLASS A
SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE
==================================== INCEPTION DATE OF INSTITUTIONAL CLASS SHARES)
AT NET ASSET VALUE AND REFLECT THE HIGHER RULE
NASDAQ SYMBOL LCBIX 12B-1 FEES APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS JUNE 30, 1999.
==================================== PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL
DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
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.
[YOUR GOALS.
OUR SOLUTIONS.]
- REGISTERED TRADEMARK - [AIM INVESTMENTS LOGO]
AIMINVESTMENTS.COM LCBV-INS-1 - REGISTERED TRADEMARK -
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values and
example, an $8,600 account value divided by expenses may not be used to estimate the
As a shareholder of the Fund, you $1,000 = 8.6), then multiply the result by the actual ending account balance or expenses
incur ongoing costs, including number in the table under the heading entitled you paid for the period. You may use this
management fees and other Fund "Actual Expenses Paid During Period" to information to compare the ongoing costs of
expenses. This example is intended estimate the expenses you paid on your account investing in the Fund and other funds. To
to help you understand your ongoing during this period. do so, compare this 5% hypothetical example
costs (in dollars) of investing in with the 5% hypothetical examples that
the Fund and to compare these costs HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES appear in the shareholder reports of the
with ongoing costs of investing in other funds.
other mutual funds. The example is The table below also provides information about
based on an investment of $1,000 hypothetical account values and hypothetical Please note that the expenses shown in
invested at the beginning of the expenses based on the Fund's actual expense the table are meant to highlight your
period and held for the entire ratio and an assumed rate of return of 5% per ongoing costs only. Therefore, the
period May 1, 2005, through October year before expenses, which is not the Fund's hypothetical information is useful in
31, 2005. actual return. The Fund's actual cumulative comparing ongoing costs only, and will not
total return after expenses for the six months help you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2005, appears in the table on of owning different funds.
the front of this supplement.
The table below provides information
about actual account values and
actual expenses. You may use the
information in this table, together
with the amount you invested, to
estimate the expenses that you paid
over the period. Simply
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,036.50 $ 3.95 $1,021.32 $3.92 0.77%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
AIMINVESTMENTS.COM LCBV-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.71%
ADVERTISING-4.38%
Interpublic Group of Cos., Inc. (The)(a) 562,200 $ 5,807,526
- -----------------------------------------------------------------------
Omnicom Group Inc. 131,600 10,917,536
=======================================================================
16,725,062
=======================================================================
AEROSPACE & DEFENSE-1.37%
Honeywell International Inc. 153,300 5,242,860
=======================================================================
ALUMINUM-1.04%
Alcoa Inc. 163,500 3,971,415
=======================================================================
APPAREL RETAIL-1.28%
Gap, Inc. (The) 282,700 4,885,056
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.06%
Bank of New York Co., Inc. (The) 250,600 7,841,274
=======================================================================
BREWERS-1.66%
Molson Coors Brewing Co.-Class B 102,497 6,324,065
=======================================================================
BUILDING PRODUCTS-1.67%
Masco Corp. 224,200 6,389,700
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.74%
Deere & Co. 46,800 2,839,824
=======================================================================
CONSTRUCTION MATERIALS-2.15%
CEMEX, S.A. de C.V.-ADR (Mexico) 157,500 8,201,025
=======================================================================
CONSUMER ELECTRONICS-2.84%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 191,970 5,021,935
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 176,700 5,795,760
=======================================================================
10,817,695
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.46%
Ceridian Corp.(a) 278,700 6,106,317
- -----------------------------------------------------------------------
First Data Corp. 269,700 10,909,365
=======================================================================
17,015,682
=======================================================================
DIVERSIFIED CHEMICALS-0.63%
Dow Chemical Co. (The) 52,600 2,412,236
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.90%
Cendant Corp. 415,600 7,239,752
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
ENVIRONMENTAL & FACILITIES SERVICES-2.78%
Waste Management, Inc. 359,550 10,610,320
=======================================================================
FOOD RETAIL-3.49%
Kroger Co. (The)(a) 386,600 $ 7,693,340
- -----------------------------------------------------------------------
Safeway Inc. 240,800 5,601,008
=======================================================================
13,294,348
=======================================================================
GENERAL MERCHANDISE STORES-2.33%
Target Corp. 159,600 8,888,124
=======================================================================
HEALTH CARE DISTRIBUTORS-6.96%
Cardinal Health, Inc. 264,600 16,540,146
- -----------------------------------------------------------------------
McKesson Corp. 220,100 9,999,143
=======================================================================
26,539,289
=======================================================================
HEALTH CARE EQUIPMENT-1.58%
Baxter International Inc. 157,800 6,032,694
=======================================================================
HEALTH CARE FACILITIES-2.03%
HCA Inc. 160,400 7,729,676
=======================================================================
INDUSTRIAL CONGLOMERATES-5.38%
General Electric Co. 225,500 7,646,705
- -----------------------------------------------------------------------
Tyco International Ltd. 487,300 12,859,847
=======================================================================
20,506,552
=======================================================================
INDUSTRIAL MACHINERY-1.97%
Illinois Tool Works Inc. 88,515 7,502,531
=======================================================================
INVESTMENT BANKING & BROKERAGE-4.14%
Merrill Lynch & Co., Inc. 117,800 7,626,372
- -----------------------------------------------------------------------
Morgan Stanley 150,000 8,161,500
=======================================================================
15,787,872
=======================================================================
MANAGED HEALTH CARE-3.54%
WellPoint, Inc.(a) 181,000 13,517,080
=======================================================================
MOVIES & ENTERTAINMENT-2.17%
Walt Disney Co. (The) 340,100 8,288,237
=======================================================================
MULTI-LINE INSURANCE-2.27%
Hartford Financial Services Group, Inc. (The) 108,600 8,660,850
=======================================================================
OIL & GAS DRILLING-2.30%
Transocean Inc.(a) 152,677 8,777,401
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-6.28%
Halliburton Co. 245,100 14,485,410
- -----------------------------------------------------------------------
Schlumberger Ltd. 104,100 9,449,157
=======================================================================
23,934,567
=======================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-6.03%
Citigroup Inc. 262,619 $ 12,022,698
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 299,356 10,962,417
=======================================================================
22,985,115
=======================================================================
PACKAGED FOODS & MEATS-2.87%
Kraft Foods Inc.-Class A 162,300 4,593,090
- -----------------------------------------------------------------------
Unilever N.V. (Netherlands)(b) 90,300 6,356,554
=======================================================================
10,949,644
=======================================================================
PHARMACEUTICALS-6.95%
Pfizer Inc. 320,700 6,972,018
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 152,452 12,209,279
- -----------------------------------------------------------------------
Wyeth 164,300 7,321,208
=======================================================================
26,502,505
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.63%
ACE Ltd. 192,800 10,044,880
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-2.86%
Computer Associates International, Inc. 389,499 $ 10,894,287
=======================================================================
THRIFTS & MORTGAGE FINANCE-2.97%
Fannie Mae 168,300 7,997,616
- -----------------------------------------------------------------------
Freddie Mac 54,000 3,312,900
=======================================================================
11,310,516
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $304,160,844) 372,662,134
=======================================================================
MONEY MARKET FUNDS-2.09%
Liquid Assets Portfolio-Institutional
Class(c) 3,993,056 3,993,056
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 3,993,056 3,993,056
=======================================================================
Total Money Market Funds (Cost
$7,986,112) 7,986,112
=======================================================================
TOTAL INVESTMENTS-99.80% (Cost $312,146,956) 380,648,246
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.20% 754,414
=======================================================================
NET ASSETS-100.00% $381,402,660
_______________________________________________________________________
=======================================================================
</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 value of these securities at October 31, 2005 was $18,565,833,
which represented 4.87% of the Fund's Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $304,160,844) $372,662,134
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $7,986,112) 7,986,112
===========================================================
Total investments (cost $312,146,956) 380,648,246
===========================================================
Foreign currencies, at value (cost $574,966) 576,675
- -----------------------------------------------------------
Receivables for:
Fund shares sold 763,526
- -----------------------------------------------------------
Dividends 271,503
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 58,698
- -----------------------------------------------------------
Other assets 63,191
===========================================================
Total assets 382,381,839
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 592,601
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 79,164
- -----------------------------------------------------------
Accrued distribution fees 129,444
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,643
- -----------------------------------------------------------
Accrued transfer agent fees 110,943
- -----------------------------------------------------------
Accrued operating expenses 65,384
===========================================================
Total liabilities 979,179
===========================================================
Net assets applicable to shares outstanding $381,402,660
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $326,739,322
- -----------------------------------------------------------
Undistributed net investment income 126,845
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (13,966,506)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 68,502,999
===========================================================
$381,402,660
___________________________________________________________
===========================================================
NET ASSETS:
Class A $129,410,417
___________________________________________________________
===========================================================
Class B $ 69,040,024
___________________________________________________________
===========================================================
Class C $ 26,593,370
___________________________________________________________
===========================================================
Class R $ 1,306,453
___________________________________________________________
===========================================================
Investor Class $ 62,838,002
___________________________________________________________
===========================================================
Institutional Class $ 92,214,394
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 9,568,605
___________________________________________________________
===========================================================
Class B 5,284,614
___________________________________________________________
===========================================================
Class C 2,035,673
___________________________________________________________
===========================================================
Class R 97,189
___________________________________________________________
===========================================================
Investor Class 4,638,620
___________________________________________________________
===========================================================
Institutional Class 6,763,537
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.52
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.52 divided by
94.50%) $ 14.31
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 13.06
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 13.06
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 13.44
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 13.55
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 13.63
___________________________________________________________
===========================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $74,966) $ 5,391,458
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $29,611, after compensation
to counterparties of $44,523) 379,373
=========================================================================
Total investment income 5,770,831
=========================================================================
EXPENSES:
Advisory fees 2,315,814
- -------------------------------------------------------------------------
Administrative services fees 138,773
- -------------------------------------------------------------------------
Custodian fees 39,443
- -------------------------------------------------------------------------
Distribution fees:
Class A 463,980
- -------------------------------------------------------------------------
Class B 794,144
- -------------------------------------------------------------------------
Class C 301,573
- -------------------------------------------------------------------------
Class R 6,103
- -------------------------------------------------------------------------
Investor Class 169,775
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 979,378
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 13,441
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 27,978
- -------------------------------------------------------------------------
Other 373,030
=========================================================================
Total expenses 5,623,432
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (67,667)
=========================================================================
Net expenses 5,555,765
=========================================================================
Net investment income 215,066
=========================================================================
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 $21,511) 6,582,709
- -------------------------------------------------------------------------
Foreign currencies (31,168)
=========================================================================
6,551,541
=========================================================================
Change in net unrealized appreciation of:
Investment securities 26,902,608
- -------------------------------------------------------------------------
Foreign currencies 1,709
=========================================================================
26,904,317
=========================================================================
Net gain from investment securities and foreign currencies 33,455,858
=========================================================================
Net increase in net assets resulting from operations $33,670,924
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 215,066 $ (318,275)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 6,551,541 12,500,527
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 26,904,317 13,417,119
==========================================================================================
Net increase in net assets resulting from operations 33,670,924 25,599,371
==========================================================================================
Share transactions-net:
Class A (34,461,008) 18,535,871
- ------------------------------------------------------------------------------------------
Class B (23,033,557) (1,304,921)
- ------------------------------------------------------------------------------------------
Class C (6,865,487) 2,160,392
- ------------------------------------------------------------------------------------------
Class R 220,012 365,393
- ------------------------------------------------------------------------------------------
Investor Class (14,239,429) 62,887,146
- ------------------------------------------------------------------------------------------
Institutional Class 69,905,745 18,632,135
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (8,473,724) 101,276,016
==========================================================================================
Net increase in net assets 25,197,200 126,875,387
==========================================================================================
NET ASSETS:
Beginning of year 356,205,460 229,330,073
==========================================================================================
End of year (including undistributed net investment income
(loss) of $126,845 and $(57,053), respectively) $381,402,660 $356,205,460
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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.
F-5
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally are valued 15 minutes after the close of the customary
trading session of the New York Stock Exchange ("NYSE").
Investments in open-end 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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F-6
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
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>
Effective July 1, 2005, AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class R, Investor Class and Institutional Class shares to 1.22%,
1.97%, 1.97%, 1.47%, 1.22% and 0.97% of average daily net assets, respectively,
through October 31, 2006. 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; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset
arrangements from which the Fund may benefit are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. 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). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $2,715 and
reimbursed expenses of $23,829.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$29,943.
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 year ended
October 31, 2005, AIM was paid $138,773.
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
F-7
make payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended October
31, 2005, the Fund paid AISI $979,378 for Class A, Class B, Class C, Class R and
Investor Class shares and $13,441 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 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares, 0.50% of the average daily net assets of Class R shares and 0.25% of the
average daily net assets of Investor Class shares. Prior to July 1, 2005, the
Fund paid ADI 0.35% of the average daily net assets of Class A 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. National Association of Securities Dealers ("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, 2005, the Class A, Class B, Class C, Class
R and Investor Class shares paid $463,980, $794,144, $301,573, $6,103 and
$169,775, 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, 2005, ADI advised the Fund that it retained $50,935 in
front-end sales commissions from the sale of Class A shares and $55, $32,678,
$5,013 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 year ended October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 3,790,466 $ 34,323,726 $ (34,121,136) $ -- $3,993,056 $174,364 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,790,466 34,323,726 (34,121,136) -- 3,993,056 175,398 --
==================================================================================================================================
Subtotal $ 7,580,932 $ 68,647,452 $ (68,242,272) $ -- $7,986,112 $349,762 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 4,830,000 $ (4,830,000) $ -- $ -- $ 221 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 7,196,450 46,401,928 (53,598,378) -- -- 29,390 --
==================================================================================================================================
Subtotal $ 7,196,450 $ 51,231,928 $ (58,428,378) $ -- $ -- $ 29,611 $ --
==================================================================================================================================
Total $14,777,382 $119,879,380 $ (126,670,650) $ -- $7,986,112 $379,373 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of compensation to counterparties.
F-8
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, 2005, the Fund
engaged in securities purchases of $662,046 and sales of $44,536, which resulted
in net realized gains of $21,511.
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, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $11,180.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $3,924
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
F-9
NOTE 8--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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 189,013
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 66,642,767
- ----------------------------------------------------------------------------
Temporary book/tax differences (62,168)
- ----------------------------------------------------------------------------
Capital loss carryforward (12,106,274)
- ----------------------------------------------------------------------------
Shares of beneficial interest 326,739,322
============================================================================
Total net assets $381,402,660
____________________________________________________________________________
============================================================================
</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 deferral
of losses on wash sales. The tax-basis unrealized appreciation (depreciation) on
investments amount includes appreciation on foreign currencies of $1,709.
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, 2005 to utilizing $12,106,274 of capital loss carryforward in the fiscal
year ended October 31, 2006.
The Fund utilized $6,545,440 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2010 $ 2,575,032
- -----------------------------------------------------------------------------
October 31, 2011 9,531,242
=============================================================================
Total capital loss carryforward $12,106,274
_____________________________________________________________________________
=============================================================================
</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 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 year ended
October 31, 2005 was $32,739,758 and $43,465,353, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 82,303,713
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (15,662,655)
==============================================================================
Net unrealized appreciation of investment securities $ 66,641,058
______________________________________________________________________________
==============================================================================
</Table>
Cost of investments for tax purposes is $314,007,188.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on October 31, 2005, undistributed net investment income was
decreased by $31,168 and undistributed net realized gain (loss) was increased by
$31,168. This reclassification had no effect on the net assets of the Fund.
F-10
NOTE 11--SHARE INFORMATION
The Fund currently consists of 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. Investor
Class shares of the Fund are offered only to certain grandfathered investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2005(A) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,255,204 $ 30,096,888 4,797,896 $ 59,721,792
- ----------------------------------------------------------------------------------------------------------------------
Class B 677,589 8,750,040 1,918,978 23,316,127
- ----------------------------------------------------------------------------------------------------------------------
Class C 389,525 5,035,443 753,705 9,128,932
- ----------------------------------------------------------------------------------------------------------------------
Class R 53,404 710,389 54,757 677,970
- ----------------------------------------------------------------------------------------------------------------------
Investor Class 653,244 8,732,324 1,838,069 22,849,380
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 5,551,474 73,962,199 1,526,455 18,788,116
======================================================================================================================
Issued in connection with acquisitions:(c)
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 395,891 5,284,334 467,293 5,834,860
- ----------------------------------------------------------------------------------------------------------------------
Class B (408,349) (5,284,334) (478,951) (5,834,860)
======================================================================================================================
Reacquired:
Class A (5,238,235) (69,842,230) (3,841,386) (47,289,385)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,049,123) (26,499,263) (1,581,802) (19,136,388)
- ----------------------------------------------------------------------------------------------------------------------
Class C (919,907) (11,900,930) (671,051) (8,091,321)
- ----------------------------------------------------------------------------------------------------------------------
Class R (36,750) (490,377) (25,935) (312,577)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (1,718,766) (22,971,753) (3,812,184) (47,235,254)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (301,752) (4,056,454) (12,640) (155,981)
======================================================================================================================
(696,551) $ (8,473,724) 8,751,494 $101,276,016
______________________________________________________________________________________________________________________
======================================================================================================================
</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 12% of
the outstanding shares of the Fund. ADI has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these entities are also owned beneficially.
In addition, 20% of the outstanding shares of the Fund are owned by
affiliated mutual funds. Affiliated mutual funds are other mutual funds
that are also advised by AIM.
(b) Institutional Class shares commenced sales on April 30, 2004.
(c) 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.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.36 $ 11.39 $ 9.20 $ 10.94 $ 12.05
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) 0.01(a) (0.00)(a) 0.01(a) 0.02(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.14 0.96 2.19 (1.75) (1.07)
=======================================================================================================================
Total from investment operations 1.16 0.97 2.19 (1.74) (1.05)
=======================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.04)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.02)
=======================================================================================================================
Total distributions -- -- -- -- (0.06)
=======================================================================================================================
Net asset value, end of period $ 13.52 $ 12.36 $ 11.39 $ 9.20 $ 10.94
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 9.38% 8.52% 23.80% (15.90)% (8.74)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $129,410 $150,190 $121,980 $94,387 $68,676
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.35%(c) 1.33% 1.42% 1.38% 1.27%
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.37%(c) 1.35% 1.42% 1.38% 1.36%
=======================================================================================================================
Ratio of net investment income (loss) to average net assets 0.15%(c) 0.11% (0.01)% 0.11% 0.17%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 9% 32% 41% 37% 18%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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 $146,179,329.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.02 $ 11.15 $ 9.07 $ 10.86 $ 12.02
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.11 0.94 2.15 (1.73) (1.05)
=============================================================================================================================
Total from investment operations 1.04 0.87 2.08 (1.79) (1.11)
=============================================================================================================================
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 $ 13.06 $ 12.02 $ 11.15 $ 9.07 $ 10.86
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 8.65% 7.80% 22.93% (16.48)% (9.25)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $69,040 $84,896 $80,018 $63,977 $58,681
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.03%(c) 1.98% 2.07% 2.02% 1.95%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.05%(c) 2.00% 2.07% 2.02% 2.04%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.53)%(c) (0.54)% (0.66)% (0.53)% (0.51)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 9% 32% 41% 37% 18%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $79,414,384.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.02 $ 11.15 $ 9.07 $ 10.85 $ 12.02
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a) (0.07)(a) (0.07)(a) (0.06)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.11 0.94 2.15 (1.72) (1.06)
=================================================================================================================================
Total from investment operations 1.04 0.87 2.08 (1.78) (1.12)
=================================================================================================================================
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 $ 13.06 $ 12.02 $ 11.15 $ 9.07 $ 10.85
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.65% 7.80% 22.93% (16.41)% (9.33)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,593 $30,835 $26,566 $21,775 $20,680
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.03%(c) 1.98% 2.07% 2.02% 1.95%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.05%(c) 2.00% 2.07% 2.02% 2.04%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.53)%(c) (0.54)% (0.66)% (0.53)% (0.51)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 9% 32% 41% 37% 18%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $30,157,343.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------- 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) 1.13 0.96 2.18 (2.40)
===============================================================================================================================
Total from investment operations 1.13 0.95 2.16 (2.40)
===============================================================================================================================
Net asset value, end of period $13.44 $12.31 $11.36 $ 9.20
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 9.18% 8.36% 23.48% (20.69)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,306 $ 991 $ 588 $ 8
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.53%(c) 1.48% 1.57% 1.54%(d)
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.55%(c) 1.50% 1.57% 1.54%(d)
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.03)%(c) (0.04)% (0.16)% (0.05)%(d)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 9% 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 based on average daily net assets of $1,220,572.
(d) Annualized.
<Table>
<Caption>
INVESTOR CLASS
-----------------------------------------------
SEPTEMBER 30, 2003
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
----------------------- OCTOBER 31,
2005 2004 2003
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.37 $ 11.39 $10.98
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03(a) 0.03(a) 0.00(a)
- -------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.15 0.95 0.41
=============================================================================================================
Total from investment operations 1.18 0.98 0.41
=============================================================================================================
Net asset value, end of period $ 13.55 $ 12.37 $11.39
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 9.54% 8.60% 3.73%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $62,838 $70,548 $ 178
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.28%(c) 1.24% 1.25%(d)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.30%(c) 1.25% 1.25%(d)
=============================================================================================================
Ratio of net investment income to average net assets 0.22%(c) 0.20% 0.16%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate 9% 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 based on average daily net assets of $67,910,036.
(d) Annualized.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------
APRIL 30, 2004
(DATE SALES
COMMENCED)
YEAR ENDED TO
OCTOBER 31, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.38 $ 12.62
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a) 0.04(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.15 (0.28)
==============================================================================================
Total from investment operations 1.25 (0.24)
==============================================================================================
Net asset value, end of period $ 13.63 $ 12.38
______________________________________________________________________________________________
==============================================================================================
Total return(b) 10.10% (1.90)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $92,214 $18,745
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.76%(c) 0.80%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.77%(c) 0.81%(d)
==============================================================================================
Ratio of net investment income to average net assets 0.74%(c) 0.64%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 9% 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 based on average daily net assets of $61,087,387.
(d) Annualized.
NOTE 13--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. As the
F-15
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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 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 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 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the common
issues of law presented in defendants' motions to dismiss the
F-16
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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.
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-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Large Cap Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Large Cap Basic Value Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 8.83%, 11.42%, 12.66% and 12.09%, respectively.
<Table>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund DIVERSIFIED PORTFOLIOS
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund(1) AIM Income Allocation Fund
AIM Large Cap Basic Value Fund AIM Technology Fund AIM International Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
TAX-FREE
* Domestic equity and income fund
AIM High Income Municipal Fund(1)
INTERNATIONAL/GLOBAL EQUITY AIM Municipal Bond Fund
AIM Tax-Exempt Cash Fund
AIM Asia Pacific Growth Fund AIM Tax-Free Intermediate Fund
AIM Developing Markets Fund Premier Tax-Exempt Portfolio
AIM European Growth Fund
AIM European Small Company Fund(1) =====================================================================================
AIM Global Aggressive Growth Fund CONSIDER THE INVESTMENT OBJECTIVES,RISKS,AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Global Equity Fund AND OTHER INFORMATION ABOUT AIM FUNDS,OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Global Growth Fund AND READ IT CAREFULLY BEFORE INVESTING.
AIM Global Value Fund =====================================================================================
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com LCBV-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>
AIM LARGE CAP GROWTH FUND
Annual Report to Shareholders o October 31,2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
AIM LARGE CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
ABOUT SHARE CLASSES
o Class B shares are not available as an o The unmanaged MSCI WORLD INDEX is a by and is the exclusive property and a
investment for retirement plans group of global securities tracked by service mark of Morgan Stanley Capital
maintained pursuant to Section 401 of Morgan Stanley Capital International. International Inc. and Standard &
the Internal Revenue Code, including Poor's.
401(k) plans, money purchase pension o The unmanaged RUSSELL 1000
plans and profit sharing plans. Plans --Registered Trademark-- GROWTH INDEX is The Fund provides a complete list of its
that had existing accounts invested in a subset of the unmanaged RUSSELL holdings four times in each fiscal year,
Class B shares prior to September 30, 1000 INDEX, which represents the at the quarter-ends. For the second and
2003, will continue to be allowed to performance of the stocks of fourth quarters, the lists appear in the
make additional purchases. large-capitalization companies; the Fund's semiannual and annual reports to
Growth subset measures the performance shareholders. For the first and third
o Class R shares are available only to of Russell 1000 companies with higher quarters, the Fund files the lists with
certain retirement plans. Please see the price/book ratios and higher forecasted the Securities and Exchange Commission
prospectus for more information. growth values. (SEC) on Form N-Q. The most recent list
of portfolio holdings is available at
o Investor Class shares are closed to o The unmanaged Standard & Poor's AIMinvestments.com. From our home page,
most investors. For more information on Composite Index of 500 Stocks (the S&P click on Products & Performance, then
who may continue to invest in the 500--Registered Trademark-- INDEX) is Mutual Funds, then Fund Overview. Select
Investor Class shares, please see the an index of common stocks frequently your Fund from the drop-down menu and
prospectus. used as a general measure of U.S. stock click on Complete Quarterly Holdings.
market performance. Shareholders can also look up the Fund's
PRINCIPAL RISKS OF INVESTING IN THE FUND Forms N-Q on the SEC's Web site at
o The Fund is not managed to track the sec.gov. And copies of the Fund's Forms
o The Fund may invest up to 25% of its performance of any particular index, N-Q may be reviewed and copied at the
assets in the securities of non-U.S. including the indexes defined here, and SEC's Public Reference Room at 450 Fifth
issuers. International investing consequently, the performance of the Street, N.W., Washington, D.C.
presents certain risks not associated Fund may deviate significantly from the 20549-0102. You can obtain information
with investing solely in the United performance of the indexes. on the operation of the Public Reference
States. These include risks relating to Room, including information about
fluctuations in the value of the U.S. o A direct investment cannot be made in duplicating fee charges, by calling
dollar relative to the values of other an index. Unless otherwise indicated, 202-942-8090 or 800-732-0330,or by
currencies, the custody arrangements index results include reinvested electronic request at the following
made for the fund's foreign holdings, dividends, and they do not reflect sales e-mail address: publicinfo@sec.gov. The
differences in accounting, political charges. Performance of an index of SEC file numbers for the Fund are
risks and the lesser degree of public funds reflects fund expenses; 811-01424 and 2-25469.
information required to be provided by performance of a market index does not.
non-U.S. companies. A description ofthe policies and
OTHER INFORMATION procedures that the Fund uses to
o Although the fund's return during the determine how to vote proxies relating
reporting period was positively impacted o The returns shown in management's to portfolio securities is available
by its investments in initial public discussion of Fund performance are based without charge, upon request, from our
offerings (IPOs), there can be no on net asset values calculated for Client Services department at
assurance that the fund will have shareholder transactions. Generally 800-959-4246 or on the AIM Web site,
favorable IPO investment opportunities accepted accounting principles require AIMinvestments.com. On the home page,
in the future. adjustments to be made to the net assets scroll down and click on AIM Funds Proxy
of the Fund at period end for financial Policy. The information is also
ABOUT INDEXES USED IN THIS REPORT reporting purposes, and as such, the net available on the Securities and Exchange
asset values for shareholder Commission's Web site, sec.gov.
o The unmanaged LIPPER LARGE-CAP GROWTH transactions and the returns based on
FUND INDEX represents an average of the those net asset values may differ from Information regarding how the Fund voted
performance of the 30 largest the net asset values and returns proxies related to its portfolio
large-capitalization growth funds reported in the Financial Highlights. securities during the 12 months ended
tracked by Lipper, Inc., an independent June 30, 2005, is available at our Web
mutual fund performance monitor. o Industry classifications used in this site. Go to AIMinvestments.com, access
report are generally according to the the About Us tab, click on Required
Global Industry Classification Standard, Notices and then click on Proxy Voting
which was developed Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
=========================================
FUND NASDAQ SYMBOLS
Class A Shares LCGAX
Class B Shares LCGBX
Class C Shares LCGCX
Class R Shares LCRGX
Investor Class Shares LCGIX
=========================================
================================================================================
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 LARGE CAP GROWTH FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to equity
investors. Domestically, the broad-based S&P 500 Index returned
[GRAHAM 8.72%. Globally, Morgan Stanley's MSCI World Index rose 13.27%.
PHOTO] Much of this good performance, though, was attained early in the
fiscal year as virtually every equity index declined during
October of 2005. Concern about the inflationary potential of
rising energy costs was frequently cited as a major cause of
market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets. Domestically,
ROBERT H. energy sector performance far outpaced that of the other sectors
GRAHAM in the S&P 500 Index, reflecting rising and gas prices.
Overseas, emerging markets produced more attractive results than
did developed markets, at least in because emerging markets tend
to be more closely tied to the performance of natural resources
and commodities.
One could make a strong argument for global diversification
of a stock portfolio using the performance data for the fiscal
year ended October 31, 2005. Of course, your financial advisor
is the person most qualified to help you decide whether such
diversification is appropriate for you.
[WILLIAMSON
PHOTO] For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in this
MARK H. report. First, on Page 2, is a message from Bruce Crockett, the
WILLIAMSON independent Chair of the Board of Trustees of the AIM Funds. We
first introduced you to Mr. Crockett in the annual report on
your Fund dated October 31, 2004. Mr. Crockett has been on our
Funds' Board since 1992; he assumed his responsibilities as
Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of the
work of the Board regularly via letters in the Fund reports. We
certainly think this is 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 manage the
assets in your Fund. A discussion of the factors the Board
considered in reviewing the agreement is the second new element
in the report, and we encourage you to it. It appears on Pages 8
and 9.
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,
AIM Fund A I M Advisors, Inc.
December 15, 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. A I M Distributors, Inc. is
the distributor for the retail funds represented by AIM
Investments.
1
AIM LARGE CAP GROWTH FUND
DEAR AIM FUNDS 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
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM LARGE CAP GROWTH FUND
MANAGEMENT'S DISCUSSION Our fundamental analysis seeks to
OF FUND PERFORMANCE determine the company's drivers of
====================================================================================== earnings. Our team meets with company
PERFORMANCE SUMMARY management to evaluate proprietary
========================================= products and the quality of management.
For the year ended October 31, 2005, FUND VS. INDEXES We also analyze trends and the
Class A shares of AIM Large Cap Growth competitive landscape. We believe stocks
Fund, excluding sales charges, TOTAL RETURNS, 10/31/04-10/31/05, that pass our quantitative and
outperformed its broad market index and EXCLUDING APPLICABLE SALES CHARGES. IF fundamental screens are less likely to
its style-specific index, the Russell SALES CHARGES WERE INCLUDED, RETURNS underperform.
1000 Growth Index. WOULD BE LOWER.
We construct the portfolio using a
The Fund outperformed the broad Class A Shares 10.48% bottom-up strategy, focusing on stocks
market as represented by the S&P 500 Class B Shares 9.74 rather than industries or sectors. While
Index largely because of strong stock Class C Shares 9.74 there are no formal sector guidelines or
selection, particularly in the health Class R Shares 10.30 constraints, internal controls and
care sector. Also, an overweight Investor Class Shares 10.65 proprietary software help us monitor
position in the energy sector enhanced S&P 500 Index risk levels and sector concentration.
Fund performance, although it was (Broad Market Index) 8.72
hindered by an underweight position the Russell 1000 Growth Index Our sell process is designed to avoid
information technology sector. (Style-specific Index) 8.81 "high risk" situations we believe lead
Lipper Large-Cap Growth to underperformance. Examples of "high
Your Fund's long-term performance Fund Index (Peer Group Index) 12.09 risk" situations include:
appears on Pages 6 and 7.
SOURCE: LIPPER,INC. o deteriorating business prospects
=========================================
====================================================================================== o extended valuation
HOW WE INVEST correlated with outperformance in the
large-cap growth universe, including o slowing earnings growth
We believe a growth investment strategy
is an essential component of a o earnings revisions--breadth and o weakened balance sheet
diversified portfolio. magnitude of positive earnings
MARKET CONDITIONS AND YOUR FUND
Our investment process combines o earnings sustainability and use of
quantitative and fundamental analysis to capital--review financial statements Despite widespread concern about the
uncover companies exhibiting long-term, determine suitability of growth and potential impact of rising short-term
sustainable earnings and cash flow long-term profit potential interest rates and historically high
growth that is not yet reflected in energy prices, the U.S. economy
investor expectations or equity o valuation--compare a stock's price its expanded, inflation remained contained
valuations. cash flow and earnings measures and corporate profits generally rose
during the fiscal year covered by this
Our quantitative model ranks o risk assessment--avoid "high risk" report. Late in the year, higher energy
companies based on factors we have found companies as defined below prices and rising interest rates
to be highly threatened to crimp consumer spending,
which accounts for approximately
two-thirds of the U.S. economy.
Corporate profits and stock
(continued)
========================================= ========================================== =========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1.Managed Health Care 9.9% 1.UnitedHealth Group Inc. 3.8%
[PIE CHART] 2.Pharmaceuticals 7.9 2.Alcon,Inc. (Switzerland) 3.4
3.Semiconductors 7.3 3.Johnson & Johnson 3.0
Health Care 34.7% 4.Aerospace & Defense 6.3 4.Apple Computer,Inc. 2.8
Information Technology 23.7% 5.Biotechnology 5.9 5.Aetna Inc. 2.7
Financials 10.8% 6.Computer Hardware 5.6 6.Motorola,Inc. 2.6
Industrials 8.8% 7.Investment Banking & 7.Amgen Inc. 2.4
Consumer Discretionary 7.8% Brokerage 4.7 8.Valero Energy Corp. 2.3
Energy 7.5% 8.Health Care Services 4.4 9.Lehman Brothers Holdings Inc. 2.2
Consumer Staples 3.1% 9.Communications Equipment 3.6 10.Google Inc.-Class A 2.0
Telecommunications Services 1.4% 10.Department Stores 3.5
Money Market Funds Plus
Other Assets Less Liabilities 2.2%
TOTAL NET ASSETS $803.0 MILLION
TOTAL NUMBER OF HOLDINGS* 73
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.
3
========================================= ========================================== =========================================
AIM LARGE CAP GROWTH FUND
market performance, varied widely by increases. For the year, your Fund was good--and getting better. As a group,
sector during the year. Rising energy overweight energy stocks relative to its large-cap growth companies boasted
prices caused many energy companies and style-specific index, with refiner healthy cash flows, strong balance
utilities to report record earnings and VALERO ENERGY and integrated oil sheets and positive earnings growth, and
profits--while profits of companies that producer CONOCOPHILLIPS among the stocks managements were generally using capital
use a lot of energy, such as chemical benefiting Fund performance. for the benefit of shareholders. And
companies and airlines, were weak. The yet, large-cap growth stocks were
broad stock market rose for the year. Information technology stocks were attractively priced relative to other
the biggest drag on Fund performance for stocks with less attractive
Health care and energy stocks the year. In particular, DELL COMPUTER fundamentals. While large-cap growth
contributed positively to Fund hurt Fund performance as did computer stocks have lagged the broad market in
performance for the year. security software manufacturer SYMANTEC. recent years, we believe investors will
Dell, a long-time Fund holding, eventually recognize and reward these
Within the health care sector, our accounted for a significant investment characteristics. As always, we thank you
research led us to managed care stocks. by the Fund. However, the company for your continued investment in AIM
Many managed care companies have uncharacteristically stumbled by Large Cap Growth Fund.
reported strong earnings in recent mispricing its products relative to its
quarters by aggressively controlling competitors, resulting in THE VIEWS AND OPINIONS EXPRESSED IN
costs, reducing hospital utilization lower-than-expected revenues. This MANAGEMENT'S DISCUSSION OF FUND
rates and switching plan participants spooked investors, and the stock fell PERFORMANCE ARE THOSE OF A I M ADVISORS,
from name-brand to generic drugs. AETNA, more than 7% the day after the company INC. THESE VIEWS AND OPINIONS ARE
UNITEDHEALTH GROUP, WELLPOINT and CIGNA announced its second quarter results. We SUBJECT TO CHANGE AT ANY TIME BASED ON
were among the managed care companies sold more than half of our Dell holdings FACTORS SUCH AS MARKET AND ECONOMIC
that contributed to Fund performance. following the announcement, and are now CONDITIONS. THESE VIEWS AND OPINIONS MAY
Our research also led us to pharmacy underweight the stock relative to our NOT BE RELIED UPON AS INVESTMENT ADVICE
benefit managers MEDCO HEALTH SOLUTIONS style-specific index. OR RECOMMENDATIONS, OR AS AN OFFER FOR A
and EXPRESS SCRIPTS, both of which PARTICULAR SECURITY. THE INFORMATION IS
contributed to your Fund's performance. Health care and energy NOT A COMPLETE ANALYSIS OF EVERY ASPECT
stocks contributed OF ANY MARKET, COUNTRY, INDUSTRY,
We increased our ownership of positively to Fund SECURITY OR THE FUND. STATEMENTS OF FACT
non-U.S. pharmaceutical companies, performance for the year. ARE FROM SOURCES CONSIDERED RELIABLE,
including Switzerland's NOVARTIS and BUT A I M ADVISORS, INC. MAKES NO
ROCHE HOLDING, both of which have Symantec, best known for its Norton REPRESENTATION OR WARRANTY AS TO THEIR
developed promising new cancer anti-virus software, acquired VERITAS COMPLETENESS OR ACCURACY. ALTHOUGH
treatments. Each company boasts a Software, a maker of backup and recovery HISTORICAL PERFORMANCE IS NO GUARANTEE
promising product pipeline--something software. The acquisition was OF FUTURE RESULTS, THESE INSIGHTS MAY
that cannot be said of many U.S. controversial on Wall Street with many HELP YOU UNDERSTAND OUR INVESTMENT
pharmaceutical companies. investors fearful the merger could MANAGEMENT PHILOSOPHY.
distract management. We shared those
We have generally avoided U.S. concerns, and we eliminated the stock See important Fund and index
large-cap pharmaceutical companies, due from the Fund, but not before it disclosures inside front cover.
to their weak product pipelines, patent suffered a significant decline.
expirations and litigation risk. A GEOFFREY V. KEELING,
notable exception was JOHNSON & JOHNSON, Another information technology-sector Chartered Financial
arguably the world's most diversified holding of note was APPLE COMPUTER. We [KEELING Analyst, senior
health care company. While Johnson & continued to own Apple and we saw [PHOTO] portfolio manager,
Johnson develops pharmaceutical increasing evidence that the company is is co-manager of AIM
products, it manufactures a broad array benefiting from the phenomenal success Large Cap Growth
of health care products to consumers and of its iPod--Registered Trademark-- Fund. He joined AIM
medical professionals. music player. In recent quarters, data in 1995 and assumed his present
have shown that consumers are buying responsibilities in 1999. Mr. Keeling
Energy has not been considered a more Macintosh--Registered Trademark-- received a B.B.A in finance from the
traditional growth sector, but supply computers to go with their new iPods. University of Texas at Austin.
and demand characteristics have clearly Apple was one of the Fund's
changed in recent years, due largely to best-performing holdings for the year. ROBERT L. SHOSS,
explosive economic growth in China and senior portfolio
India. Worldwide production and refining IN CLOSING [SHOSS manager, is
capacity has struggled to keep pace with PHOTO] co-manager of AIM
rising demand. We believe any As the fiscal year ended, we considered Large Cap Growth
significant improvement in supply is the fundamentals of large-cap growth Fund. He joined AIM
likely to be years away. stocks to be in 1995 and assumed
his present
Given these trends, many energy responsibilities
companies have seen notable growth in in 1999. Mr. Shoss received a B.A from
their revenue and earnings--using the the University of Texas at Austin and an
money to improve their balance sheets M.B.A. and a J.D. from the University of
and to benefit shareholders in the form Houston.
of stock buybacks and dividend
Assisted by the Large/Multi-Cap Growth
Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE
PAGES 6 AND 7.
4
AIM LARGE CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE expenses that you paid over the period. The hypothetical account values and
Simply divide your account value by expenses may not be used to estimate the
As a shareholder of the Fund, you incur $1,000 (for example, an $8,600 account actual ending account balance or
two types of costs: (1) transaction value divided by $1,000 = 8.6), then expenses you paid for the period. You
costs, which may include sales charges multiply the result by the number in the may use this information to compare the
(loads) on purchase payments; contingent table under the heading entitled "Actual ongoing costs of investing in the Fund
deferred sales charges on redemptions; Expenses Paid During Period" to estimate and other funds. To do so, compare this
and redemption fees, if any; and (2) the expenses you paid on your account 5% hypothetical example with the 5%
ongoing costs, including management 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
May 1, 2005, through October 31, 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 October 31, 2005, appear in the of owning different funds. In addition,
The table below provides information table "Cumulative Total Returns" on page if these transactional costs were
about actual account values and actual 7. included, your costs would have been
expenses. You may use the information in higher.
this table, together with the amount you
invested, to estimate the
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2,3) (10/31/05) PERIOD(2,4) RATIO
A $1,000.00 $1,095.20 $7.34 $1,018.20 $7.07 1.39%
B 1,000.00 1,091.20 11.07 1,014.62 10.66 2.10
C 1,000.00 1,091.20 11.07 1,014.62 10.66 2.10
R 1,000.00 1,093.40 8.44 1,017.14 8.13 1.60
Investor 1,000.00 1,095.80 6.76 1,018.75 6.51 1.28
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appear in the table "Cumulative Total Returns" on page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. Also effective on July 1, 2005, the advisor
contractually agreed to limit expenses to 1.32%, 2.07%, 2.07%, 1.57% and 1.32% for Class A, B, C, R and Investor Class shares,
respectively. The annualized expense ratios restated as if the agreement had been in effect throughout the entire most recent
fiscal half year are 1.32%, 2.07%, 2.07%, 1.57% and 1.25% for Class A, B, C, R and Investor Class shares, respectively.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal half
year are $6.97, $10.91, $10.91, $8.28 and $6.60 for Class A, B, C, R and Investor Class shares, respectively.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal
half year are $6.72, $10.51, $10.51, $7.98 and $6.36 for Class A, B, C, R and Investor Class shares, respectively.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMINVESTMENTS.COM
5
AIM LARGE CAP GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 3/1/99, INDEX DATA FROM 2/28/99
[MOUNTAIN CHART]
DATE AIM LARGE CAP LIPPER LARGE-CAP RUSSELL 1000 S&P 500
GROWTH FUND- GROWTH FUND GROWTH INDEX INDEX
CLASS A SHARES INDEX
2/28/99 $9450 $10000 $10000 $10000
3/99 10116 10568 10527 10400
4/99 9935 10605 10540 10803
5/99 9621 10253 10216 10548
6/99 10354 10966 10932 11132
7/99 10098 10622 10584 10786
8/99 10117 10624 10757 10732
9/99 10098 10516 10531 10438
10/99 10745 11323 11327 11099
11/99 11458 11882 11938 11324
12/99 13180 13202 13179 11990
1/00 13313 12672 12561 11388
2/00 16092 13338 13175 11173
3/00 16692 14274 14119 12265
4/00 15808 13170 13447 11896
5/00 14818 12412 12770 11652
6/00 16778 13233 13737 11939
7/00 16911 12965 13165 11753
8/00 19529 14086 14357 12482
9/00 18578 13012 12999 11823
10/00 16883 12324 12384 11773
11/00 13809 10670 10558 10846
12/00 14303 10604 10224 10899
1/01 13770 10912 10930 11285
2/01 10762 9223 9075 10257
3/01 9402 8265 8087 9608
4/01 10497 9152 9110 10354
5/01 10258 9083 8976 10423
6/01 9954 8821 8768 10170
7/01 9582 8505 8549 10069
8/01 8812 7858 7850 9440
9/01 7936 7068 7066 8677
10/01 8393 7361 7437 8843
11/01 9049 8036 8151 9521
12/01 9135 8073 8136 9605
1/02 9021 7890 7992 9465
2/02 8517 7564 7661 9282
3/02 8984 7868 7926 9631
4/02 8365 7344 7279 9047
5/02 8184 7210 7103 8981
6/02 7670 6623 6446 8341
7/02 7147 6125 6091 7691
8/02 7156 6159 6109 7742
9/02 6671 5562 5476 6901
10/02 7014 5990 5978 7508
11/02 7062 6238 6303 7949
12/02 6719 5803 5867 7483
1/03 6586 5670 5725 7287
2/03 6624 5609 5699 7178
3/03 6767 5714 5805 7247
4/03 7129 6132 6234 7844
5/03 7529 6433 6545 8257
6/03 7586 6486 6635 8362
7/03 7748 6674 6800 8510
8/03 7995 6838 6969 8675
9/03 7843 6693 6895 8583
10/03 8452 7099 7282 9069
11/03 8624 7166 7358 9148
12/03 8690 7368 7613 9628
1/04 8852 7509 7768 9804
2/04 8852 7542 7818 9941
3/04 8900 7458 7673 9791
4/04 8690 7290 7583 9637
5/04 8957 7422 7725 9769
6/04 9119 7529 7821 9959
7/04 8577 7083 7379 9630
8/04 8491 7033 7343 9668
9/04 8739 7198 7413 9773
10/04 8720 7285 7528 9922
11/04 9196 7610 7787 10324
12/04 9462 7917 8092 10675
1/05 9234 7645 7823 10415
2/05 9330 7695 7906 10634
3/05 9168 7555 7762 10445
4/05 8797 7390 7614 10247
5/05 9225 7801 7982 10573
6/05 9358 7816 7953 10588
7/05 9625 8209 8342 10982
8/05 9501 8122 8234 10882
9/05 9768 8219 8272 10970
10/05 9629 8166 8192 10787
SOURCE: LIPPER, INC.
The data shown in the chart include reinvested distributions, applicable sales
charges, Fund expenses and management fees. Index results include reinvested
dividends, but they do not reflect sales charges. Performance of an index of
funds reflects fund expenses and management fees; performance of a market index
does not. Performance shown in the chart and table(s) does not reflect deduction
of taxes a shareholder would pay on Fund distributions or sale of Fund shares.
Performance of the indexes does not reflect the effects of taxes.
This chart, which is a logarithmic chart, presents the fluctuations in the
value of the Fund and its indexes. We believe that a logarithmic chart is more
effective than other types of charts in illustrating changes in value during the
early years shown in the chart. The vertical axis, the one that indicates the
dollar value of an investment, is constructed with each segment representing a
percent change in the value of the investment. In this chart, each segment
represents a doubling, or 100% change, in the value of the investment. In other
words, the space between $5,000 and $10,000 is the same size as the space
between $10,000 and $20,000.
6
AIM LARGE CAP GROWTH FUND
========================================= ========================================== =========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 9.52%
Inception (3/1/99) -0.57% CLASS A SHARES Class B Shares 9.12
5 Years -11.62 Inception (3/1/99) -0.37% Class C Shares 9.12
1 Year 4.44 5 Years -13.06 Class R Shares 9.34
1 Year 5.66 Investor Class Shares 9.58
CLASS B SHARES =========================================
Inception (4/5/99) -1.94% CLASS B SHARES
5 Years -11.55 Inception (4/5/99) -1.75%
1 Year 4.74 5 Years -12.99
1 Year 6.07
CLASS C SHARES
Inception (4/5/99) -1.94% CLASS C SHARES
5 Years -11.20 Inception (4/5/99) -1.75%
1 Year 8.74 5 Years -12.65
1 Year 9.95
CLASS R SHARES
Inception 0.14% CLASS R SHARES
5 Years -10.75 Inception 0.35%
1 Year 10.30 5 Years -12.20
1 Year 11.46
INVESTOR CLASS SHARES
Inception 0.37% INVESTOR CLASS SHARES
5 Years -10.51 Inception 0.59%
1 Year 10.65 5 Years -11.97
1 Year 11.93
========================================= ==========================================
CLASS R SHARES' INCEPTION DATE IS JUNE THE PERFORMANCE DATA QUOTED REPRESENT FIRST YEAR AFTER PURCHASE. CLASS R
3, 2002. RETURNS SINCE THAT DATE ARE PAST PERFORMANCE AND CANNOT GUARANTEE SHARES DO NOT HAVE A FRONT-END SALES
HISTORICAL RETURNS. ALL OTHER RETURNS COMPARABLE FUTURE RESULTS; CURRENT CHARGE; RETURNS SHOWN ARE AT NET ASSET
ARE BLENDED RETURNS OF HISTORICAL CLASS PERFORMANCE MAY BE LOWER OR HIGHER. VALUE AND DO NOT REFLECT A 0.75% CDSC
R SHARE PERFORMANCE AND RESTATED CLASS A PLEASE VISIT AIMINVESTMENTS.COM FOR THE THAT MAY BE IMPOSED ON A TOTAL
SHARE PERFORMANCE (FOR PERIODS PRIOR TO MOST RECENT MONTH-END PERFORMANCE. REDEMPTION OF RETIREMENT PLAN ASSETS
THE INCEPTION DATE OF CLASS R SHARES) AT PERFORMANCE FIGURES REFLECT REINVESTED WITHIN THE FIRST YEAR. INVESTOR CLASS
NET ASSET VALUE, ADJUSTED TO REFLECT THE DISTRIBUTIONS, CHANGES IN NET ASSET SHARES DO NOT HAVE A FRONT-END SALES
HIGHER RULE 12b-1 FEES APPLICABLE TO VALUE AND THE EFFECT OF THE MAXIMUM CHARGE OR A CDSC; THEREFORE, PERFORMANCE
CLASS R SHARES. CLASS A SHARES' SALES CHARGE UNLESS OTHERWISE STATED. IS AT NET ASSET VALUE.
INCEPTION DATE IS MARCH 1, 1999. INVESTMENT RETURN AND PRINCIPAL VALUE
WILL FLUCTUATE SO THAT YOU MAY HAVE A THE PERFORMANCE OF THE FUND'S SHARE
INVESTOR CLASS SHARES' INCEPTION DATE GAIN OR LOSS WHEN YOU SELL SHARES. CLASSES WILL DIFFER DUE TO DIFFERENT
IS SEPTEMBER 30, 2003. RETURNS SINCE SALES CHARGE STRUCTURES AND CLASS
THAT DATE ARE HISTORICAL RETURNS. ALL CLASS A SHARE PERFORMANCE REFLECTS EXPENSES.
OTHER RETURNS ARE BLENDED RETURNS OF THE MAXIMUM 5.50% SALES CHARGE, AND
HISTORICAL INVESTOR CLASS SHARE CLASS B AND CLASS C SHARE PERFORMANCE
PERFORMANCE AND RESTATED CLASS A SHARE REFLECTS THE APPLICABLE CONTINGENT
PERFORMANCE (FOR PERIODS PRIOR TO THE DEFERRED SALES CHARGE (CDSC) FOR THE
INCEPTION DATE OF INVESTOR CLASS SHARES) PERIOD INVOLVED. THE CDSC ON CLASS B
AT NET ASSET VALUE AND REFLECT THE SHARES DECLINES FROM 5% BEGINNING AT THE
HIGHER RULE 12b-1 FEES APPLICABLE TO TIME OF PURCHASE TO 0% AT THE BEGINNING
CLASS A SHARES. CLASS A SHARES' OF THE SEVENTH YEAR. THE CDSC ON CLASS C
INCEPTION DATE IS MARCH 1, 1999. SHARES IS 1% FOR THE
7
AIM LARGE CAP GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
The Board of Trustees of AIM Equity o The quality of services to be provided although the total management fees paid
Funds (the "Board") oversees the by AIM. The Board reviewed the by one of these unaffiliated mutual
management of AIM Large Cap Growth Fund credentials and experience of the funds were higher than the advisory fee
(the "Fund") and, as required by law, officers and employees of AIM who will rate for the Fund (data on the total
determines annually whether to approve provide investment advisory services to management fees paid by the other
the continuance of the Fund's advisory the Fund. In reviewing the unaffiliated mutual fund was
agreement with A I M Advisors, Inc. qualifications of AIM to provide unavailable); (iii) was lower than the
("AIM"). Based upon the recommendation investment advisory services, the Board advisory fee rates for an offshore fund
of the Investments Committee of the reviewed the qualifications of AIM's for which an AIM affiliate serves as
Board, which is comprised solely of investment personnel and considered such advisor with investment strategies
independent trustees, at a meeting held issues as AIM's portfolio and product comparable to those of the Fund; and
on June 30, 2005, the Board, including review process, various back office (iv) was higher than the advisory fee
all of the independent trustees, support functions provided by AIM and rates for six separately managed wrap
approved the continuance of the advisory AIM's equity and fixed income trading accounts managed by an AIM affiliate
agreement (the "Advisory Agreement") operations. Based on the review of these with investment strategies comparable to
between the Fund and AIM for another and other factors, the Board concluded those of the Fund. The Board noted that
year, effective July 1, 2005. that the quality of services to be AIM has agreed to waive advisory fees of
provided by AIM was appropriate and that the Fund and to limit the Fund's total
The Board considered the factors AIM currently is providing satisfactory operating expenses, as discussed below.
discussed below in evaluating the services in accordance with the terms of Based on this review, the Board
fairness and reasonableness of the the Advisory Agreement. concluded that the advisory fee rate for
Advisory Agreement at the meeting on the Fund under the Advisory Agreement
June 30, 2005 and as part of the Board's o The performance of the Fund relative was fair and reasonable.
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed
deliberations, the Board and the the performance of the Fund during the o Fees relative to those of comparable
independent trustees did not identify past one, three and five calendar years funds with other advisors. The Board
any particular factor that was against the performance of funds advised reviewed the advisory fee rate for the
controlling, and each trustee attributed by other advisors with investment Fund under the Advisory Agreement. The
different weights to the various strategies comparable to those of the Board compared effective contractual
factors. Fund. The Board noted that the Fund's advisory fee rates at a common asset
performance for such periods was above level and noted that the Fund's rate was
One of the responsibilities of the the median performance of such below the median rate of the funds
Senior Officer of the Fund, who is comparable funds. Based on this review, advised by other advisors with
independent of AIM and AIM's affiliates, the Board concluded that no changes investment strategies comparable to
is to manage the process by which the should be made to the Fund and that it those of the Fund that the Board
Fund's proposed management fees are was not necessary to change the Fund's reviewed. The Board noted that AIM has
negotiated to ensure that they are portfolio management team at this time. agreed to waive advisory fees of the
negotiated in a manner which is at arm's Fund and to limit the Fund's total
length and reasonable. To that end, the o The performance of the Fund relative operating expenses, as discussed below.
Senior Officer must either supervise a to indices. The Board reviewed the Based on this review, the Board
competitive bidding process or prepare performance of the Fund during the past concluded that the advisory fee rate for
an independent written evaluation. The one, three and five calendar years the Fund under the Advisory Agreement
Senior Officer has recommended an against the performance of the Lipper was fair and reasonable.
independent written evaluation in lieu Large-Cap Growth Fund Index. The Board
of a competitive bidding process and, noted that the Fund's performance for o Expense limitations and fee waivers.
upon the direction of the Board, has such periods was above the performance The Board noted that AIM has
prepared such an independent written of such Index. Based on this review, the contractually agreed to waive advisory
evaluation. Such written evaluation also Board concluded that no changes should fees of the Fund through December 31,
considered certain of the factors be made to the Fund and that it was not 2009 to the extent necessary so that the
discussed below. In addition, as necessary to change the Fund's portfolio advisory fees payable by the Fund do not
discussed below, the Senior Officer made management team at this time. exceed a specified maximum advisory fee
certain recommendations to the Board in rate, which maximum rate includes
connection with such written evaluation. o Meeting with the Fund's portfolio breakpoints and is based on net asset
managers and investment personnel. With levels. The Board considered the
The discussion below serves as a respect to the Fund, the Board is contractual nature of this fee waiver
summary of the Senior Officer's meeting periodically with such Fund's and noted that it remains in effect
independent written evaluation and portfolio managers and/or other until December 31, 2009. The Board noted
recommendations to the Board in investment personnel and believes that that AIM has contractually agreed to
connection therewith, as well as a such individuals are competent and able waive fees and/or limit expenses of the
discussion of the material factors and to continue to carry out their Fund through December 31, 2009 in an
the conclusions with respect thereto responsibilities under the Advisory amount necessary to limit total annual
that formed the basis for the Board's Agreement. operating expenses to a specified
approval of the Advisory Agreement. percentage of average daily net assets
After consideration of all of the o Overall performance of AIM. The Board for each class of the Fund. The Board
factors below and based on its informed considered the overall performance of considered the contractual nature of
business judgment, the Board determined AIM in providing investment advisory and this fee waiver/expense limitation and
that the Advisory Agreement is in the portfolio administrative services to the noted that it remains in effect through
best interests of the Fund and its Fund and concluded that such performance December 31, 2009. The Board considered
shareholders and that the compensation was satisfactory. the effect these fee waivers/expense
to AIM under the Advisory Agreement is limitations would have on the Fund's
fair and reasonable and would have been o Fees relative to those of clients of estimated expenses and concluded that
obtained through arm's length AIM with comparable investment the levels of fee waivers/expense
negotiations. strategies. The Board reviewed the limitations for the Fund were fair and
advisory fee rate for the Fund under the reasonable.
o The nature and extent of the advisory Advisory Agreement. The Board noted that
services to be provided by AIM. The this rate (i) was the same as the o Breakpoints and economies of scale.
Board reviewed the services to be advisory fee rates for a variable The Board reviewed the structure of the
provided by AIM under the Advisory insurance fund advised by AIM and Fund's advisory fee under the Advisory
Agreement. Based on such review, the offered to insurance company separate Agreement, noting that it includes two
Board concluded that the range of accounts with investment strategies breakpoints. The Board reviewed the
services to be provided by AIM under the comparable to those of the Fund; (ii) level of the Fund's advisory fees, and
Advisory Agreement was appropriate and was higher than the sub-advisory fee noted that such fees, as a percentage of
that AIM currently is providing services rates for two unaffiliated mutual funds the Fund's net assets, would decrease as
in accordance with the terms of the for which an AIM affiliate serves as
Advisory Agreement. sub-advisor,
(continued)
8
AIM LARGE CAP GROWTH FUND
net assets increase because the Advisory the Board that the Board consider o Other factors and current trends. In
Agreement includes breakpoints. The implementing a process to assist them in determining whether to continue the
Board noted that, due to the Fund's more closely monitoring the performance Advisory Agreement for the Fund, the
current asset levels and the way in of the AIM Funds. The Board concluded Board considered the fact that AIM,
which the advisory fee breakpoints have that it would be advisable to implement along with others in the mutual fund
been structured, the Fund has yet to such a process as soon as reasonably industry, is subject to regulatory
benefit from the breakpoints. The Board practicable. inquiries and litigation related to a
noted that AIM has contractually agreed wide range of issues. The Board also
to waive advisory fees of the Fund o Profitability of AIM and its considered the governance and compliance
through December 31, 2009 to the extent affiliates. The Board reviewed reforms being undertaken by AIM and its
necessary so that the advisory fees information concerning the profitability affiliates, including maintaining an
payable by the Fund do not exceed a of AIM's (and its affiliates') internal controls committee and
specified maximum advisory fee rate, investment advisory and other activities retaining an independent compliance
which maximum rate includes breakpoints and its financial condition. The Board consultant, and the fact that AIM has
and is based on net asset levels. The considered the overall profitability of undertaken to cause the Fund to operate
Board concluded that the Fund's fee AIM, as well as the profitability of AIM in accordance with certain governance
levels under the Advisory Agreement in connection with managing the Fund. policies and practices. The Board
therefore would reflect economies of The Board noted that AIM's operations concluded that these actions indicated a
scale at higher asset levels and that it remain profitable, although increased good faith effort on the part of AIM to
was not necessary to change the advisory expenses in recent years have reduced adhere to the highest ethical standards,
fee breakpoints in the Fund's advisory AIM's profitability. Based on the review and determined that the current
fee schedule. of the profitability of AIM's and its regulatory and litigation environment to
affiliates' investment advisory and which AIM is subject should not prevent
o Investments in affiliated money market other activities and its financial the Board from continuing the Advisory
funds. The Board also took into account condition, the Board concluded that the Agreement for the Fund.
the fact that uninvested cash and cash compensation to be paid by the Fund to
collateral from securities lending AIM under its Advisory Agreement was not
arrangements (collectively, "cash excessive.
balances") of the Fund may be invested
in money market funds advised by AIM o Benefits of soft dollars to AIM. The
pursuant to the terms of an SEC Board considered the benefits realized
exemptive order. The Board found that by AIM as a result of brokerage
the Fund may realize certain benefits transactions executed through "soft
upon investing cash balances in AIM dollar" arrangements. Under these
advised money market funds, including a arrangements, brokerage commissions paid
higher net return, increased liquidity, by the Fund and/or other funds advised
increased diversification or decreased by AIM are used to pay for research and
transaction costs. The Board also found execution services. This research is
that the Fund will not receive reduced used by AIM in making investment
services if it invests its cash balances decisions for the Fund. The Board
in such money market funds. The Board concluded that such arrangements were
noted that, to the extent the Fund appropriate.
invests in affiliated money market
funds, AIM has voluntarily agreed to o AIM's financial soundness in light of
waive a portion of the advisory fees it the Fund's needs. The Board considered
receives from the Fund attributable to whether AIM is financially sound and has
such investment. The Board further the resources necessary to perform its
determined that the proposed securities obligations under the Advisory
lending program and related procedures Agreement, and concluded that AIM has
with respect to the lending Fund is in the financial resources necessary to
the best interests of the lending Fund fulfill its obligations under the
and its respective shareholders. The Advisory Agreement.
Board therefore concluded that the
investment of cash collateral received o Historical relationship between the
in connection with the securities Fund and AIM. In determining whether to
lending program in the money market continue the Advisory Agreement for the
funds according to the procedures is in Fund, the Board also considered the
the best interests of the lending Fund prior relationship between AIM and the
and its respective shareholders. Fund, as well as the Board's knowledge
of AIM's operations, and concluded that
o Independent written evaluation and it was beneficial to maintain the
recommendations of the Fund's Senior current relationship, in part, because
Officer. The Board noted that, upon of such knowledge. The Board also
their direction, the Senior Officer of reviewed the general nature of the
the Fund, who is independent of AIM and non-investment advisory services
AIM's affiliates, had prepared an currently performed by AIM and its
independent written evaluation in order affiliates, such as administrative,
to assist the Board in determining the transfer agency and distribution
reasonableness of the proposed services, and the fees received by AIM
management fees of the AIM Funds, and its affiliates for performing such
including the Fund. The Board noted that services. In addition to reviewing such
the Senior Officer's written evaluation services, the trustees also considered
had been relied upon by the Board in the organizational structure employed by
this regard in lieu of a competitive AIM and its affiliates to provide those
bidding process. In determining whether services. Based on the review of these
to continue the Advisory Agreement for and other factors, the Board concluded
the Fund, the Board considered the that AIM and its affiliates were
Senior Officer's written evaluation and qualified to continue to provide
the recommendation made by the Senior non-investment advisory services to the
Officer to Fund, including administrative, transfer
agency and distribution services, and
that AIM and its affiliates currently
are providing satisfactory
non-investment advisory services.
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM LARGE CAP GROWTH FUND
===============================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/05 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been RETURNS MAY BE MORE OR LESS THAN THOSE
prepared to provide Institutional Inception 0.42% SHOWN. ALL RETURNS ASSUME REINVESTMENT OF
Class shareholders with a 5 Years - 10.46 DISTRIBUTIONS AT NET ASSET VALUE.
performance overview specific to 1 Year 11.22 INVESTMENT RETURN AND PRINCIPAL VALUE WILL
their holdings. Institutional Class 6 Months* 9.79 FLUCTUATE SO YOUR SHARES, WHEN REDEEMED,
shares are offered exclusively to =============================================== MAY BE WORTH MORE OR LESS THAN THEIR
institutional investors, including ORIGINAL COST. SEE FULL REPORT FOR
defined contribution plans that meet AVERAGE ANNUAL TOTAL RETURNS INFORMATION ON COMPARATIVE BENCHMARKS.
certain criteria. For periods ended 9/30/05, most recent calendar PLEASE CONSULT YOUR FUND PROSPECTUS FOR
quarter-end MORE INFORMATION. FOR THE MOST CURRENT
MONTH-END PERFORMANCE, PLEASE CALL
Inception 0.63% 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
5 Years - 11.92
1 Year 12.50
6 Months* 6.92
* Cumulative total return that has not been
annualized
===============================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET ASSET
VALUE (NAV).
INSTITUTIONAL CLASS SHARES' INCEPTION DATE IS
APRIL 30, 2004. RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER RETURNS ARE
BLENDED RETURNS OF HISTORICAL INSTITUTIONAL
CLASS SHARE PERFORMANCE AND RESTATED CLASS A
SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE
==================================== INCEPTION DATE OF INSTITUTIONAL CLASS SHARES)
AT NET ASSET VALUE AND REFLECT THE HIGHER RULE
NASDAQ SYMBOL LCIGX 12b-1 FEES APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS MARCH 1, 1999.
==================================== PERFORMANCE OF INSTITUTIONAL CLASS SHARES WILL
DIFFER FROM PERFORMANCE OF OTHER SHARE CLASSES
DUE TO DIFFERING SALES CHARGES AND CLASS
EXPENSES.
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.
[YOUR GOALS.
OUR SOLUTIONS.]
- REGISTERED TRADEMARK - [AIM INVESTMENTS LOGO]
AIMINVESTMENTS.COM LCG-INS-1 - REGISTERED TRADEMARK -
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values and
example, an $8,600 account value divided by expenses may not be used to estimate the
As a shareholder of the Fund, you $1,000 = 8.6), then multiply the result by the actual ending account balance or expenses
incur ongoing costs, including number in the table under the heading entitled you paid for the period. You may use this
management fees and other Fund "Actual Expenses Paid During Period" to information to compare the ongoing costs of
expenses. This example is intended estimate the expenses you paid on your account investing in the Fund and other funds. To
to help you understand your ongoing during this period. do so, compare this 5% hypothetical example
costs (in dollars) of investing in with the 5% hypothetical examples that
the Fund and to compare these costs HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES appear in the shareholder reports of the
with ongoing costs of investing in other funds.
other mutual funds. The example is The table below also provides information about
based on an investment of $1,000 hypothetical account values and hypothetical Please note that the expenses shown in
invested at the beginning of the expenses based on the Fund's actual expense the table are meant to highlight your
period and held for the entire ratio and an assumed rate of return of 5% per ongoing costs only. Therefore, the
period May 1, 2005, through October year before expenses, which is not the Fund's hypothetical information is useful in
31, 2005. actual return. The Fund's actual cumulative comparing ongoing costs only, and will not
total return after expenses for the six months help you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2005, appears in the table on of owning different funds.
the front of this supplement.
The table below provides information
about actual account values and
actual expenses. You may use the
information in this table, together
with the amount you invested, to
estimate the expenses that you paid
over the period. Simply
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,097.90 $ 4.18 $1,021.22 $4.02 0.79%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
AIMINVESTMENTS.COM LCG-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-86.90%
AEROSPACE & DEFENSE-6.34%
Boeing Co. (The) 181,600 $ 11,738,624
- -------------------------------------------------------------------------
General Dynamics Corp. 54,400 6,326,720
- -------------------------------------------------------------------------
Lockheed Martin Corp. 253,100 15,327,736
- -------------------------------------------------------------------------
Precision Castparts Corp. 207,800 9,841,408
- -------------------------------------------------------------------------
Rockwell Collins, Inc. 168,400 7,716,088
=========================================================================
50,950,576
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.78%
Coach, Inc.(a) 194,000 6,242,920
=========================================================================
APPLICATION SOFTWARE-1.47%
Autodesk, Inc. 261,500 11,801,495
=========================================================================
BIOTECHNOLOGY-5.92%
Amgen Inc.(a) 255,100 19,326,376
- -------------------------------------------------------------------------
Genentech, Inc.(a) 99,000 8,969,400
- -------------------------------------------------------------------------
Genzyme Corp.(a) 85,000 6,145,500
- -------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 276,600 13,069,350
=========================================================================
47,510,626
=========================================================================
COMMUNICATIONS EQUIPMENT-3.62%
Cisco Systems, Inc.(a) 488,640 8,526,768
- -------------------------------------------------------------------------
Motorola, Inc. 926,100 20,522,376
=========================================================================
29,049,144
=========================================================================
COMPUTER HARDWARE-5.55%
Apple Computer, Inc.(a) 391,100 22,523,449
- -------------------------------------------------------------------------
Dell Inc.(a) 311,100 9,917,868
- -------------------------------------------------------------------------
Hewlett-Packard Co. 433,000 12,141,320
=========================================================================
44,582,637
=========================================================================
CONSUMER FINANCE-1.11%
SLM Corp. 160,100 8,890,353
=========================================================================
DEPARTMENT STORES-3.51%
Federated Department Stores, Inc. 108,100 6,634,097
- -------------------------------------------------------------------------
J.C. Penney Co., Inc. 122,800 6,287,360
- -------------------------------------------------------------------------
Nordstrom, Inc.(b) 441,700 15,304,905
=========================================================================
28,226,362
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.78%
Agilent Technologies, Inc.(a) 195,000 6,241,950
=========================================================================
HEALTH CARE DISTRIBUTORS-0.74%
McKesson Corp. 130,000 5,905,900
=========================================================================
HEALTH CARE EQUIPMENT-1.20%
Baxter International Inc. 252,000 9,633,960
=========================================================================
HEALTH CARE FACILITIES-1.28%
HCA Inc. 212,900 10,259,651
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
HEALTH CARE SERVICES-4.39%
Caremark Rx, Inc.(a) 214,800 $ 11,255,520
- -------------------------------------------------------------------------
Express Scripts, Inc.(a)(b) 122,800 9,260,348
- -------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 158,500 8,955,250
- -------------------------------------------------------------------------
Quest Diagnostics Inc. 124,200 5,801,382
=========================================================================
35,272,500
=========================================================================
HOME IMPROVEMENT RETAIL-0.79%
Home Depot, Inc. (The) 154,400 6,336,576
=========================================================================
HOUSEHOLD PRODUCTS-1.77%
Procter & Gamble Co. (The) 254,477 14,248,167
=========================================================================
INTEGRATED OIL & GAS-3.08%
Chevron Corp. 154,900 8,840,143
- -------------------------------------------------------------------------
ConocoPhillips 243,100 15,893,878
=========================================================================
24,734,021
=========================================================================
INTERNET SOFTWARE & SERVICES-2.00%
Google Inc.-Class A(a) 43,100 16,039,234
=========================================================================
INVESTMENT BANKING & BROKERAGE-4.65%
Bear Stearns Cos. Inc. (The) 59,300 6,273,940
- -------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 105,600 13,344,672
- -------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 147,800 17,687,226
=========================================================================
37,305,838
=========================================================================
LIFE & HEALTH INSURANCE-1.15%
MetLife, Inc. 186,200 9,200,142
=========================================================================
MANAGED HEALTH CARE-9.93%
Aetna Inc. 245,600 21,750,336
- -------------------------------------------------------------------------
CIGNA Corp. 108,400 12,560,308
- -------------------------------------------------------------------------
Health Net, Inc.(a) 135,000 6,323,400
- -------------------------------------------------------------------------
UnitedHealth Group Inc. 528,800 30,612,232
- -------------------------------------------------------------------------
WellPoint, Inc.(a) 113,900 8,506,052
=========================================================================
79,752,328
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.09%
Apache Corp. 99,000 6,319,170
- -------------------------------------------------------------------------
Devon Energy Corp. 173,300 10,463,854
=========================================================================
16,783,024
=========================================================================
OIL & GAS REFINING & MARKETING-2.32%
Valero Energy Corp. 177,000 18,627,480
=========================================================================
PHARMACEUTICALS-4.81%
Allergan, Inc. 89,000 7,947,700
- -------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 114,000 6,549,300
- -------------------------------------------------------------------------
Johnson & Johnson 386,000 24,171,320
=========================================================================
38,668,320
=========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-2.13%
Allstate Corp. (The) 201,000 $ 10,610,790
- -------------------------------------------------------------------------
Chubb Corp. (The) 70,300 6,535,791
=========================================================================
17,146,581
=========================================================================
RAILROADS-1.71%
Burlington Northern Santa Fe Corp. 221,800 13,764,908
=========================================================================
RESTAURANTS-2.67%
Darden Restaurants, Inc.(b) 201,400 6,529,388
- -------------------------------------------------------------------------
YUM! Brands, Inc. 293,700 14,940,519
=========================================================================
21,469,907
=========================================================================
SEMICONDUCTORS-6.15%
Broadcom Corp.-Class A(a) 188,000 7,982,480
- -------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A(a)(b) 260,000 6,159,400
- -------------------------------------------------------------------------
Intel Corp. 376,300 8,843,050
- -------------------------------------------------------------------------
National Semiconductor Corp. 546,300 12,362,769
- -------------------------------------------------------------------------
Texas Instruments Inc. 490,500 14,003,775
=========================================================================
49,351,474
=========================================================================
SOFT DRINKS-1.36%
PepsiCo, Inc. 185,000 10,929,800
=========================================================================
SYSTEMS SOFTWARE-2.93%
McAfee Inc.(a) 210,000 6,306,300
- -------------------------------------------------------------------------
Microsoft Corp. 425,080 10,924,556
- -------------------------------------------------------------------------
Oracle Corp.(a) 497,500 6,308,300
=========================================================================
23,539,156
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.67%
Sprint Nextel Corp. 230,000 5,361,300
=========================================================================
Total Domestic Common Stocks (Cost
$587,075,092) 697,826,330
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-10.86%
BRAZIL-0.96%
Unibanco-Uniao de Bancos Brasileiros S.A.-GDR
(Diversified Banks)(b) 147,000 7,688,100
=========================================================================
JAPAN-0.76%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 450,000 6,059,519
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
MEXICO-0.78%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 240,000 $ 6,300,000
=========================================================================
SINGAPORE-1.16%
Marvell Technology Group Ltd.
(Semiconductors)(a) 201,000 9,328,410
=========================================================================
SOUTH KOREA-0.77%
Kookmin Bank (Diversified Banks)(c) 107,000 6,151,035
=========================================================================
SWITZERLAND-4.92%
Alcon, Inc. (Health Care Supplies) 202,600 26,925,540
- -------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 115,000 6,189,300
- -------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 43,000 6,424,731
=========================================================================
39,539,571
=========================================================================
UNITED KINGDOM-1.51%
AstraZeneca PLC-ADR (Pharmaceuticals) 131,000 5,881,900
- -------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals)(b) 174,000 6,236,160
=========================================================================
12,118,060
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $71,792,654) 87,184,695
=========================================================================
MONEY MARKET FUNDS-2.29%
Liquid Assets Portfolio-Institutional
Class(d) 9,209,656 9,209,656
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 9,209,656 9,209,656
=========================================================================
Total Money Market Funds (Cost
$18,419,312) 18,419,312
=========================================================================
TOTAL INVESTMENTS-100.05% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $677,287,058) 803,430,337
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.26%
STIC Prime Portfolio-Institutional
Class(d)(e) 26,223,050 26,223,050
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $26,223,050) 26,223,050
=========================================================================
TOTAL INVESTMENTS-103.31% (Cost $703,510,108) 829,653,387
=========================================================================
OTHER ASSETS LESS LIABILITIES-(3.31%) (26,616,667)
=========================================================================
NET ASSETS-100.00% $803,036,720
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global 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 October 31, 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 value of these securities at October 31, 2005 was $12,210,554,
which represented 1.52% of the Fund's Total Net Assets. 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 to Financial Statements which are an integral part of the
financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $658,867,746)* $ 785,011,025
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $44,642,362) 44,642,362
============================================================
Total investments (cost $703,510,108) 829,653,387
============================================================
Receivables for:
Fund shares sold 1,152,427
- ------------------------------------------------------------
Dividends 422,054
- ------------------------------------------------------------
Amount due from advisor 143,556
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 162,990
- ------------------------------------------------------------
Other assets 140,243
============================================================
Total assets 831,674,657
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,616,278
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 213,799
- ------------------------------------------------------------
Collateral upon return of securities
loaned 26,223,050
- ------------------------------------------------------------
Accrued distribution fees 224,022
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,509
- ------------------------------------------------------------
Accrued transfer agent fees 273,960
- ------------------------------------------------------------
Accrued operating expenses 84,319
============================================================
Total liabilities 28,637,937
============================================================
Net assets applicable to shares outstanding $ 803,036,720
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 2,285,495,501
- ------------------------------------------------------------
Undistributed net investment income
(loss) (141,865)
- ------------------------------------------------------------
Undistributed net realized gain (loss)
from investment securities and foreign
currencies (1,608,460,195)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 126,143,279
============================================================
$ 803,036,720
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 166,860,287
____________________________________________________________
============================================================
Class B $ 103,687,503
____________________________________________________________
============================================================
Class C $ 48,293,005
____________________________________________________________
============================================================
Class R $ 2,329,566
____________________________________________________________
============================================================
Investor Class $ 358,498,252
____________________________________________________________
============================================================
Institutional Class $ 123,368,107
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 16,488,558
____________________________________________________________
============================================================
Class B 10,703,183
____________________________________________________________
============================================================
Class C 4,982,642
____________________________________________________________
============================================================
Class R 231,329
____________________________________________________________
============================================================
Investor Class 35,223,814
____________________________________________________________
============================================================
Institutional Class 12,081,741
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 10.12
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $10.12 divided by
94.50%) $ 10.71
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.69
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.69
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 10.07
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 10.18
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 10.21
____________________________________________________________
============================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $26,245,052 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $89,816) $ 9,589,534
- -----------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $58,224, less compensation to
counterparties of $425,629) 416,059
=============================================================================
Total investment income 10,005,593
=============================================================================
EXPENSES:
Advisory fees 5,927,479
- -----------------------------------------------------------------------------
Administrative services fees 231,776
- -----------------------------------------------------------------------------
Custodian fees 75,971
- -----------------------------------------------------------------------------
Distribution fees:
Class A 594,702
- -----------------------------------------------------------------------------
Class B 1,112,960
- -----------------------------------------------------------------------------
Class C 500,748
- -----------------------------------------------------------------------------
Class R 12,911
- -----------------------------------------------------------------------------
Investor Class 703,386
- -----------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R & Investor 2,648,780
- -----------------------------------------------------------------------------
Transfer agent fees -- Institutional 7,067
- -----------------------------------------------------------------------------
Trustees' and officer's fees and benefits 42,647
- -----------------------------------------------------------------------------
Other 628,720
=============================================================================
Total expenses 12,487,147
=============================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (744,307)
=============================================================================
Net expenses 11,742,840
=============================================================================
Net investment income (loss) (1,737,247)
=============================================================================
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 $2,167,363) 42,123,721
- -----------------------------------------------------------------------------
Foreign currencies (31,246)
=============================================================================
42,092,475
=============================================================================
Change in net unrealized appreciation of investment
securities 37,314,293
=============================================================================
Net gain from investment securities and foreign currencies 79,406,768
=============================================================================
Net increase in net assets resulting from operations $77,669,521
_____________________________________________________________________________
=============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,737,247) $ (6,606,212)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 42,092,475 98,213,764
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 37,314,293 (67,692,338)
==========================================================================================
Net increase in net assets resulting from operations 77,669,521 23,915,214
==========================================================================================
Share transactions-net:
Class A (29,524,310) 18,678,547
- ------------------------------------------------------------------------------------------
Class B (19,664,001) (12,082,083)
- ------------------------------------------------------------------------------------------
Class C (4,708,853) 3,097,603
- ------------------------------------------------------------------------------------------
Class R (680,651) 574,491
- ------------------------------------------------------------------------------------------
Investor Class (56,611,706) 361,821,129
- ------------------------------------------------------------------------------------------
Institutional Class 95,851,741 22,063,157
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (15,337,780) 394,152,844
==========================================================================================
Net increase in net assets 62,331,741 418,068,058
==========================================================================================
NET ASSETS:
Beginning of year 740,704,979 322,636,921
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(141,865) and $(131,109), respectively) $803,036,720 $740,704,979
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-6
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
F-7
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 2, 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>
Effective July 1, 2005, AIM has contractually agreed to waive advisory fees
and/or reimburse expenses to the extent necessary to limit total annual
operating expenses (excluding certain items discussed below) of Class A, Class
B, Class C, Class R, Investor Class and Institutional Class shares to 1.32%,
2.07%, 2.07%, 1.57%, 1.32% and 1.07% of average daily net assets, respectively,
through October 31, 2006. 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; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, in addition to the expense reimbursement arrangement
with AMVESCAP PLC ("AMVESCAP") described more fully below, the expense offset
arrangements from which the Fund may benefit are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. 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). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $538,584 and
reimbursed expenses of $120,609.
For the year ended October 31, 2005, the advisor has agreed to reimburse the
Fund $143,556 for an economic loss due to a trading error.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$57,083.
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 year ended
October 31, 2005, AIM was paid $231,776.
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 year ended October 31, 2005, the
Fund paid AISI $2,648,780 for Class A, Class B, Class C, Class R and Investor
Class share classes and $7,067 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 0.25% 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. Prior to July 1, 2005, the Fund paid ADI 0.35% of the
average daily net assets of Class A 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
F-8
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. National Association of
Securities Dealers ("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, 2005, the Class
A, Class B, Class C, Class R and Investor Class shares paid $594,702,
$1,112,960, $500,748, $12,911 and $703,386, 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, 2005, ADI advised the Fund that it retained $67,181 in
front-end sales commissions from the sale of Class A shares and $2,770, $39,117,
$9,556 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 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 year ended October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $14,259,968 $ 94,247,884 $ (99,298,196) $ -- $ 9,209,656 $178,313 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 14,259,968 94,247,884 (99,298,196) -- 9,209,656 179,522 --
==================================================================================================================================
Subtotal $28,519,936 $188,495,768 $(198,596,392) $ -- $18,419,312 $357,835 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND* REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 4,905,700 $ 77,755,697 $ (82,661,397) $ -- $ -- $ 7,474 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 406,854,166 (380,631,116) -- 26,223,050 50,750 --
==================================================================================================================================
Subtotal $ 4,905,700 $484,609,863 $(463,292,513) $ -- $26,223,050 $ 58,224 $ --
==================================================================================================================================
Total $33,425,636 $673,105,631 $(661,888,905) $ -- $44,642,362 $416,059 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended October 31, 2005, the Fund
engaged in securities purchases of $14,112,915 and sales of $8,209,950, which
resulted in net realized gains of $2,167,363.
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, 2005, the Fund received credits from these arrangements which
resulted in the reduction of the Fund's total expenses of $28,031.
F-9
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $5,021
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, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $26,245,052 were
on loan to brokers. The loans were secured by cash collateral of $26,223,050
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $58,224 for securities lending transactions, which are net of
compensation to counterparties.
F-10
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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -------------------------------------------------------------------------------
Unrealized appreciation -- investments $ 119,581,005
- -------------------------------------------------------------------------------
Temporary book/tax differences (141,865)
- -------------------------------------------------------------------------------
Capital loss carryforward (1,601,897,921)
- -------------------------------------------------------------------------------
Shares of beneficial interest 2,285,495,501
===============================================================================
Total net assets $ 803,036,720
_______________________________________________________________________________
===============================================================================
</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, 2005 to utilizing $1,529,431,441 of capital loss carryforward in the fiscal
year ended October 31, 2006.
The Fund utilized $41,732,998 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $1,049,563,307
- ------------------------------------------------------------------------------
October 31, 2010 517,239,010
- ------------------------------------------------------------------------------
October 31, 2011 35,095,604
==============================================================================
Total capital loss carryforward $1,601,897,921
______________________________________________________________________________
==============================================================================
</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, 2005 was $802,046,885 and $806,867,863, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $129,848,271
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,267,266)
==============================================================================
Net unrealized appreciation of investment securities $119,581,005
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $710,072,382.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currencies,
built in gains recognized and net operating losses, on October 31, 2005,
undistributed net investment income (loss) was increased by $1,726,491,
undistributed net realized gain (loss) was increased by $7,106,863 and shares of
beneficial interest decreased by $8,833,354. This reclassification had no effect
on the net assets of the Fund.
F-11
NOTE 12--SHARE INFORMATION
The Fund currently consists of 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.
Investor Class shares of the Fund are offered only to certain grandfathered
investors.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2005(A) 2004
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,068,287 $ 79,582,099 6,225,450 $ 57,170,463
- --------------------------------------------------------------------------------------------------------------------------
Class B 1,697,858 15,891,658 2,516,228 22,341,073
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,441,223 13,501,428 2,041,593 18,173,950
- --------------------------------------------------------------------------------------------------------------------------
Class R 81,004 791,982 111,709 1,022,930
- --------------------------------------------------------------------------------------------------------------------------
Investor Class 2,718,103 26,734,766 4,268,368 39,323,955
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 10,222,487 101,445,516 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 359,609 3,505,990 472,810 4,373,299
- --------------------------------------------------------------------------------------------------------------------------
Class B (374,317) (3,505,990) (489,052) (4,373,299)
==========================================================================================================================
Reacquired:
Class A (11,324,312) (112,612,399) (5,108,536) (46,826,136)
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,417,949) (32,049,669) (3,420,244) (30,260,712)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,943,043) (18,210,281) (2,120,502) (18,744,901)
- --------------------------------------------------------------------------------------------------------------------------
Class R (152,178) (1,472,633) (48,964) (448,439)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (8,480,349) (83,346,472) (13,848,145) (126,645,903)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class(b) (558,329) (5,593,775) (18,629) (169,816)
==========================================================================================================================
(1,661,906) $ (15,337,780) 44,460,987 $ 394,152,844
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) 11% 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) 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.
F-12
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,
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.16 $ 8.88 $ 7.37 $ 8.82 $ 17.74
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a) (0.08)(b) (0.08)(b) (0.09)(b) (0.08)(b)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.98 0.36 1.59 (1.36) (8.84)
===============================================================================================================================
Total from investment operations 0.96 0.28 1.51 (1.45) (8.92)
===============================================================================================================================
Net asset value, end of period $ 10.12 $ 9.16 $ 8.88 $ 7.37 $ 8.82
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 10.48% 3.15% 20.49% (16.44)% (50.28)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $166,860 $177,498 $154,052 $105,320 $138,269
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(d) 1.54% 1.82% 1.70% 1.57%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.56%(d) 1.55% 1.82% 1.70% 1.57%
===============================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.20)%(a)(d) (0.92)% (1.01)% (1.01)% (0.72)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 103% 111% 123% 111% 124%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.04) and
(0.36)%, respectively.
(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.
(d) Ratios are based on average daily net assets of $186,873,112.
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.82 $ 8.61 $ 7.20 $ 8.67 $ 17.54
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.14)(b) (0.12)(b) (0.14)(b) (0.16)(b)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.96 0.35 1.53 (1.33) (8.71)
===========================================================================================================================
Total from investment operations 0.87 0.21 1.41 (1.47) (8.87)
===========================================================================================================================
Net asset value, end of period $ 9.69 $ 8.82 $ 8.61 $ 7.20 $ 8.67
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(c) 9.86% 2.44% 19.58% (16.96)% (50.57)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $103,688 $112,931 $122,011 $104,040 $144,747
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%(d) 2.19% 2.47% 2.35% 2.23%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.24%(d) 2.20% 2.47% 2.35% 2.23%
===========================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.88)%(a)(d) (1.57)% (1.66)% (1.66)% (1.39)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate 103% 111% 123% 111% 124%
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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 (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.11) and
(1.04)%, respectively.
(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.
(d) Ratios are based on average daily net assets of $111,295,977.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.83 $ 8.62 $ 7.21 $ 8.67 $ 17.55
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.14)(b) (0.12)(b) (0.14)(b) (0.16)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.95 0.35 1.53 (1.32) (8.72)
================================================================================================================================
Total from investment operations 0.86 0.21 1.41 (1.46) (8.88)
================================================================================================================================
Net asset value, end of period $ 9.69 $ 8.83 $ 8.62 $ 7.21 $ 8.67
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 9.74% 2.44% 19.56% (16.84)% (50.60)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $48,293 $48,420 $44,272 $36,575 $57,865
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%(d) 2.19% 2.47% 2.35% 2.23%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.24%(d) 2.20% 2.47% 2.35% 2.23%
================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.88)%(a)(d) (1.57)% (1.66)% (1.66)% (1.39)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 103% 111% 123% 111% 124%
________________________________________________________________________________________________________________________________
================================================================================================================================
</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 (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.11) and
(1.04)%, respectively.
(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.
(d) Ratios are based on average daily net assets of $50,074,850.
<Table>
<Caption>
CLASS R
--------------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------- 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) (0.04)(a) (0.10)(b) (0.09)(b) (0.04)(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.98 0.36 1.59 (0.99)
============================================================================================================================
Total from investment operations 0.94 0.26 1.50 (1.03)
============================================================================================================================
Net asset value, end of period $10.07 $ 9.13 $ 8.87 $ 7.37
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 10.30% 2.93% 20.35% (12.26)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,330 $2,761 $2,127 $ 9
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%(d) 1.69% 1.97% 1.85%(e)
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.74%(d) 1.70% 1.97% 1.85%(e)
============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.38)%(a)(d) (1.07)% (1.16)% (1.16)%(e)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 103% 111% 123% 111%
____________________________________________________________________________________________________________________________
============================================================================================================================
</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 (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.06) and
(0.54)% respectively.
(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 based on average daily net assets of $2,582,247.
(e) Annualized.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
----------------------------------------------------------------
SEPTEMBER 30, 2003
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
-------------------------------- 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) (0.05)(b)(c) (0.01)(b)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.99 0.37 0.65
==============================================================================================================================
Total from investment operations 0.98 0.32 0.64
==============================================================================================================================
Net asset value, end of period $ 10.18 $ 9.20 $8.88
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(d) 10.65% 3.60%(c) 7.77%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $358,498 $376,905 $ 174
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.34%(e) 1.19%(c) 1.56%(f)
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.43%(e) 1.42% 1.56%(f)
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.07)%(a)(e) (0.57)%(c) (0.75)%(f)
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 103% 111% 123%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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 (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.03) and
(0.23)% respectively.
(b) Calculated using average shares outstanding.
(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 based on average daily net assets of $372,212,253.
(f) Annualized.
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.18 $ 9.13
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.03(a) (0.01)(b)
- ----------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.00 0.06
==============================================================================================
Total from investment operations 1.03 0.05
==============================================================================================
Net asset value, end of period $ 10.21 $ 9.18
______________________________________________________________________________________________
==============================================================================================
Total return(c) 11.22% 0.55%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,368 $22,190
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.81%(d) 0.92%(e)
- ----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.88%(d) 0.93%(e)
==============================================================================================
Ratio of net investment income (loss) to average net assets 0.46%(a)(d) (0.30)%(e)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate 103% 111%
______________________________________________________________________________________________
==============================================================================================
</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 (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.
(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 based on average daily net assets of $67,292,159.
(e) Annualized.
F-15
NOTE 14--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 15--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Buyer") unanimously approved, on November
14, 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 Blue Chip 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 February 28, 2006. 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 16--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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 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 lawsuit, it could be
F-16
LARGE CAP GROWTH FUND
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Large Cap Growth Fund (one of
the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets that are not subject to the U.S. estate
tax for the fiscal quarters ended January 31, 2005, April 30, 2005, July 31,
2005 and October 31, 2005 are 6.46%, 10.52%, 6.83% and 13.13%, respectively.
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S.Government Money Portfolio
AIM Weingarten Fund
* Domestic equity and income fund
INTERNATIONAL/GLOBAL EQUITY TAX-FREE
AIM Asia Pacific Growth Fund AIM High Income Municipal Fund(1)
AIM Developing Markets Fund AIM Municipal Bond Fund
AIM European Growth Fund AIM Tax-Exempt Cash Fund
AIM European Small Company Fund(1) AIM Tax-Free Intermediate Fund
AIM Global Aggressive Growth Fund Premier Tax-Exempt Portfolio
AIM Global Equity Fund
AIM Global Growth Fund
AIM Global Value Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
(1)This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2)Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data
as of September 30, 2005.
================================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
================================================================================
AIMinvestments.com LCG-AR-1 A I M Distributors, Inc.
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
- ------------------------------------------------------------------------------
AIM MID CAP GROWTH FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
=============================================================================================================================
AIM MID CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October 31, 2005, and is based on total net assets.
=============================================================================================================================
ABOUT SHARE CLASSES performance of Russell Midcap companies proposed merger of AIM Mid Cap Growth Fund
with higher price/book ratios and higher into AIM Dynamics Fund. We encourage you
o Class B shares are not available as an forecasted growth values. to read the proxy materials carefully and
investment for retirement plans maintained to vote promptly. The ways in which you
pursuant to Section 401 of the Internal o The unmanaged MSCI WORLD INDEX is a may cast your proxy ballot are detailed in
Revenue Code, including 401(k) plans, group of global securities tracked by the proxy materials.
money purchase pension plans and profit Morgan Stanley Capital International.
sharing plans. Plans that have existing The Fund provides a complete list of its
accounts invested in Class B shares prior o The unmanaged LIPPER MID-CAP GROWTH FUND holdings four times in each fiscal year,
to September 30, 2003, will continue to be INDEX represents an average of the per- at the quarter-ends. For the second and
allowed to make additional purchases. formance of the 30 largest fourth quarters, the lists appear in the
mid-capitalization growth funds tracked by Fund's semiannual and annual reports to
o Class R shares are available only to Lipper, Inc., an independent mutual fund shareholders. For the first and third
certain retirement plans. Please see the performance monitor. quarters, the Fund files the lists with
prospectus for more information. the Securities and Exchange Commission
o The Fund is not managed to track the (SEC) on Form N-Q. The most recent list of
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of any particular index, portfolio holdings is available at
including the indexes defined here, and AIMinvestments.com. From our home page,
o Investing in smaller companies involves consequently, the performance of the Fund click on Products & Performance, then
risks not associated with investing in may deviate significantly from the Mutual Funds, then Fund Overview. Select
more established companies. performance of the indexes. your Fund from the drop-down menu and
click on Complete Quarterly Holdings.
o The Fund may invest up to 25% of its o A direct investment cannot be made in an Shareholders can also look up the Fund's
assets in the securities of non-U.S. index. Unless otherwise indicated, index Forms N-Q on the SEC's Web site at
issuers. International investing presents results include reinvested dividends, and sec.gov. Copies of the Fund's Forms N-Q
certain risks not associated with they do not reflect sales charges. may be reviewed and copied at the SEC's
investing solely in the United States. Public Reference Room at 450 Fifth Street,
These include risks relating to OTHER INFORMATION N.W., Washington, D.C. 20549-0102. You can
fluctuations in the value of the U.S. obtain information on the operation of the
dollar relative to the values of other o Industry classifications used in this Public Reference Room, including
currencies, the custody arrangements made report are generally according to the information about duplicating fee charges,
for the Fund's foreign holdings, Global Industry Classification Standard, by calling 202-942-8090 or 800-732-0330,
differences in accounting, political risks which was developed by and is the or by electronic request at the following
and the lesser degree of public exclusive property and a service mark of E-mail address: publicinfo@sec.gov. The
information required to be provided by Morgan Stanley Capital International Inc. SEC file numbers for the Fund are
non-U.S. companies. and Standard & Poor's. 811-01424 and 2-25469.
ABOUT INDEXES USED IN THIS REPORT o The returns shown in the Management's A description of the policies and
Discussion of Fund Performance are based procedures that the Fund uses to determine
o The unmanaged Standard & Poor's on net asset values calculated for how to vote proxies relating to portfolio
Composite Index of 500 Stocks (the S&P shareholder transactions. Generally securities is available without charge,
500--Registered Trademark--INDEX) is an accepted accounting principles require upon request, from our Client Services
index of common stocks frequently used as adjustments to be made to the net assets department at 800-959-4246 or on the AIM
a general measure of U.S. stock market of the Fund at period end for financial Web site, AIMinvestments.com. On the home
performance. reporting purposes, and as such, the net page, scroll down and click on AIM Funds
asset values for shareholder transactions Proxy Policy. The information is also
o The unmanaged RUSSELL MIDCAP--Registered and the returns based on those net asset available on the Securities and Exchange
Trademark--GROWTH INDEX is a subset of values may differ from the net asset Commission's Web site, sec.gov.
the RUSSELL MIDCAP--Registered Trademark-- values and returns reported in the
INDEX, which represents the performance of Financial Highlights. Information regarding how the Fund voted
the stocks of domestic mid-capitalization proxies related to its portfolio
companies; the Growth subset measures the You have recently received or should securities during the 12 months ended June
shortly receive a proxy requesting your 30, 2005, is available at our Web site. Go
vote on a to AIMinvestments.com, access the About Us
tab, click on Required Notices and then
click on Proxy Voting Activity. Next,
select the Fund from the drop-down menu.
The information is also available on the
Securities and Exchange Commission's Web
site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares AMCAX
Class B Shares AMCBX
Class C Shares AMCVX
Class R Shares AMGRX
========================================
</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 MID CAP GROWTH FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[PHOTO OF Index returned 8.72%. Globally, Morgan Stanley's MSCI World
ROBERT H. Index rose 13.27%. Much of this good performance, though,
GRAHAM] was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
attractive results than did developed markets, at least in
part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
[PHOTO OF One could make a strong argument for global
MARK H. diversification of a stock portfolio using the performance
WILLIAMSON] data for the fiscal year ended October 31, 2005. Of course,
your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
MARK H. WILLIAMSON affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31, 2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President, A I M Advisors, Inc.
AIM Funds
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM MID CAP GROWTH FUND
DEAR AIM FUNDS 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
[PHOTO OF Board.
BRUCE L. CROCKETT]
At our most recent meeting in June 2005, your Board
approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
annually, based on asset levels as of March 31, 2005. The
majority of these expense reductions, which took effect July
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM MID CAP GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
companies, which serve growing,
non-cyclical markets whose performance
===================================================================================== tends to remain constant regardless of
PERFORMANCE SUMMARY economic conditions and are industry
======================================== leaders with consistent or growing market
Mid-cap stocks were one of the FUND VS. INDEXES share; and earnings acceleration
better-performing market segments during companies, which could benefit from
the reporting period, which helped your TOTAL RETURNS, 10/31/04-10/31/05, favorable near-term sector or industry
Fund post double-digit gains for the EXCLUDING APPLICABLE SALES CHARGES. IF trends, production cycles or other
year, as illustrated by the table. SALES CHARGES WERE INCLUDED, RETURNS factors that could lead to rapid sales or
WOULD BE LOWER. earnings growth.
Mid-cap stocks generally outperformed
large-cap stocks for the year, enabling Class A Shares 14.21% We strive to control volatility and
your Fund to outperform the large-cap Class B Shares 13.45 risk by diversifying Fund holdings across
oriented S&P 500 Index. The Fund slightly Class C Shares 13.45 sectors and by building a portfolio of
underperformed the Russel Mid Cap Growth Class R Shares 14.06 100 to 120 stocks with approximately
Index, as the portfolio's industrials and S&P 500 Index equal weights within the portfolio.
health care holdings generally (Broad Market Index) 8.72
underperformed those of the bench mark. Russell Midcap Growth Index We consider selling a stock if:
(Style-specific Index) 15.91
For long-term performance, please see Lipper Mid-Cap Growth Fund o a change in fundamentals indicates
Pages 6 and 7. Index problems for the company
(Peer Group Index) 14.19
o a stock's price reaches our valuation
SOURCE: LIPPER, INC. target
========================================
o a company moves into the large
===================================================================================== capitalization range
HOW WE INVEST and low stock prices relative to their o we find a more attractive investment
projected growth rates option
We select stocks based on analysis of
individual companies. Our focus is on o applying fundamental research that MARKET CONDITIONS AND YOUR FUND
mid-cap growth companies that are includes detailed financial statement
favorably priced relative to the rest of analysis to identify stocks of companies The U.S. economy continued to expand
the market, and our goal is to produce with large potential markets, throughout the fiscal year, with
consistent returns over the long term by cash-generating business models, corporate profits generally improving
adhering to our investment process in all improving balance sheets and solid amid a backdrop of rising short-term
market environments. management teams interest rates and record high oil and
natural gas prices. The threat of
Our investment process involves: o using a variety of valuation techniques hurricanes, surging gasoline prices and
to determine target buy prices and a the ongoing fear of a housing bubble
o identifying companies we believe have stock's valuation upside and downside. seemed to dominate the popular media, but
sustainable earnings and cash flow growth The portfolio is typically not even the combined effect of these
composed of core events could stop the equity markets from
achieving near double-digit returns.
(continued)
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By Sector
1. Application 6.7% 1. American Tower Corp.
[PIE CHART] Software -Class A 1.9%
2. Health Care 4.7 2. Chicago Mercantile Exchange
Information Technology 22.8% Services Holdings Inc. 1.4
Health Care 17.1% 3. Semiconductors 4.5 3. National-Oilwell Varco Inc. 1.3
Consumer Discretionary 17.0% 4. Health Care 4.0 4. DaVita, Inc. 1.2
Energy 12.5% Equipment 5. Rosetta Resources, Inc. 1.2
Industrials 9.2% 5. Oil & Gas 6. Grant Prideco, Inc. 1.2
Financials 9.1% Equipment & Production 3.9 7. Southwestern Energy Co. 1.2
Money Market Funds Plus 8. Express Scripts, Inc. 1.2
Other Assets Less Liabilities 3.9% TOTAL NET ASSETS $172.8 million 9. Citrix Systems, Inc. 1.2
Consumer Staples 3.0% 10. Corrections Corp. of
Telecommunications Services 3.0% TOTAL NUMBER OF HOLDINGS* 113 America 1.2
Materials 2.4%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
======================================== ======================================== ========================================
</Table>
3
AIM MID CAP GROWTH FUND
<Table>
In this environment, the leading It reported a loss for the third quarter KARL FARMER, Chartered
contributors to Fund performance came of 2005 because of medical costs that [PHOTO OF Financial Analyst, is
from the consumer discretionary, energy were higher than anticipated. We sold the KARL FARMER] co-manager of AIM Mid
and health care sectors. The industrials stock after the close of the reporting Cap Growth Fund.
sector proved to be the most challenging period. We also sold Eyetech because of He spent six years as a
area for the Fund during the reporting deteriorating fundamentals. pension actuary, focusing
period. on retirement plans and
The industrials sector was also other benefit programs, prior to joining
Consumer discretionary was the negatively affected by higher energy AIM in July of 1998. He earned a B.S. in
weakest-performing sector in the S&P 500 costs and rising interest rates. economics from Texas A&M University,
Index for the year, as many investors Underperformance in this sector relative graduating magna cum laude. He
were concerned that rising gas oil and to the Russell Mid Cap Growth Index can subsequently earned his M.B.A. in finance
gas prices might adversely affect largely be attributed to one stock, from The Wharton School at the University
consumer spending. However, the consumer SIRVA, a global relocation services of Pennsylvania.
discretionary sector was the top company. Sirva has experienced accounting
contributor to Fund performance, as we problems that may result in a restatement PAUL RASPLICKA, Chartered
focused more heavily on consumer of its financial results for the fourth [PHOTO OF PAUL Financial Analyst, is
discretionary companies whose sales and quarter of 2004. The company also RASPLICKA] co-manager of AIM Mid Cap
earnings were less affected by increasing reported that it will incur significant Growth Fund. Mr. Rasplicka
fuel costs. Two examples were NORDSTROM, expenses because of internal and external joined AIM in 1998. Mr.
a department store chain catering to audits. We sold the stock because of Rasplicka began his
higher-end customers, and CHICO'S FAS, deteriorating company fundamentals. investment career in 1982
which markets clothing for middle- and as an equity research analyst. A native
high-income women. Both companies IN CLOSING of Denver, Mr. Rasplicka is a magna cum
reported solid second-quarter earnings laude graduate of the University of
and strong same-store sales in August and We are pleased to have provided positive Colorado in Boulder with a B.S. in
September, when oil and gas prices were returns for our investors for the business administration. He received an
rising sharply. reporting period. We remain committed to M.B.A. from the University of Chicago. He
our investment process of focusing on the is a Chartered Investment Counselor.
Over the reporting period, we reduced attractively priced stocks of mid-cap
our exposure to consumer discretionary, companies with growing earnings. Although Assisted by Mid Cap Growth/GARP Team
trimming the stocks of companies that growth stocks have struggled in recent
were more likely to be affected by rising years, it is important to remember that
fuel costs. market segments and investment styles go
in and out of favor. We believe our
We increased our weighting in energy, strategy has the potential to provide
the best-performing sector in the S&P 500 investors with attractive returns over
Index and the second largest contributor the long term and thank your for your
to Fund performance. ULTRA PETROLEUM, a commitment to AIM Mid Cap Growth Fund.
natural gas exploration and production
company, was a strong contributor to The views and opinions expressed in
performance. The company benefited as management's discussion of Fund
demand for natural gas spiked when oil performance are those of A I M Advisors,
production capacity was greatly reduced Inc. These views and opinions are subject
as a result of damage caused by Hurricane to change at any time based on factors
Katrina. Ultra Petroleum reported a 116% such as market and economic conditions.
increase in operating cash flow for the These views and opinions may not be
first nine months of 2005, compared to relied upon as investment advice or
the same period for the previous year. recommendations, or as an offer for a
particular security. The information is
Health care contributed positively to not a complete analysis of every aspect
Fund performance, as demand for medical of any market, country, industry,
services and products tends to remain security or the Fund. Statements of fact
constant regardless of economic trends. are from sources considered reliable, but
EXPRESS SCRIPTS, INC. was up over 135% A I M Advisors, Inc. makes no representation
during the period, making it the leading or warranty as to their completeness or
contributor to Fund performance. Still, accuracy. Although historical performance
not all health care stocks posted gains. is no guarantee of future results, these
Declines in both AMERIGROUP and EYETECH insights may help you understand our [RIGHT ARROW GRAPHIC]
PHARMACEUTICALS were significant investment management philosophy.
detractors during the period. Amerigroup FOR A PRESENTATION OF YOUR FUND'S
manages publicly supported programs such See important Fund and index LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
as Medicaid--Registered Trademark--. disclosures inside front cover. AND 7.
</Table>
4
AIM MID CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE expenses that you paid over the period. The hypothetical account values and
Simply divide your account value by expenses may not be used to estimate the
As a shareholder of the Fund, you incur $1,000 (for example, an $8,600 account actual ending account balance or expenses
two types of costs: (1) transaction value divided by $1,000 = 8.6), then you paid for the period. You may use this
costs, which may include sales charges multiply the result by the number in the information to compare the ongoing costs
(loads) on purchase payments; contingent table under the heading entitled "Actual of investing in the Fund and other funds.
deferred sales charges on redemptions; Expenses Paid During Period" to estimate To do so, compare this 5% hypothetical
and redemption fees, if any; and (2) the expenses you paid on your account example with the 5% hypothetical examples
ongoing costs, including management fees; during this period. that appear in the shareholder reports of
distribution and/or service fees (12b-1); the other funds.
and other Fund expenses. This example is HYPOTHETICAL EXAMPLE FOR
intended to help you understand your COMPARISON PURPOSES Please note that the expenses shown in
ongoing costs (in dollars) of investing the table are meant to highlight your
in the Fund and to compare these costs The table below also provides information ongoing costs only and do not reflect any
with ongoing costs of investing in other about hypothetical account values and transactional costs, such as sales
mutual funds. The example is based on an hypothetical expenses based on the Fund's charges (loads) on purchase payments,
investment of $1,000 invested at the actual expense ratio and an assumed rate contingent deferred sales charges on
beginning of the period and held for the of return of 5% per year before expenses, redemptions, and redemption fees, if any.
entire period May 1, 2005, through October which is not the Fund's actual return. Therefore, the hypothetical information
31, 2005. The Fund's actual cumulative total is useful in comparing ongoing costs
returns at net asset value after expenses only, and will not help you determine the
ACTUAL EXPENSES for the six months ended October 31, 2005, relative total costs of owning different
appear in the table "Cumulative Total funds. In addition, if these
The table below provides information Returns" on page 7. transactional costs were included, your
about actual account values and actual costs would have been higher.
expenses. You may use the information in
this table, together with the amount you
invested, to estimate the
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2),(3) (10/31/05) PERIOD(2),(4) RATIO
A $1,000.00 $1,126.00 $ 8.94 $1,016.80 $ 8.48 1.67%
B 1,000.00 1,121.80 12.75 1,013.19 12.10 2.38
C 1,000.00 1,121.80 12.75 1,013.19 12.10 2.38
R 1,000.00 1,124.50 10.08 1,015.71 9.57 1.88
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appear in the table "Cumulative Total Returns" on page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense ratio restated as if
this agreement had been in effect throughout the entire most recent fiscal half year is 1.63% for the Class A shares.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal
half year are $8.76 for the Class A shares.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent
fiscal half year are $8.31 for the Class A shares.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM MID CAP GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 11/1/99, INDEX DATA FROM 10/31/99
[MOUNTAIN CHART]
AIM MID CAP AIM MID CAP AIM MID CAP LIPPER MID-CAP
GROWTH FUND- GROWTH FUND- GROWTH FUND- GROWTH FUND RUSSELL MIDCAP S&P 500
DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX GROWTH INDEX INDEX
10/31/99 $ 9450 $10000 $10000 $10000 $10000 $10000
11/99 10660 11270 11270 11254 11036 10203
12/99 12984 13700 13700 13602 12946 10803
1/00 12805 13509 13509 13368 12944 10261
2/00 15895 16760 16760 16719 15665 10067
3/00 16623 17519 17519 15542 15681 11051
4/00 14515 15289 15299 13492 14159 10718
5/00 13382 14079 14089 12279 13127 10499
6/00 14724 15479 15490 14187 14520 10757
7/00 14176 14898 14899 13598 13600 10589
8/00 15821 16609 16619 15377 15651 11247
9/00 14922 15669 15668 14638 14886 10653
10/00 13589 14249 14258 13454 13867 10608
11/00 10953 11479 11488 10641 10854 9772
12/00 11672 12239 12238 11408 11425 9820
1/01 12116 12689 12688 11563 12078 10168
2/01 10141 10620 10619 9828 9989 9242
3/01 9225 9650 9649 8785 8559 8657
4/01 10500 10980 10990 9944 9986 9329
5/01 10236 10700 10699 10026 9939 9391
6/01 10604 11080 11079 9987 9944 9163
7/01 10094 10540 10540 9461 9274 9073
8/01 9026 9420 9419 8827 8602 8505
9/01 7325 7640 7639 7554 7180 7818
10/01 8109 8449 8449 7975 7935 7968
11/01 8903 9269 9268 8630 8789 8579
12/01 9196 9569 9569 9004 9123 8654
1/02 8865 9219 9218 8660 8827 8528
2/02 8175 8499 8499 8229 8326 8363
3/02 8828 9169 9168 8748 8962 8678
4/02 8619 8949 8948 8457 8487 8152
5/02 8478 8798 8798 8175 8234 8092
6/02 7608 7898 7898 7440 7325 7516
7/02 6729 6978 6978 6638 6614 6930
8/02 6531 6768 6768 6559 6591 6975
9/02 5878 6089 6088 6151 6067 6218
10/02 6191 6408 6408 6462 6537 6765
11/02 6625 6858 6858 6845 7049 7163
12/02 6266 6478 6478 6441 6623 6742
1/03 6247 6458 6458 6345 6558 6566
2/03 6124 6318 6318 6247 6501 6467
3/03 6209 6408 6417 6337 6622 6530
4/03 6606 6807 6817 6781 7073 7067
5/03 7126 7347 7357 7342 7753 7439
6/03 7296 7517 7527 7457 7864 7534
7/03 7693 7917 7927 7751 8145 7667
8/03 8109 8347 8347 8132 8593 7816
9/03 7826 8057 8057 7859 8427 7734
10/03 8431 8677 8677 8476 9106 8171
11/03 8677 8907 8916 8677 9350 8243
12/03 8903 9146 9146 8722 9452 8675
1/04 9196 9436 9436 8942 9764 8834
2/04 9309 9556 9556 9065 9927 8957
3/04 9243 9476 9476 9063 9908 8822
4/04 8713 8926 8926 8776 9629 8683
5/04 9006 9226 9226 8967 9856 8802
6/04 9016 9226 9226 9182 10013 8973
7/04 8166 8347 8347 8530 9350 8676
8/04 7930 8107 8107 8382 9234 8711
9/04 8308 8497 8497 8741 9579 8805
10/04 8582 8767 8768 8999 9904 8940
11/04 9065 9258 9258 9499 10416 9302
12/04 9481 9668 9668 9945 10915 9618
1/05 9254 9438 9438 9624 10622 9384
2/05 9387 9568 9568 9748 10891 9581
3/05 9264 9438 9438 9554 10732 9411
4/05 8706 8868 8868 9094 10308 9233
5/05 9282 9438 9448 9633 10898 9527
6/05 9556 9718 9718 9854 11101 9540
7/05 10199 10368 10368 10421 11748 9895
8/05 10171 10328 10328 10388 11677 9805
9/05 10180 10338 10338 10570 11828 9884
10/05 9802 9851 9950 10276 11480 9719
====================================================================================================================================
Source: Lipper, Inc.
The data shown in the chart include This chart, which is a logarithmic chart,
reinvested distributions, applicable presents the fluctuations in the value of
sales charges, Fund expenses and the Fund and its indexes. We believe that
management fees. Index results include a logarithmic chart is more effective
reinvested dividends, but they do not than other types of charts in
reflect sales charges. Performance of an illustrating changes in value during the
index of funds reflects fund expenses and early years shown in the chart. The
management fees; performance of a market vertical axis, the one that indicates the
index does not. Performance shown in the dollar value of an investment, is
chart and table(s) does not reflect constructed with each segment
deduction of taxes a shareholder would representing a percent change in the
pay on Fund distributions or sale of Fund value of the investment. In this chart,
shares. Performance of the indexes does each segment represents a doubling, or
not reflect the effects of taxes. 100% change, in the value of the
investment. In other words, the space
between $10,000 and $20,000 is the same
size as the space between $20,000 and
$40,000, the space between $20,000 and
$40,000 is the same as that between
$40,000 and $80,000, and so on.
</Table>
6
AIM MIDCAP GROWTH FUND
<Table>
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 12.60%
Inception (11/1/99) -0.33% CLASS A SHARES Class B Shares 12.18
5 Years -7.39 Inception (11/1/99) 0.30% Class C Shares 12.18
1 Year 7.91 5 Years -8.41 Class R Shares 12.45
1 Year 15.81 ========================================
CLASS B SHARES
Inception (11/1/99) -0.25% CLASS B SHARES
5 Years -7.31 Inception (11/1/99) 0.40%
1 Year 8.45 5 Years -8.35
1 Year 16.65
CLASS C SHARES
Inception (11/1/99) -0.08% CLASS C SHARES
5 Years -6.94 Inception (11/1/99) 0.57%
1 Year 12.45 5 Years -7.98
1 Year 20.65
CLASS R SHARES
Inception 0.43% CLASS R SHARES
5 Years -6.50 Inception 1.08%
1 Year 14.06 5 Years -7.53
1 Year 22.29
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE 3, AND THE EFFECT OF THE MAXIMUM SALES MAY BE IMPOSED ON A TOTAL REDEMPTION OF
2002. RETURNS SINCE THAT DATE ARE CHARGE UNLESS OTHERWISE STATED. RETIREMENT PLAN ASSETS WITHIN THE FIRST
HISTORICAL RETURNS. ALL OTHER RETURNS ARE INVESTMENT RETURN AND PRINCIPAL VALUE YEAR. THE PERFORMANCE OF THE FUND'S SHARE
BLENDED RETURNS OF HISTORICAL CLASS R WILL FLUCTUATE SO THAT YOU MAY HAVE A CLASSES WILL DIFFER DUE TO DIFFERENT
SHARE PERFORMANCE AND RESTATED CLASS A GAIN OR LOSS WHEN YOU SELL SHARES. SALES CHARGE STRUCTURES AND CLASS
SHARE PERFORMANCE (FOR PERIODS PRIOR TO EXPENSES.
THE INCEPTION DATE OF CLASS R SHARES) AT CLASS A SHARE PERFORMANCE REFLECTS
NET ASSET VALUE, ADJUSTED TO REFLECT THE THE MAXIMUM 5.50% SALES CHARGE, AND CLASS
HIGHER RULE 12b-1 FEES APPLICABLE TO B AND CLASS C SHARE PERFORMANCE REFLECTS
CLASS R SHARES. THE APPLICABLE CONTINGENT DEFERRED SALES
CHARGE (CDSC) FOR THE PERIOD INVOLVED.
THE PERFORMANCE DATA QUOTED REPRESENT THE CDSC ON CLASS B SHARES DECLINES FROM
PAST PERFORMANCE AND CANNOT GUARANTEE 5% BEGINNING AT THE TIME OF PURCHASE TO
COMPARABLE FUTURE RESULTS; CURRENT 0% AT THE BEGINNING OF THE SEVENTH YEAR.
PERFORMANCE MAY BE LOWER OR HIGHER. THE CDSC ON CLASS C SHARES IS 1% FOR THE
PLEASE VISIT AIMinvestments.com FOR THE FIRST YEAR AFTER PURCHASE. CLASS R SHARES
MOST RECENT MONTH-END PERFORMANCE. DO NOT HAVE A FRONT-END SALES CHARGE;
PERFORMANCE FIGURES REFLECT REINVESTED RETURNS SHOWN ARE AT NET ASSET VALUE AND
DISTRIBUTIONS, CHANGES IN NET ASSET VALUE DO NOT REFLECT A 0.75% CDSC THAT
</Table>
7
AIM MID CAP GROWTH FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Equity Funds o The quality of services to be provided o Overall performance of AIM. The Board
(the "Board") oversees the management of by AIM. The Board reviewed the considered the overall performance of AIM
AIM Mid Cap Growth Fund (the "Fund") and, credentials and experience of the in providing investment advisory and
as required by law, determines annually officers and employees of AIM who will portfolio administrative services to the
whether to approve the continuance of the provide investment advisory services to Fund and concluded that such performance
Fund's advisory agreement with A I M the Fund. In reviewing the qualifications was satisfactory.
Advisors, Inc. ("AIM"). Based upon the of AIM to provide investment advisory
recommendation of the Investments services, the Board reviewed the o Fees relative to those of clients of
Committee of the Board, which is qualifications of AIM's investment AIM with comparable investment
comprised solely of independent trustees, personnel and considered such issues as strategies. The Board reviewed the
at a meeting held on June 30, 2005, the AIM's portfolio and product review advisory fee rate for the Fund under the
Board, including all of the independent process, various back office support Advisory Agreement. The Board noted that
trustees, approved the continuance of the functions provided by AIM and AIM's this rate (i) was higher than the
advisory agreement (the "Advisory equity and fixed income trading sub-advisory fee rates for an
Agreement") between the Fund and AIM for operations. Based on the review of these unaffiliated mutual fund for which an AIM
another year, effective July 1, 2005. and other factors, the Board concluded affiliate serves as sub-advisor, and
that the quality of services to be pro- noted that total management fees paid by
The Board considered the factors vided by AIM was appropriate and that AIM such unaffiliated mutual fund were lower
discussed below in evaluating the currently is providing satisfactory than the advisory fee rate for the Fund;
fairness and reasonableness of the services in accordance with the terms of (ii) was higher than the advisory fee
Advisory Agreement at the meeting on June the Advisory Agreement. rates for a collective trust portfolio
30, 2005 and as part of the Board's for which an AIM affiliate serves as
ongoing oversight of the Fund. In their o The performance of the Fund relative to advisor with investment strategies
deliberations, the Board and the comparable funds. The Board reviewed the comparable to those of the Fund; and
independent trustees did not identify any performance of the Fund during the past (iii) was lower than the advisory fee
particular factor that was controlling, one, three and five calendar years rates for an offshore fund for which an
and each trustee attributed different against the performance of funds advised AIM affiliate serves as advisor with
weights to the various factors. by other advisors with investment investment strategies comparable to those
strategies comparable to those of the of the Fund. The Board noted that AIM has
One of the responsibilities of the Fund. The Board noted that the Fund's agreed to waive advisory fees of the Fund
Senior Officer of the Fund, who is performance in such periods was below the and to limit the Fund's total operating
independent of AIM and AIM's affiliates, median performance of such comparable expenses, as discussed below. Based on
is to manage the process by which the funds. The Board noted that AIM has this review, the Board concluded that the
Fund's proposed management fees are acknowledged that the Fund continues to advisory fee rate for the Fund under the
negotiated to ensure that they are require a long-term solution to its Advisory Agreement was fair and
negotiated in a manner which is at arm's under-performance, and that management reasonable.
length and reasonable. To that end, the is continuing to closely monitor the
Senior Officer must either supervise a performance of the Fund and analyze o Fees relative to those of comparable
competitive bidding process or prepare an various possible long-term solutions. funds with other advisors. The Board
independent written evaluation. The Based on this review, the Board concluded reviewed the advisory fee rate for the
Senior Officer has recommended an that no changes should be made to the Fund under the Advisory Agreement. The
independent written evaluation in lieu of Fund and that it was not necessary to Board compared effective contractual
a competitive bidding process and, upon change the Fund's portfolio management advisory fee rates at a common asset
the direction of the Board, has prepared team at this time. level and noted that the Fund's rate was
such an independent written evaluation. below the median rate of the funds
Such written evaluation also considered o The performance of the Fund relative to advised by other advisors with investment
certain of the factors discussed below. indices. The Board reviewed the strategies comparable to those of the
In addition, as discussed below, the performance of the Fund during the past Fund that the Board reviewed. The Board
Senior Officer made certain one, three and five calendar years noted that AIM has agreed to waive
recommendations to the Board in against the performance of the Lipper advisory fees of the Fund and to limit
connection with such written evaluation. Mid-Cap Growth Index. The Board noted the Fund's total operating expenses, as
that the Fund's performance was below the discussed below. Based on this review,
The discussion below serves as a performance of such Index for the one and the Board concluded that the advisory fee
summary of the Senior Officer's three year periods and comparable to such rate for the Fund under the Advisory
independent written evaluation and Index for the five year period. The Board Agreement was fair and reasonable.
recommendations to the Board in noted that AIM has acknowledged that the
connection therewith, as well as a Fund continues to require a long-term o Expense limitations and fee waivers.
discussion of the material factors and solution to its under-performance, and The Board noted that AIM has
the conclusions with respect thereto that that management is continuing to closely contractually agreed to waive advisory
formed the basis for the Board's approval monitor the performance of the Fund and fees of the Fund through December 31,
of the Advisory Agreement. After analyze various possible long-term 2009 to the extent necessary so that the
consideration of all of the factors below solutions. Based on this review, the advisory fees payable by the Fund do not
and based on its informed business Board concluded that no changes should be exceed a specified maximum advisory fee
judgment, the Board determined that the made to the Fund and that it was not rate, which maximum rate includes
Advisory Agreement is in the best necessary to change the Fund's portfolio breakpoints and is based on net asset
interests of the Fund and its management team at this time. levels. The Board considered the
shareholders and that the compensation to contractual nature of this fee waiver and
AIM under the Advisory Agreement is fair o Meeting with the Fund's portfolio noted that it remains in effect until
and reasonable and would have been managers and investment personnel. With December 31, 2009. The Board noted that
obtained through arm's length respect to the Fund, the Board is meeting AIM has voluntarily agreed to waive fees
negotiations. periodically with such Fund's portfolio and/or limit expenses of the Fund in an
managers and/or other investment amount necessary to limit total annual
o The nature and extent of the advisory personnel and believes that such operating expenses to a specified
services to be provided by AIM. The Board individuals are competent and able to percentage of average daily net assets
reviewed the services to be provided by continue to carry out their for each class of the Fund. The Board
AIM under the Advisory Agreement. Based responsibilities under the Advisory considered the voluntary nature of this
on such review, the Board concluded that Agreement. fee waiver/expense limitation and noted
the range of services to be provided by that it can be terminated at any time by
AIM under the Advisory Agreement was AIM without further notice to investors.
appropriate and that AIM currently is The Board considered the effect these fee
providing services in accordance with the
terms of the Advisory Agreement. (continued)
</Table>
8
AIM MID CAP GROWTH FUND
<Table>
waivers/expense limitations would have on o Independent written evaluation and o Historical relationship between the
the Fund's estimated expenses and recommendations of the Fund's Senior Fund and AIM. In determining whether to
concluded that the levels of fee Officer. The Board noted that, upon their continue the Advisory Agreement for the
waivers/expense limitations for the Fund direction, the Senior Officer of the Fund, the Board also considered the prior
were fair and reasonable. Fund, who is independent of AIM and AIM's relationship between AIM and the Fund, as
affiliates, had prepared an independent well as the Board's knowledge of AIM's
o Breakpoints and economies of scale. The written evaluation in order to assist the operations, and concluded that it was
Board reviewed the structure of the Board in determining the reasonableness beneficial to maintain the current
Fund's advisory fee under the Advisory of the proposed management fees of the relationship, in part, because of such
Agreement, noting that it includes one AIM Funds, including the Fund. The Board knowledge. The Board also reviewed the
breakpoint. The Board reviewed the level noted that the Senior Officer's written general nature of the non-investment
of the Fund's advisory fees, and noted evaluation had been relied upon by the advisory services currently performed by
that such fees, as a percentage of the Board in this regard in lieu of a competi- AIM and its affiliates, such as
Fund's net assets, would decrease as net tive bidding process. In determining administrative, transfer agency and
assets increase because the Advisory whether to continue the Advisory distribution services, and the fees
Agreement includes a breakpoint. The Agreement for the Fund, the Board received by AIM and its affiliates for
Board noted that, due to the Fund's considered the Senior Officer's written performing such services. In addition to
current asset levels and the way in which evaluation and the recommendation made by reviewing such services, the trustees
the advisory fee breakpoints have been the Senior Officer to the Board that the also considered the organizational
structured, the Fund has yet to benefit Board consider implementing a process to structure employed by AIM and its
from the breakpoint. The Board noted that assist them in more closely monitoring affiliates to provide those services.
AIM has contractually agreed to waive the performance of the AIM Funds. The Based on the review of these and other
advisory fees of the Fund through Board concluded that it would be factors, the Board concluded that AIM and
December 31, 2009 to the extent necessary advisable to implement such a process as its affiliates were qualified to continue
so that the advisory fees payable by the soon as reasonably practicable. to provide non-investment advisory
Fund do not exceed a specified maximum services to the Fund, including
advisory fee rate, which maximum rate o Profitability of AIM and its administrative, transfer agency and
includes breakpoints and is based on net affiliates. The Board reviewed distribution services, and that AIM and
asset levels. The Board concluded that information concerning the profitability its affiliates currently are providing
the Fund's fee levels under the Advisory of AIM's (and its affiliates') investment satisfactory non-investment advisory
Agreement therefore would reflect advisory and other activities and its services.
economies of scale at higher asset levels financial condition. The Board considered
and that it was not necessary to change the overall profitability of AIM, as well o Other factors and current trends. In
the advisory fee breakpoints in the as the profitability of AIM in connection determining whether to continue the
Fund's advisory fee schedule. with managing the Fund. The Board noted Advisory Agreement for the Fund, the
that AIM's operations remain profitable, Board considered the fact that AIM, along
o Investments in affiliated money market although increased expenses in recent with others in the mutual fund industry,
funds. The Board also took into account years have reduced AIM's profitability. is subject to regulatory inquiries and
the fact that uninvested cash and cash Based on the review of the profitability litigation related to a wide range of
collateral from securities lending of AIM's and its affiliates' investment issues. The Board also considered the
arrangements (collectively, "cash advisory and other activities and its governance and compliance reforms being
balances") of the Fund may be invested in financial condition, the Board concluded undertaken by AIM and its affiliates,
money market funds advised by AIM that the compensation to be paid by the including maintaining an internal
pursuant to the terms of an SEC exemptive Fund to AIM under its Advisory Agreement controls committee and retaining an
order. The Board found that the Fund may was not excessive. independent compliance consultant, and
realize certain benefits upon investing the fact that AIM has undertaken to cause
cash balances in AIM advised money market o Benefits of soft dollars to AIM. The the Fund to operate in accordance with
funds, including a higher net return, Board considered the benefits realized certain governance policies and
increased liquidity, increased by AIM as a result of brokerage practices. The Board concluded that these
diversification or decreased transaction transactions executed through "soft actions indicated a good faith effort on
costs. The Board also found that the Fund dollar" arrangements. Under these the part of AIM to adhere to the highest
will not receive reduced services if it arrangements, brokerage commissions paid ethical standards, and determined that
invests its cash balances in such money by the Fund and/or other funds advised by the current regulatory and litigation
market funds. The Board noted that, to AIM are used to pay for research and exe- environment to which AIM is subject
the extent the Fund invests in affiliated cution services. This research is used by should not prevent the Board from
money market funds, AIM has voluntarily AIM in making investment decisions for continuing the Advisory Agreement for the
agreed to waive a portion of the advisory the Fund. The Board concluded that such Fund.
fees it receives from the Fund arrangements were appropriate.
attributable to such investment. The
Board further determined that the o AIM's financial soundness in light of
proposed securities lending program and the Fund's needs. The Board considered
related procedures with respect to the whether AIM is financially sound and has
lending Fund is in the best interests of the resources necessary to perform its
the lending Fund and its respective obligations under the Advisory Agreement,
shareholders. The Board therefore and concluded that AIM has the financial
concluded that the investment of cash resources necessary to fulfill its
collateral received in connection with obligations under the Advisory Agreement.
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.
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM MID CAP GROWTH FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception 0.80% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 5 Years -6.11 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 1 Year 15.15 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered 6 Months* 13.04 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans ======================================== OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. FULL REPORT FOR INFORMATION ON
AVERAGE ANNUAL TOTAL RETURNS COMPARATIVE BENCHMARKS. PLEASE CONSULT
YOUR FUND PROSPECTUS FOR MORE
For periods ended 9/30/05, most recent INFORMATION. FOR THE MOST CURRENT
calendar quarter-end MONTH-END PERFORMANCE, PLEASE CALL
800-451-4246 OR VISIT
Inception 1.44 AIMINVESTMENTS.COM.
5 Years -7.18
1 Year 23.36
6 Months* 10.34
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV).
INSTITUTIONAL CLASS SHARES'
INCEPTION DATE IS APRIL 30, 2004.
RETURNS SINCE THAT DATE ARE HISTORICAL
RETURNS. ALL OTHER RETURNS ARE BLENDED
RETURNS OF HISTORICAL INSTITUTIONAL
CLASS SHARE PERFORMANCE AND RESTATED
CLASS A SHARE PERFORMANCE (FOR PERIODS
PRIOR TO THE INCEPTION DATE OF
INSTITUTIONAL CLASS SHARES) AT NET ASSET
======================================== VALUE AND REFLECT THE HIGHER RULE 12B-1
FEES APPLICABLE TO CLASS A SHARES. CLASS
NASDAQ SYMBOL AMIGX A SHARES' INCEPTION DATE IS NOVEMBER 1,
1999. PERFORMANCE OF INSTITUTIONAL CLASS
======================================== SHARES WILL DIFFER FROM PERFORMANCE OF
OTHER SHARE CLASSES DUE TO DIFFERING
SALES CHARGES AND CLASS EXPENSES.
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM MCG-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
example is based on an investment of PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical informa-
ACTUAL EXPENSES on the Fund's actual expense ratio and tion is useful in comparing ongoing
an assumed rate of return of 5% per year costs only, and will not help you
The table below provides information before expenses, which is not the Fund's determine the relative total costs of
about actual account values and actual actual return. The Fund's actual cumu- owning different funds.
expenses. You may use the information in lative total return after expenses for
this table, together with the amount you the six months ended September 30, 2005,
invested, to estimate the expenses that appears in the table on the front of
you paid over the period. Simply this supplement.
==================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD (2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,130.40 $ 5.06 $ 1,020.45 $ 4.80 0.94%
(1)The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, to October 31, 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 October 31, 2005, appears in the table on the front of this supplement.
(2)Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
==================================================================================================================================
AIMINVESTMENTS.COM MCG-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.08%
ADVERTISING-1.63%
Omnicom Group Inc. 23,000 $ 1,908,080
- -----------------------------------------------------------------------
R.H. Donnelley Corp.(a) 14,680 906,196
=======================================================================
2,814,276
=======================================================================
AEROSPACE & DEFENSE-1.61%
Aviall, Inc.(a) 28,751 907,094
- -----------------------------------------------------------------------
L-3 Communications Holdings, Inc. 24,000 1,867,680
=======================================================================
2,774,774
=======================================================================
AIR FREIGHT & LOGISTICS-1.10%
Robinson (C.H.) Worldwide, Inc. 54,000 1,904,040
=======================================================================
APPAREL RETAIL-1.60%
Abercrombie & Fitch Co.-Class A 26,967 1,402,014
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 20,000 790,800
- -----------------------------------------------------------------------
Urban Outfitters, Inc.(a) 20,000 566,600
=======================================================================
2,759,414
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.98%
Coach, Inc.(a) 55,455 1,784,542
- -----------------------------------------------------------------------
Polo Ralph Lauren Corp. 33,347 1,640,672
=======================================================================
3,425,214
=======================================================================
APPLICATION SOFTWARE-6.68%
Amdocs Ltd.(a) 60,000 1,588,200
- -----------------------------------------------------------------------
Business Objects S.A. (France)(a) 24,891 853,015
- -----------------------------------------------------------------------
Citrix Systems, Inc.(a) 72,387 1,995,710
- -----------------------------------------------------------------------
Cognos, Inc. (Canada)(a) 24,454 917,759
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 27,031 1,307,219
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 48,949 1,702,936
- -----------------------------------------------------------------------
NAVTEQ Corp.(a) 35,734 1,397,914
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 94,196 1,785,014
=======================================================================
11,547,767
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.12%
Legg Mason, Inc. 18,000 1,931,580
=======================================================================
BIOTECHNOLOGY-1.78%
Charles River Laboratories International,
Inc.(a) 20,000 875,200
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 33,000 1,559,250
- -----------------------------------------------------------------------
Martek Biosciences Corp.(a)(b) 21,000 648,270
=======================================================================
3,082,720
=======================================================================
BROADCASTING & CABLE TV-0.89%
Univision Communications Inc.-Class A(a) 58,900 1,539,646
=======================================================================
CASINOS & GAMING-1.04%
Station Casinos, Inc. 28,000 1,794,800
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-1.70%
Comverse Technology, Inc.(a) 65,000 $ 1,631,500
- -----------------------------------------------------------------------
Scientific-Atlanta, Inc. 37,000 1,311,280
=======================================================================
2,942,780
=======================================================================
COMPUTER HARDWARE-0.60%
Palm, Inc.(a) 40,585 1,042,629
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.82%
Network Appliance, Inc.(a) 48,319 1,322,008
- -----------------------------------------------------------------------
QLogic Corp.(a) 60,200 1,815,632
=======================================================================
3,137,640
=======================================================================
CONSTRUCTION & ENGINEERING-0.78%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 60,449 1,348,013
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.50%
Joy Global Inc. 18,994 871,255
=======================================================================
CONSUMER ELECTRONICS-0.92%
Harman International Industries, Inc. 16,000 1,597,760
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.74%
Alliance Data Systems Corp.(a) 35,998 1,280,089
=======================================================================
DEPARTMENT STORES-1.06%
Nordstrom, Inc. 53,000 1,836,450
=======================================================================
DIVERSIFIED BANKS-1.02%
Centennial Bank Holdings, Inc.(a)(c) 157,500 1,760,850
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-3.18%
ChoicePoint Inc.(a) 46,600 1,969,316
- -----------------------------------------------------------------------
Corporate Executive Board Co. (The) 16,000 1,322,240
- -----------------------------------------------------------------------
Corrections Corp. of America(a) 50,000 1,994,000
- -----------------------------------------------------------------------
Global Cash Access, Inc.(a) 14,696 206,038
=======================================================================
5,491,594
=======================================================================
DIVERSIFIED METALS & MINING-1.83%
Freeport-McMoRan Copper & Gold, Inc.-Class B 30,400 1,502,368
- -----------------------------------------------------------------------
Phelps Dodge Corp. 13,739 1,655,137
=======================================================================
3,157,505
=======================================================================
DRUG RETAIL-1.06%
Shoppers Drug Mart Corp. (Canada) 55,000 1,829,685
=======================================================================
EDUCATION SERVICES-1.08%
Career Education Corp.(a) 52,300 1,861,357
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.10%
Cooper Industries, Ltd.-Class A 26,700 1,892,763
=======================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.66%
Amphenol Corp.-Class A 45,186 $ 1,806,084
- -----------------------------------------------------------------------
Cogent Inc.(a) 40,000 1,062,000
=======================================================================
2,868,084
=======================================================================
HEALTH CARE DISTRIBUTORS-0.62%
Schein (Henry), Inc.(a) 26,857 1,064,611
=======================================================================
HEALTH CARE EQUIPMENT-3.99%
Biomet, Inc. 41,600 1,448,928
- -----------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 24,378 875,170
- -----------------------------------------------------------------------
PerkinElmer, Inc. 90,000 1,986,300
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 38,000 1,731,280
- -----------------------------------------------------------------------
Waters Corp.(a) 23,606 854,537
=======================================================================
6,896,215
=======================================================================
HEALTH CARE FACILITIES-1.53%
Community Health Systems, Inc.(a) 25,000 927,750
- -----------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 44,000 1,720,400
=======================================================================
2,648,150
=======================================================================
HEALTH CARE SERVICES-4.63%
DaVita, Inc.(a) 43,100 2,119,658
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 27,271 2,056,506
- -----------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 15,154 856,201
- -----------------------------------------------------------------------
Omnicare, Inc. 26,000 1,406,600
- -----------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 11,267 647,514
- -----------------------------------------------------------------------
Psychiatric Solutions, Inc.(a) 16,600 908,020
=======================================================================
7,994,499
=======================================================================
HEALTH CARE SUPPLIES-0.96%
Cooper Cos., Inc. (The) 24,000 1,652,160
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.96%
Hilton Hotels Corp. 84,149 1,636,698
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(d) 30,000 1,752,900
=======================================================================
3,389,598
=======================================================================
HOUSEHOLD APPLIANCES-0.68%
Whirlpool Corp. 15,000 1,177,500
=======================================================================
HOUSEWARES & SPECIALTIES-1.52%
Fortune Brands, Inc. 10,200 774,894
- -----------------------------------------------------------------------
Jarden Corp.(a) 55,000 1,858,450
=======================================================================
2,633,344
=======================================================================
INDUSTRIAL MACHINERY-0.95%
ITT Industries, Inc. 16,100 1,635,760
=======================================================================
INSURANCE BROKERS-0.77%
Willis Group Holdings Ltd. (United Kingdom) 35,641 1,323,707
=======================================================================
INTEGRATED OIL & GAS-.89%
Murphy Oil Corp. 33,000 1,546,050
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
INTERNET SOFTWARE & SERVICES-1.82%
Digital River, Inc.(a) 50,000 1,400,500
- -----------------------------------------------------------------------
VeriSign, Inc.(a) 73,931 1,746,990
=======================================================================
3,147,490
=======================================================================
IT CONSULTING & OTHER SERVICES-1.04%
Cognizant Technology Solutions Corp.-Class
A(a) 41,000 $ 1,803,180
=======================================================================
MANAGED HEALTH CARE-2.25%
CIGNA Corp. 13,000 1,506,310
- -----------------------------------------------------------------------
Coventry Health Care, Inc.(a) 25,300 1,365,947
- -----------------------------------------------------------------------
Humana Inc.(a) 23,000 1,020,970
=======================================================================
3,893,227
=======================================================================
OIL & GAS DRILLING-2.57%
Nabors Industries, Ltd.(a) 24,000 1,647,120
- -----------------------------------------------------------------------
Noble Corp. 28,000 1,802,640
- -----------------------------------------------------------------------
Todco-Class A 22,000 984,500
=======================================================================
4,434,260
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-3.57%
Grant Prideco, Inc.(a) 54,000 2,100,060
- -----------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 36,000 2,248,920
- -----------------------------------------------------------------------
Weatherford International Ltd.(a) 29,000 1,815,400
=======================================================================
6,164,380
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.89%
CNX Gas Corp. (Acquired 08/01/05; Cost
$496,000)(a)(e) 31,000 643,250
- -----------------------------------------------------------------------
Rosetta Resources, Inc. (Acquired 06/28/05;
Cost $1,827,200)(a)(e) 114,200 2,112,700
- -----------------------------------------------------------------------
Southwestern Energy Co.(a) 28,500 2,067,390
- -----------------------------------------------------------------------
Ultra Petroleum Corp.(a) 36,000 1,889,640
=======================================================================
6,712,980
=======================================================================
OIL & GAS REFINING & MARKETING-0.57%
Tesoro Corp. 16,000 978,400
=======================================================================
OIL & GAS STORAGE & TRANSPORTATION-1.10%
Williams Cos., Inc. (The) 85,000 1,895,500
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.95%
CapitalSource Inc.(a) 74,665 1,642,630
=======================================================================
PACKAGED FOODS & MEATS-0.94%
McCormick & Co., Inc. 27,400 829,946
- -----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 30,900 798,456
=======================================================================
1,628,402
=======================================================================
PHARMACEUTICALS-1.32%
Medicis Pharmaceutical Corp.-Class A(b) 53,000 1,563,500
- -----------------------------------------------------------------------
MGI Pharma, Inc.(a) 38,000 712,880
=======================================================================
2,276,380
=======================================================================
PUBLISHING-0.72%
Getty Images, Inc.(a) 15,000 1,245,150
=======================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
REAL ESTATE-0.82%
People's Choice Financial Corp. (Acquired
12/21/04; Cost $1,897,000)(a)(e) 189,700 $ 1,422,750
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.07%
CB Richard Ellis Group, Inc.-Class A(a) 38,000 1,856,300
=======================================================================
REGIONAL BANKS-0.66%
Signature Bank(a) 39,600 1,148,400
=======================================================================
REINSURANCE-0.52%
Endurance Specialty Holdings Ltd. 27,067 897,542
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.13%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 49,747 844,704
- -----------------------------------------------------------------------
Tessera Technologies Inc.(a) 39,600 1,104,840
=======================================================================
1,949,544
=======================================================================
SEMICONDUCTORS-4.48%
Analog Devices, Inc. 40,000 1,391,200
- -----------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 62,629 904,989
- -----------------------------------------------------------------------
Marvell Technology Group Ltd. (Singapore)(a) 40,000 1,856,400
- -----------------------------------------------------------------------
Microchip Technology Inc. 60,000 1,810,200
- -----------------------------------------------------------------------
National Semiconductor Corp. 78,800 1,783,244
=======================================================================
7,746,033
=======================================================================
SOFT DRINKS-0.97%
Hansen Natural Corp.(a)(b) 33,000 1,667,160
=======================================================================
SPECIALIZED FINANCE-1.35%
Chicago Mercantile Exchange Holdings Inc. 6,400 2,336,960
=======================================================================
SPECIALTY STORES-1.91%
Office Depot, Inc.(a) 62,000 1,706,860
- -----------------------------------------------------------------------
Staples, Inc. 70,000 1,591,100
=======================================================================
3,297,960
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
STEEL-0.53%
Nucor Corp. 15,360 $ 919,296
=======================================================================
SYSTEMS SOFTWARE-1.12%
Red Hat, Inc.(a)(b) 83,194 1,931,765
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.82%
Hudson City Bancorp, Inc. 118,975 1,408,664
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.98%
American Tower Corp.-Class A(a) 139,875 3,336,019
- -----------------------------------------------------------------------
NII Holdings, Inc.(a) 21,948 1,819,928
=======================================================================
5,155,947
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $141,705,818) 166,014,579
=======================================================================
MONEY MARKET FUNDS-3.29%
Liquid Assets Portfolio-Institutional
Class(f) 2,840,496 2,840,496
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 2,840,496 2,840,496
=======================================================================
Total Money Market Funds (Cost
$5,680,992) 5,680,992
=======================================================================
TOTAL INVESTMENTS-99.37% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $147,386,810) 171,695,571
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.34%
Liquid Assets Portfolio-Institutional
Class(f)(g) 4,053,350 4,053,350
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,053,350) 4,053,350
=======================================================================
TOTAL INVESTMENTS-101.71% (Cost $151,440,160) 175,748,921
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.71%) (2,960,390)
=======================================================================
NET ASSETS-100.00% $172,788,531
_______________________________________________________________________
=======================================================================
</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 October 31, 2005.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at October
31, 2005 represented 1.02% of the Fund's Net Assets. See Note 1A.
(d) Each unit represents one common share and one Class B share.
(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 value of these securities at October 31, 2005 was $4,178,700,
which represented 2.42% of the Fund's Net Assets. These securities are
considered to be illiquid. The Fund is limited to investing 15% in illiquid
securities at the time of purchase.
(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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $141,705,818)* $166,014,579
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $9,734,342) 9,734,342
===========================================================
Total investments (cost $151,440,160) 175,748,921
===========================================================
Foreign currencies, at value (cost $3,954) 3,958
- -----------------------------------------------------------
Cash 408,323
- -----------------------------------------------------------
Receivables for:
Investments sold 3,092,750
- -----------------------------------------------------------
Fund shares sold 217,315
- -----------------------------------------------------------
Dividends 46,889
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 26,538
- -----------------------------------------------------------
Other assets 28,348
===========================================================
Total assets 179,573,042
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 2,129,256
- -----------------------------------------------------------
Fund shares reacquired 318,473
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 36,195
- -----------------------------------------------------------
Collateral upon return of securities loaned 4,053,350
- -----------------------------------------------------------
Accrued distribution fees 87,265
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,225
- -----------------------------------------------------------
Accrued transfer agent fees 100,013
- -----------------------------------------------------------
Accrued operating expenses 58,734
===========================================================
Total liabilities 6,784,511
===========================================================
Net assets applicable to shares outstanding $172,788,531
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $257,007,816
- -----------------------------------------------------------
Undistributed net investment income (loss) (31,842)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (108,496,208)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 24,308,765
===========================================================
$172,788,531
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 85,867,491
___________________________________________________________
===========================================================
Class B $ 63,333,698
___________________________________________________________
===========================================================
Class C $ 21,969,224
___________________________________________________________
===========================================================
Class R $ 1,606,745
___________________________________________________________
===========================================================
Institutional Class $ 11,373
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,278,115
___________________________________________________________
===========================================================
Class B 6,365,951
___________________________________________________________
===========================================================
Class C 2,207,870
___________________________________________________________
===========================================================
Class R 155,990
___________________________________________________________
===========================================================
Institutional Class 1,084.6
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.37
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.37 divided by
94.50%) $ 10.97
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 9.95
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 9.95
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 10.30
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 10.49
___________________________________________________________
===========================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $4,101,832 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,614) $ 1,027,287
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $15,854, after compensation
to counterparties of $140,671) 160,575
=========================================================================
Total investment income 1,187,862
=========================================================================
EXPENSES:
Advisory fees 1,539,498
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 19,896
- -------------------------------------------------------------------------
Distribution fees:
Class A 311,216
- -------------------------------------------------------------------------
Class B 692,997
- -------------------------------------------------------------------------
Class C 242,906
- -------------------------------------------------------------------------
Class R 6,130
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 946,011
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 8
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 21,725
- -------------------------------------------------------------------------
Other 230,211
=========================================================================
Total expenses 4,060,598
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (128,286)
=========================================================================
Net expenses 3,932,312
=========================================================================
Net investment income (loss) (2,744,450)
=========================================================================
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 ($87,866)) 30,648,710
- -------------------------------------------------------------------------
Foreign currencies 92
=========================================================================
30,648,802
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,352,158)
- -------------------------------------------------------------------------
Foreign currencies 6,553
=========================================================================
(2,345,605)
=========================================================================
Net gain from investment securities and foreign currencies 28,303,197
=========================================================================
Net increase in net assets resulting from operations $25,558,747
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,744,450) $ (3,749,647)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 30,648,802 9,151,671
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (2,345,605) (2,982,396)
==========================================================================================
Net increase in net assets resulting from operations 25,558,747 2,419,628
==========================================================================================
Share transactions-net:
Class A (26,784,635) (10,422,993)
- ------------------------------------------------------------------------------------------
Class B (15,990,660) (11,811,705)
- ------------------------------------------------------------------------------------------
Class C (5,675,111) (4,684,464)
- ------------------------------------------------------------------------------------------
Class R 608,304 676,095
- ------------------------------------------------------------------------------------------
Institutional Class -- 10,000
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (47,842,102) (26,233,067)
==========================================================================================
Net increase (decrease) in net assets (22,283,355) (23,813,439)
==========================================================================================
NET ASSETS:
Beginning of year 195,071,886 218,885,325
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(31,842) and $(29,371), respectively) $172,788,531 $195,071,886
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-7
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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.
F-8
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>
Effective July 1, 2005, 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 1.90%, 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the 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. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $87,687.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$34,917.
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 year ended
October 31, 2005, AIM was paid $50,000.
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 year ended October 31, 2005, the
Fund paid AISI $946,011 for Class A, Class B, Class C and Class R share classes
and $8 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. Prior to July 1, 2005, the Fund paid ADI
0.35% of the average daily assets of Class A 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
F-9
an asset-based sales charge. National Association of Securities Dealers ("NASD")
Rules impose a cap on the total sales charges, including asset-based sales
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended October 31, 2005, the Class A, Class B, Class C and
Class R shares paid $311,216, $692,997, $242,906 and $6,130, 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, 2005, ADI advised the Fund that it retained $39,033 in
front-end sales commissions from the sale of Class A shares and $1,163, $34,748,
$3,206 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 year ended October 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,818,420 $ 52,463,568 $ (51,441,492) $ -- $2,840,496 $ 72,087 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,818,420 52,463,568 (51,441,492) -- 2,840,496 72,634 --
==================================================================================================================================
Subtotal $3,636,840 $104,927,136 $(102,882,984) $ -- $5,680,992 $144,721 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 19,282,585 $ (15,229,235) $ -- $4,053,350 $ 4,760 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,790,375 45,298,263 (52,088,638) -- -- 11,094 --
==================================================================================================================================
Subtotal $ 6,790,375 $ 64,580,848 $ (67,317,873) $ -- $4,053,350 $ 15,854 $ --
==================================================================================================================================
Total $10,427,215 $169,507,984 $(170,200,857) $ -- $9,734,342 $160,575 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended October 31, 2005, the Fund
engaged in securities purchases of $3,089,709 and sales of $3,471,684, which
resulted in net realized gains (losses) of ($87,866).
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, 2005, the
Fund received a credit from this arrangement which resulted in the reduction of
the Fund's total expenses of $5,682.
F-10
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $3,425
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. During the year ended
October 31, 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.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005, securities with an aggregate value of $4,101,832 were
on loan to brokers. The loans were secured by cash collateral of $4,053,350
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $15,854 for securities lending transactions, which are net of
compensation to counterparties.
F-11
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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 24,010,538
- -----------------------------------------------------------------------------
Temporary book/tax differences (31,842)
- -----------------------------------------------------------------------------
Capital loss carryforward (108,197,981)
- -----------------------------------------------------------------------------
Shares of beneficial interest 257,007,816
=============================================================================
Total net assets $ 172,788,531
_____________________________________________________________________________
=============================================================================
</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 losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation on
foreign currencies of $4.
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 $29,745,867 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2009 $ 57,385,763
- -----------------------------------------------------------------------------
October 31, 2010 50,812,218
=============================================================================
Total capital loss carryforward $108,197,981
_____________________________________________________________________________
=============================================================================
</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, 2005 was $213,603,982 and $267,217,806, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $29,987,919
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,977,385)
===============================================================================
Net unrealized appreciation of investment securities $24,010,534
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $151,738,387.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2005, undistributed net
investment income (loss) was increased by $2,741,979, undistributed net realized
gain (loss) was decreased by $91 and shares of beneficial interest decreased by
$2,741,888. This reclassification had no effect on the net assets of the Fund.
F-12
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
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2005 (a) 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,323,864 $ 22,951,788 3,366,280 $ 31,467,821
- ----------------------------------------------------------------------------------------------------------------------
Class B 939,171 8,942,634 1,689,471 15,326,444
- ----------------------------------------------------------------------------------------------------------------------
Class C 558,100 5,322,352 1,055,967 9,613,286
- ----------------------------------------------------------------------------------------------------------------------
Class R 94,975 956,177 79,652 742,690
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) -- -- 1,085 10,000
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 183,325 1,823,829 287,382 2,711,609
- ----------------------------------------------------------------------------------------------------------------------
Class B (190,455) (1,823,829) (296,604) (2,711,609)
======================================================================================================================
Reacquired:
Class A (5,163,986) (51,560,252) (4,869,016) (44,602,423)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,416,220) (23,109,465) (2,730,826) (24,426,540)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,144,760) (10,997,463) (1,595,627) (14,297,750)
- ----------------------------------------------------------------------------------------------------------------------
Class R (36,049) (347,873) (7,765) (66,595)
======================================================================================================================
(4,852,035) $(47,842,102) (3,020,001) $(26,233,067)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 8% of the outstanding shares
of the Fund. ADI has an agreement with this entity to sell Fund shares.
The Fund, AIM and/or AIM affiliates may make payments to this entity,
which is considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether
all or any portion of the shares owned of record by this entity are also
owned beneficially.
(b) Institutional Class shares commenced sales on April 30, 2004.
F-13
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,
-----------------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.40 0.29 2.49 (1.91) (5.69)
===============================================================================================================================
Total from investment operations 1.29 0.16 2.38 (2.04) (5.80)
===============================================================================================================================
Net asset value, end of period $ 10.37 $ 9.08 $ 8.92 $ 6.54 $ 8.58
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 14.21% 1.79% 36.39% (23.78)% (40.33)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $85,867 $99,262 $108,436 $63,463 $ 94,457
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.71%(c) 1.74% 1.90% 1.83% 1.65%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.77%(c) 1.76% 1.90% 1.83% 1.65%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.09)%(c) (1.36)% (1.42)% (1.49)% (1.06)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 114% 167% 211% 185% 173%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 $97,609,926.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.35 0.27 2.43 (1.87) (5.62)
==============================================================================================================================
Total from investment operations 1.18 0.09 2.28 (2.05) (5.80)
==============================================================================================================================
Net asset value, end of period $ 9.95 $ 8.77 $ 8.68 $ 6.40 $ 8.45
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 13.45% 1.04% 35.63% (24.26)% (40.70)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,334 $70,421 $81,298 $58,654 $ 81,905
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.40%(c) 2.39% 2.55% 2.48% 2.32%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.46%(c) 2.41% 2.55% 2.48% 2.32%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.78)%(c) (2.01)% (2.07)% (2.14)% (1.73)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 114% 167% 211% 185% 173%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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 $69,299,760.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.35 0.27 2.43 (1.87) (5.63)
=============================================================================================================================
Total from investment operations 1.18 0.09 2.28 (2.05) (5.81)
=============================================================================================================================
Net asset value, end of period $ 9.95 $ 8.77 $ 8.68 $ 6.40 $ 8.45
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 13.45% 1.04% 35.63% (24.26)% (40.74)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,969 $24,503 $28,928 $16,404 $23,971
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.40%(c) 2.39% 2.55% 2.48% 2.32%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.46%(c) 2.41% 2.55% 2.48% 2.32%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.78)%(c) (2.01)% (2.07)% (2.14)% (1.73)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 114% 167% 211% 185% 173%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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 $24,290,584.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS R
----------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------- 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) (0.13)(a) (0.14)(a) (0.13)(a) (0.05)(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.40 0.28 2.48 (2.14)
==================================================================================================================
Total from investment operations 1.27 0.14 2.35 (2.19)
==================================================================================================================
Net asset value, end of period $10.30 $ 9.03 $ 8.89 $ 6.54
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 14.06% 1.57% 35.93% (25.09)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,607 $ 877 $ 224 $ 7
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.90%(c) 1.89% 2.05% 1.98%(d)
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.96%(c) 1.91% 2.05% 1.98%(d)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (1.28)%(c) (1.51)% (1.57)% (1.64)%(d)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 114% 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 based on average daily net assets of $1,225,992.
(d) Annualized.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------
APRIL 30, 2004
(DATE SALES
COMMENCED)
YEAR ENDED TO
OCTOBER 31, OCTOBER 31,
2005 2004
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.11 $ 9.22
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.42 (0.07)
==============================================================================================
Total from investment operations 1.38 (0.11)
==============================================================================================
Net asset value, end of period $10.49 $ 9.11
______________________________________________________________________________________________
==============================================================================================
Total return(b) 15.15% (1.19)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 10
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.97%(c) 1.20%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.03%(c) 1.28%(d)
______________________________________________________________________________________________
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(c) (0.82)%(d)
==============================================================================================
Portfolio turnover rate 114% 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 based on average daily net assets of $10,944.
(d) Annualized.
F-18
NOTE 14--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 15--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Seller") unanimously approved, on November
14, 2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Selling Fund") a series of Seller, would transfer all of its
assets to AIM Dynamics Fund ("Buying 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 February 28, 2006. 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 16--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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 ss. 46A-1-101, et seq.
(the West Virginia Consumer Credit and Protection Act). The WVAG complaint is
seeking, among other things, injunctive
F-19
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of
AIM Mid Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Mid Cap Growth Fund (one of the
funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
As described in Note 15, on November 14, 2005, the Board of Trustees of the Fund
approved a plan of merger for the Fund with AIM Dynamics Fund. This merger is
expected to take place in early 2006 upon the approval of the Fund's
shareholders.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-21
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the estate tax for the fiscal
quarter ended January 31, 2005, April 30, 2005, July 30, 2005 and October 31,
2005 are 8.89%, 6.47%, 4.92%, and 8.90%, respectively.
<Table>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund DIVERSIFIED PORTFOLIOS
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund(1) AIM Income Allocation Fund
AIM Large Cap Basic Value Fund AIM Technology Fund AIM International Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
TAX-FREE
AIM High Income Municipal Fund(1)
INTERNATIONAL/GLOBAL EQUITY AIM Municipal Bond Fund
AIM Tax-Exempt Cash Fund
AIM Asia Pacific Growth Fund AIM Tax-Free Intermediate Fund
AIM Developing Markets Fund Premier Tax-Exempt Portfolio
AIM European Growth Fund
AIM European Small Company Fund(1) =======================================================================================
AIM Global Aggressive Growth Fund CONSIDER THE INVESTMENTS OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Global Equity Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Global Growth Fund FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
AIM Global Value Fund =======================================================================================
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
</Table>
*Domestic equity and income fund
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of
September 30, 2005.
AIMinvestments.com MCG-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>
AIM SELECT BASIC VALUE FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIM SELECT BASIC VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES stocks frequently used as a general the Fund at period end for financial
measure of U.S. stock market reporting purposes, and as such, the net
o Class B shares are not available as an performance. asset values for shareholder transactions
investment for retirement plans and the returns based on those net asset
maintained pursuant to Section 401 of o The unmanaged LIPPER MULTI-CAP VALUE values may differ from the net asset
the Internal Revenue Code, including FUND INDEX represents an average of the values and returns reported in the
401(k) plans, money purchase pension performance of the 30 largest Financial Highlights.
plans and profit sharing plans. multi-capitalization value funds tracked
by Lipper, Inc., an independent mutual o Industry classifications used in this
PRINCIPAL RISKS OF INVESTING IN THE FUND fund performance monitor. report are generally according to the
Global Industry Classification Standard,
o By concentrating on a small number of o The unmanaged RUSSELL 1000--Registered which was developed by and is the
holdings, the Fund carries greater risk Trademark--VALUE INDEX is a subset of exclusive property and a service mark of
because each investment has a greater the unmanaged Russell 1000 Index, which Morgan Stanley Capital International Inc.
effect on the Fund's overall represents the performance of the stocks and Standard & Poor's.
performance. of large-capitalization companies; the
Value subset measures the performance of The Fund provides a complete list of its
o Investing in smaller companies Russell 1000 companies with lower holdings four times in each fiscal year,
involves greater risk than investing in price/book ratios and lower forecasted at the quarter-ends. For the second and
more established companies, such as growth values. fourth quarters, the lists appear in the
business risk, significant stock price Fund's semiannual and annual reports to
fluctuations and illiquidity. o The unmanaged MSCI WORLD INDEX is a shareholders. For the first and third
group of global securities tracked by quarters, the Fund files the lists with
o The Fund may invest up to 25% of its Morgan Stanley Capital International. the Securities and Exchange Commission
assets in the securities of non-U.S. (SEC) on Form N-Q. The most recent list
issuers. International investing o The Fund is not managed to track the of portfolio holdings is available at
presents certain risks not associated performance of any particular index, AIMinvestments.com. From our home page,
with investing solely in the United including the indexes defined here, and click on Products & Performance, then
States. These include risks relating to consequently, the performance of the Mutual Funds, then Fund Overview. Select
fluctuations in the value of the U.S. Fund may deviate significantly from the your Fund from the drop-down menu and
dollar relative to the values of other performance of the indexes. click on Complete Quarterly Holdings.
currencies, the custody arrangements Shareholders can also look up the Fund's
made for the Fund's foreign holdings, o A direct investment cannot be made in Forms N-Q on the SEC's Web site at
differences in accounting, political an index. Unless otherwise indicated, sec.gov. And copies of the Fund's Forms
risks and the lesser degree of public index results include reinvested N-Q may be reviewed and copied at the
information required to be provided by dividends, and they do not reflect sales SEC's Public Reference Room at 450 Fifth
non-U.S. companies. charges. Performance of an index of Street, N.W., Washington, D.C. 20549-
funds reflects fund expenses; 0102. You can obtain information on the
o The values of the convertible performance of a market index does not. operation of the Public Reference Room,
securities in which the Fund may invest including information about duplicating
will be affected by market interest OTHER INFORMATION fee charges, by calling 202-942-8090 or
rates, the risk that the issuer may 800-732-0330, or by electronic request at
default on interest or principal o Commonality measures the similarity of the following e-mail address:
payments and the value of the underlying holdings between two portfolios using publicinfo@sec.gov. The SEC file numbers
common stock into which these securities the lowest common percentage method. for the Fund are 811-01424 and 2-25469.
may be converted. Since these types of This method compares each security's
convertible securities pay fixed percentage of total net assets in both A description of the policies and
interest and dividends, their values may portfolios and adds the lower procedures that the Fund uses to
fall if market interest rates rise and percentages of the two portfolios to determine how to vote proxies relating to
rise if market interest rates fall. determine commonality. portfolio securities is available without
Additionally, an issuer may have the charge, upon request, from our Client
right to buy back certain of the o The returns shown in management's Services department at 800-959-4246 or on
convertible securities at a time and at discussion of Fund performance are based the AIM Web site, AIMinvestments.com. On
a price that is unfavorable to the Fund. on net asset values calculated for the home page, scroll down and click on
shareholder transactions. Generally AIM Funds Proxy Policy. The information
ABOUT INDEXES USED IN THIS REPORT accepted accounting principles require is also available on the Securities and
adjustments to be made to the net assets Exchange Commission's Web site, sec.gov.
o The unmanaged Standard & Poor's of
Composite Index of 500 Stocks (the S&P Information regarding how the Fund voted
500--Registered Trademark--INDEX) is an proxies related to its portfolio
index of common securities during the 12 months ended
June 30,2005, is available at our Web
site. Go to AIMinvestments.com, access
the About Us tab, click on Required
Notices and then click on Proxy Voting
Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
AIM SELECT BASIC VALUE FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
Index returned 8.72%. Globally, Morgan Stanley's MSCI World
Index rose 13.27%. Much of this good performance, though,
[GRAHAM was attained early in the fiscal year as virtually every
PHOTO] equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness. Within
the indexes, there was considerable variability in the
performance of different sectors and markets. Domestically,
energy sector performance far outpaced that of the
other sectors in the S&P 500 Index, reflecting rising oil
ROBERT H. GRAHAM and gas prices. Overseas, emerging markets produced
more attractive results than did developed markets, at least
in part because the emerging markets tend to be more closely
tied to the performance of natural resources and
commodities.
One could make a strong argument for global
diversification of a stock portfolio using the performance
data for the year ended October 31, 2005. Of course, your
financial advisor is the person most qualified to help you
decide whether such diversification is appropriate for you.
[WILLIAMSON For a discussion of the specific market conditions that
PHOTO] affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
MARK H. WILLIAMSON Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. Mr. Crockett has been on our Funds' Board
since 1992; he assumed his responsibilities as Chair in
October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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, President,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM SELECT BASIC VALUE FUND
DEAR AIM FUNDS 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.
[CROCKETT At our most recent meeting in June 2005, your Board
PHOTO] approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
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 A3 shares of those AIM
Funds that previously charged these fees at a higher rate.
Our June meeting, which was the culmination of more
BRUCE L. than two and one-half months of review and discussions, took
CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
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 Investments 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
December 15, 2005
2
AIM SELECT BASIC VALUE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
Both companies rallied in the
current period in response to the
progress made in the industry's ongoing
transition to a fee-for-service
==================================================================================== platform, a move that will substantially
PERFORMANCE SUMMARY reduce their exposure to the inherent
======================================= volatility of drug pricing.
Class A shares of AIM Select Basic Value FUND VS. INDEXES
Fund trailed both the S&P 500 Index as Energy holdings TRANSOCEAN and PRIDE
well as our style-specific benchmark, TOTAL RETURNS, 10/31/04-10/31/05, EXCLUDING INTERNATIONAL, which provide contract
the Russell 1000 Value Index, for the APPLICABLE SALES CHARGES. IF SALES drilling equipment to primarily offshore
fiscal year ended October 31, 2005. The CHARGES WERE INCLUDED, RETURNS WOULD BE markets, each rose more than 50% in the
Fund also trailed its peers as measured LOWER. period as oil and natural gas prices
by the Lipper Multi-Cap Value Fund reached new highs in the wake of
Index. Longer-term Fund performance Class A Shares 7.15% hurricane-related supply disruptions
information appears on Pages 6 and 7. Class B Shares 7.15 along the U.S. Gulf Coast.
Class C Shares 7.15
We underperformed both the S&P 500 S&P 500 Index FANNIE MAE was the most significant
Index and the Russell 1000 Value Index (Broad Market Index) 8.72 detractor from Fund performance in the
for largely the same reasons. The Fund Russell 1000 Value Index period, but little has changed since our
experienced poor relative returns in (Style-specific Index) 11.86 mid-year commentary. The company
several sectors, most notably Lipper Multi-Cap Value Fund Index continues the arduous process of
financials, information technology and (Peer Group Index) 11.14 restating its historical results, caused
industrials. The absence of any holdings by a change in the interpretation of
in the utilities sector, one of the best SOURCE: LIPPER, INC. accounting standards. We continue to
performing sectors of the market, also ======================================= believe that Fannie Mae's estimated
contributed to underperformance. We have intrinsic value will be driven by future
chosen to invest in other investments regulatory capital requirements and not
outside the sector that offer more the non-economic impact of accounting
compelling upside opportunities but with restatements. And based on a variety of
lower investment risk. existing capital standards, we believe
===================================================================================== that Fannie Mae continues to be an
CURRENT PERIOD ANALYSIS attractive investment opportunity.
The U.S. economy continued to expand the period, but health care stocks made the Fund performance was also negatively
throughout the fiscal year, with greatest contribution to overall fund impacted by our holdings in BROOKS
corporate profits generally improving perform ance due to the success of our AUTOMATION, TYCO INTERNATIONAL and
amidst a backdrop of rising short-term diversified investments in drug PFIZER. Brooks Automation was a recent
interest rates and record high oil and distributors, health maintenance addition to the Fund, and as is often
natural gas prices. The threat of organizations and hospitals. the case, our initial purchases have
hurricanes, surging gasoline prices and proven to be a little early. Brooks
the ongoing fear of a housing bubble Health care holdings WELLPOINT, MCKESSON mainly serves the semiconductor
seemed to dominate the popular press, and CARDINAL HEALTH were among the biggest manufacturing industry, and at the
but not even the combined effect of contributors to Fund performance. The moment, demand remains sluggish for the
these events could stop the broad equity performance of pharmaceutical company's automation tools and software.
market from achieving strong distributors McKesson and Cardinal Still, we recognize that such demand is
single-digit returns. Health was in sharp contrast to the cyclical. We also believe that new
prior fiscal period in which both stocks products will have higher margins that
The energy sector posted the biggest suffered double-digit declines. should increase the company's overall
gains in profitability
(continued)
======================================= =========================================== =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Health Care Distributors 9.4% 1. Cardinal Health,Inc. 6.5%
[PIE CHART] 2. Pharmaceuticals 8.1 2. WellPoint, Inc. 4.6
Health Care 24.3% 3. Other Diversified Financial Services 7.6 3. Computer Associates
Financials 21.1% 4. Thrifts & Mortgage Finance 6.4 International,Inc. 4.2
Consumer Discretionary 14.5% 5. Oil & Gas Drilling 6.3 4. Tyco International Ltd. 4.1
Information Technology 11.8% 5. Sanofi-Aventis (France) 4.1
Industrials 11.7% 6. JPMorgan Chase & Co. 4.0
Energy 8.4% TOTAL NET ASSETS $1.4 MILLION 7. Merrill Lynch & Co., Inc. 3.8
Consumer Staples 5.2% 8. Citigroup Inc. 3.7
Materials 2.1% TOTAL NUMBER OF HOLDINGS* 35 9. Fannie Mae 3.5
Money Market Funds Plus 10. Transocean Inc. 3.4
Other Assets Less Liabilities 0.9%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
* Excluding money market fund holdings.
======================================= =========================================== =========================================
</Table>
3
AIM SELECT BASIC VALUE FUND
<Table>
Additionally, we believe the company is we have little portfolio commonality with BRET W. STANLEY,
well positioned to benefit from secular popular benchmarks and most of our peers. [STANLEY Chartered Financial
trends toward increased automation and Third, short-term relative performance PHOTO] Analyst, senior
greater outsourcing by manufacturers of will differ from the benchmarks and have portfolio manager, is
semiconductor products. little information value simply because we lead portfolio manager
don't own the exact same stocks (low of AIM Select Basic Value Fund and the
Tyco was one of your Fund's best commonality). head of AIM's Value Investment Management
performing stocks in both 2003 and 2004, Unit. Prior to joining AIM in 1998, Mr.
posting significant gains from the lows PORTFOLIO ASSESSMENT Stanley served as a vice president and
reached over three years ago. The company portfolio manager and managed growth and
has clearly emerged from an accounting We believe the single most important income, equity income and value
scandal that dates back to 2002, and we indicator of the way AIM Select Basic portfolios. He began his investment career
reduced our holdings as the stock moved Value Fund is positioned for potential in 1988. Mr. Stanley received a B.B.A. in
substantially higher. However, the stock success is not our historical investment finance from The University of Texas at
later fell as the pace of both sales and results or popular statistical measures, Austin and an M.S. in finance from the
operating improvement began to moderate. but rather the portfolio's estimated University of Houston.
While we are disappointed in recent intrinsic value. Since we can estimate the
results, the ongoing turnaround of this intrinsic value of each holding in the R. CANON COLEMAN II,
company remains intact and we believe the portfolio, we can also estimate the [COLEMAN II Chartered Financial
stock represents one of the more intrinsic value of the entire Fund. The PHOTO] Analyst, portfolio
compelling opportunities in the portfolio. difference between market price and manager, is manager of
estimated intrinsic value is about average AIM Select Basic Value
We made several changes to the for your Fund for the past few years. Fund. He joined AMVESCAP in 1999 in its
portfolio since the last update we However, we believe this estimated corporate associate rotation program,
provided in the Fund's semiannual report. intrinsic value content is significantly working with fund managers throughout
We sold our remaining shares in STARWOOD greater than what is available in the AMVESCAP before joining AIM in 2000. He
HOTELS & RESORTS, IMS HEALTH, HONEYWELL market. While there is no assurance that previously worked as a CPA. Mr. Coleman
and CERIDIAN CORPORATION. In addition to market value will ever reflect our earned a B.S. and an M.S. in accounting
Brooks Automation, we also initiated new estimate of portfolio intrinsic value, as from the University of Florida. He also
positions in computer printer maker managers we believe this provides the best has an M.B.A. from the Wharton School at
Lexmark and CEMEX, a global leader in the indication that your Fund is positioned to the University of Pennsylvania.
production of aggregates, cement and potentially achieve its objective of
ready-mix concrete. It's recent long-term growth of capital. MATTHEW W.
acquisition of UK-based RMC Group doubled [SEINSHEIMER SEINSHEIMER, Chartered
CEMEX's sales while providing significant IN CLOSING PHOTO] Financial Analyst,
cost savings and complementary product senior portfolio
lines for the combined entity. While results in the period trailed those manager, is manager of
Additionally, the industry continues to of our peers, we know that normal market AIM Select Basic Value Fund. He began his
benefit from global growth trends as well volatility limits our ability to measure investment career in 1992 as a
as the structural advantages related to success over short periods of time. Over fixed-income trader. He later served as a
the cement business, where new capacity longer periods, though, we have portfolio manager on both fixed-income and
has proven difficult to build and demonstrated the potential to turn market equity portfolios. Mr. Seinsheimer joined
transportation issues typically limit volatility and investor overreaction into AIM as a senior analyst in 1998 and
trade to regional markets. capital appreciation. As always, we assumed his current responsibilities in
continued to work hard on your behalf, and 2000. He received a B.B.A. from Southern
INVESTMENT PROCESS AND EVALUATION we thank you for your investment and for Methodist University and an M.B.A. from
sharing our long-term horizon. The University of Texas at Austin.
We seek to create wealth by maintaining a
long-term investment horizon and investing The views and opinions expressed in MICHAEL J. SIMON,
in companies that are selling at a management's discussion of Fund [SIMON Chartered Financial
significant discount to their estimated performance are those of A I M Advisors, PHOTO] Analyst, senior
intrinsic value--a value that is based on Inc. These views and opinions are subject portfolio manager, is
the future cash flows generated by the to change at any time based on factors manager of AIM Select
business. The Fund's philosophy is based such as market and economic conditions. Basic Value Fund. He joined AIM in 2001.
on two elements that we believe have These views and opinions may not be relied Prior to joining AIM, Mr. Simon worked as
extensive empirical evidence: upon as investment advice or a vice president, equity analyst and
recommendations, or as an offer for a portfolio manager. Mr. Simon, who began
o companies have a measurable estimated particular security. The information is his investment career in 1989, received a
intrinsic value. Importantly, this fair not a complete analysis of every aspect of B.B.A. in finance from Texas Christian
value is independent of the company's any market, country, industry, security or University and an M.B.A. from the
stock price the Fund. Statements of fact are from University of Chicago. Mr. Simon has
sources considered reliable, but A I M served as Occasional Faculty in the
o market prices are more volatile than Advisors, Inc. makes no representation or Finance and Decision Sciences Department
business values, partly because investors warranty as to their completeness or of Texas Christian University's M.J.
regularly overreact to negative news accuracy. Although historical performance Neeley School of Business.
is no guarantee of future results, these
Since our application of this strategy insights may help you understand our Assisted by the Basic Value Team
is highly disciplined and relatively investment management philosophy.
unique, it is important to understand the [RIGHT ARROW GRAPHIC]
benefits and limitations of our process. For further information about your Fund,
First, the investment strategy is intended its expenses and its long-term FOR A PRESENTATION OF YOUR FUND'S
to preserve your capital while growing it performance, please turn the page. LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6
at above-market rates over the long term. AND 7.
Second,
</Table>
4
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE with the amount you invested, to estimate The hypothetical account values and
the expenses that you paid over the expenses may not be used to estimate the
As a shareholder of the Fund, you incur period. Simply divide your account value actual ending account balance or expenses
two types of costs: (1) transaction costs, by $1,000 (for example, an $8,600 account you paid for the period. You may use this
which may include sales charges (loads) on value divided by $1,000 = 8.6), then information to compare the ongoing costs
purchase payments; contingent deferred multiply the result by the number in the of investing in the Fund and other funds.
sales charges on redemptions; and table under the heading entitled "Actual To do so, compare this 5% hypothetical
redemption fees, if any; and (2) ongoing Expenses Paid During Period" to estimate example with the 5% hypothetical examples
costs, including management fees; the expenses you paid on your account that appear in the shareholder reports of
distribution and/or service fees (12b-1); during this period. the other funds.
and other Fund expenses. This example is
intended to help you understand your Please note that the expenses shown in
ongoing costs (in dollars) of investing in HYPOTHETICAL EXAMPLE FOR the table are meant to highlight your
the Fund and to compare these costs with COMPARISON PURPOSES ongoing costs only and do not reflect any
ongoing costs of investing in other mutual transactional costs, such as sales charges
funds. The example is based on an The table below also provides information (loads) on purchase payments, contingent
investment of $1,000 invested at the about hypothetical account values and deferred sales charges on redemptions, and
beginning of the period and held for the hypothetical expenses based on the Fund's redemption fees, if any. Therefore, the
entire period May 1, 2005, through October actual expense ratio and an assumed rate hypothetical information is useful in
31, 2005. of return of 5% per year before expenses, comparing ongoing costs only, and will not
which is not the Fund's actual return. The help you determine the relative total
ACTUAL EXPENSES Fund's actual cumulative total returns at costs of owning different funds. In
net asset value after expenses for the six addition, if these transactional costs
The table below provides information about months ended October 31, 2005, appear in were included, your costs would have been
actual account values and actual expenses. the table "Cumulative Total Returns" on higher.
You may use the information in this table, Page 7.
together
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
A $1,000.00 $1,025.40 $9.04 $1,016.28 $9.00 1.77%
B 1,000.00 1,025.40 9.04 1,016.28 9.00 1.77
C 1,000.00 1,025.40 9.04 1,016.28 9.00 1.77
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
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 October 31, 2005, appear in the table "Cumulative Total Returns" on Page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
</Table>
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
5
AIM SELECT BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 8/30/02, INDEX DATA FROM 8/31/02
[MOUNTAIN CHART]
AIM SELECT BASIC AIM SELECT BASIC AIM SELECT BASIC
VALUE FUND- VALUE FUND- VALUE FUND- LIPPER MULTI-CAP RUSSELL 1000 S&P 500
DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES VALUE FUND INDEX VALUE INDEX INDEX
8/30/02 $ 9450 $10000 $10000
8/02 9450 10000 10000 $10000 $10000 $10000
9/02 7995 8460 8460 8916 8888 8914
10/02 8628 9130 9130 9393 9547 9698
11/02 9393 9940 9940 10093 10148 10268
12/02 8807 9320 9320 9647 9707 9665
1/03 8597 9097 9097 9449 9472 9413
2/03 8233 8712 8712 9206 9220 9271
3/03 8252 8732 8732 9241 9235 9361
4/03 9036 9562 9562 10044 10048 10132
5/03 10078 10664 10664 10883 10697 10665
6/03 10259 10856 10856 10963 10830 10801
7/03 10584 11200 11200 11114 10992 10992
8/03 10871 11504 11504 11462 11163 11206
9/03 10680 11301 11301 11330 11054 11087
10/03 11139 11787 11787 11954 11730 11714
11/03 11378 12041 12041 12209 11890 11817
12/03 12058 12759 12759 12810 12622 12436
1/04 12182 12891 12891 13081 12844 12664
2/04 12421 13144 13144 13330 13120 12840
3/04 12449 13174 13174 13213 13005 12647
4/04 12373 13093 13093 12970 12687 12448
5/04 12412 13134 13134 13031 12816 12619
6/04 12698 13437 13437 13399 13119 12864
7/04 11953 12649 12649 13016 12934 12438
8/04 11867 12558 12558 13061 13118 12488
9/04 11982 12679 12679 13325 13322 12624
10/04 12068 12771 12771 13500 13543 12816
11/04 12756 13499 13499 14207 14228 13335
12/04 13342 14118 14118 14720 14704 13788
1/05 13082 13843 13843 14400 14443 13452
2/05 13232 14002 14002 14780 14922 13735
3/05 12912 13663 13663 14570 14717 13492
4/05 12611 13345 13345 14222 14454 13237
5/05 12951 13705 13705 14685 14802 13657
6/05 13152 13918 13918 14865 14964 13677
7/05 13573 14363 14363 15367 15330 14056
8/05 13273 14046 14046 15253 15545 14170
9/05 13262 14034 14034 15381 15545 14170
10/05 $12933 $13483 $13683 $15004 $15150 $13933
====================================================================================================================================
Source: Lipper, Inc.
The data shown in the chart include reflect sales charges. Performance of an
reinvested distributions, applicable sales index of funds reflects fund expenses and
charges, Fund expenses and management management fees; performance of a market
fees. Results for Class B shares are index does not. Performance shown in the
calculated as if a hypothetical chart and table(s) does not reflect
shareholder had liquidated his entire deduction of taxes a shareholder would pay
investment in the Fund at the close of the on Fund distributions or sale of Fund
reporting period and paid the applicable shares. Performance of the indexes does
contingent deferred sales charges. Index not reflect the effects of taxes.
results include reinvested dividends, but
they do not
</Table>
6
AIM SELECT BASIC VALUE FUND
<Table>
========================================== ========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable sales As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 2.54%
Inception (8/30/02) 8.45% CLASS A SHARES Class B Shares 2.54
1 Year 1.29 Inception (8/30/02) 9.59% Class C Shares 2.54
1 Year 4.59
CLASS B SHARES ==========================================
Inception (8/30/02) 9.89% CLASS B SHARES
1 Year 2.15 Inception (8/30/02) 11.09%
1 Year 5.68
CLASS C SHARES
Inception (8/30/02) 10.40% CLASS C SHARES
1 Year 6.15 Inception (8/30/02) 11.61%
1 Year 9.68
========================================== ==========================================
THE PERFORMANCE DATA QUOTED REPRESENT PAST CLASS A SHARE PERFORMANCE REFLECTS THE THE PERFORMANCE OF THE FUND'S SHARE
PERFORMANCE AND CANNOT GUARANTEE MAXIMUM 5.50% SALES CHARGE, AND CLASS B CLASSES WILL DIFFER DUE TO DIFFERENT SALES
COMPARABLE FUTURE RESULTS; CURRENT AND CLASS C SHARE PERFORMANCE REFLECTS THE CHARGE STRUCTURES AND CLASS EXPENSES.
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE APPLICABLE CONTINGENT DEFERRED SALES
VISIT AIMinvestments.com FOR THE MOST CHARGE (CDSC) FOR THE PERIOD INVOLVED. THE HAD THE ADVISOR AND/OR DISTRIBUTOR NOT
RECENT MONTH-END PERFORMANCE. PERFORMANCE CDSC ON CLASS B SHARES DECLINES FROM 5% WAIVED FEES AND/OR REIMBURSED EXPENSES,
FIGURES REFLECT REINVESTED DISTRIBUTIONS, BEGINNING AT THE TIME OF PURCHASE TO 0% AT PERFORMANCE WOULD HAVE BEEN LOWER.
CHANGES IN NET ASSET VALUE AND THE EFFECT THE BEGINNING OF THE SEVENTH YEAR. THE
OF THE MAXIMUM SALES CHARGE UNLESS CDSC ON CLASS C SHARES IS 1% FOR THE FIRST
OTHERWISE STATED. INVESTMENT RETURN AND YEAR AFTER PURCHASE.
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL
SHARES.
</Table>
7
AIM SELECT BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
The Board of Trustees of AIM Equity Funds o The quality of services to be provided o Fees relative to those of clients of AIM
(the "Board") oversees the management of by AIM. The Board reviewed the credentials with comparable investment strategies. The
AIM Select Basic Value Fund (the "Fund") and experience of the officers and Board noted that AIM does not serve as an
and, as required by law, determines employees of AIM who will provide advisor to other mutual funds or other
annually whether to approve the investment advisory services to the Fund. clients with investment strategies
continuance of the Fund's advisory In reviewing the qualifications of AIM to comparable to those of the Fund.
agreement with A I M Advisors, Inc. provide investment advisory services, the
("AIM"). Based upon the recommendation of Board reviewed the qualifications of AIM's o Fees relative to those of comparable
the Investments Committee of the Board, investment personnel and considered such funds with other advisors. The Board
which is comprised solely of independent issues as AIM's portfolio and product reviewed the advisory fee rate for the
trustees, at a meeting held on June 30, review process, various back office Fund under the Advisory Agreement. The
2005, the Board, including all of the support functions provided by AIM and Board compared effective contractual
independent trustees, approved the AIM's equity and fixed income trading advisory fee rates at a common asset level
continuance of the advisory agreement (the operations. Based on the review of these and noted that the Fund's rate was
"Advisory Agreement") between the Fund and and other factors, the Board concluded comparable to the median rate of the funds
AIM for another year, effective July 1, that the quality of services to be advised by other advisors with investment
2005. provided by AIM was appropriate and that strategies comparable to those of the Fund
AIM currently is providing satisfactory that the Board reviewed. The Board noted
The Board considered the factors services in accordance with the terms of that AIM has agreed to waive fees and to
discussed below in evaluating the fairness the Advisory Agreement. limit the Fund's total operating expenses,
and reasonableness of the Advisory as discussed below. The Board also noted
Agreement at the meeting on June 30, 2005 o The performance of the Fund relative to that the Fund is currently in incubation
and as part of the Board's ongoing comparable funds. The Board reviewed the and has no public shareholders. Based on
oversight of the Fund. In their performance of the Fund during the past this review, the Board concluded that the
deliberations, the Board and the one year ended March 31, 2005 against the advisory fee rate for the Fund under the
independent trustees did not identify any performance of funds advised by other Advisory Agreement was fair and
particular factor that was controlling, advisors with investment strategies reasonable.
and each trustee attributed different comparable to those of the Fund. The Board
weights to the various factors. noted that the Fund's performance in o Expense limitations and fee waivers. The
period was below the median performance of Board noted that AIM has contractually
One of the responsibilities of the such comparable funds. The Board noted agreed to waive advisory fees of the Fund
Senior Officer of the Fund, who is that, because the Fund has recently through June 30, 2006 to the extent
independent of AIM and AIM's affiliates, commenced operations, comparative necessary so that the advisory fees
is to manage the process by which the performance information was only available payable by the Fund do not exceed a
Fund's proposed management fees are for one year and that more time was needed specified maximum advisory fee rate, which
negotiated to ensure that they are to adequately assess whether the Fund was maximum rate includes breakpoints and is
negotiated in a manner which is at arm's under-performing. Based on this review, based on net asset levels. The Board
length and reasonable. To that end, the the Board concluded that no changes should considered the contractual nature of this
Senior Officer must either supervise a be made to the Fund and that it was not fee waiver and noted that it remains in
competitive bidding process or prepare an necessary to change the Fund's portfolio effect until June 30, 2006. The Board also
independent written evaluation. The Senior management team at this time. noted that AIM has voluntarily agreed to
Officer has recommended an independent waive fees and/or limit expenses of the
written evaluation in lieu of a o The performance of the Fund relative to Fund in an amount necessary to limit total
competitive bidding process and, upon the indices. The Board reviewed the annual operating expenses to a specified
direction of the Board, has prepared such performance of the Fund during the past percentage of average daily net assets for
an independent written evaluation. Such year ended March 31, 2005 against the each class of the Fund. The Board
written evaluation also considered certain performance of the Lipper Multi-Cap Value considered the voluntary nature of this
of the factors discussed below. In Index. The Board noted that the Fund's fee waiver/expense limitation and noted
addition, as discussed below, the Senior performance in such period was below the that it can be terminated at any time by
Officer made certain recommendations to performance of such Index. The Board noted AIM without further notice to investors.
the Board in connection with such written that, because the Fund has recently The Board also noted that the Fund is
evaluation. commenced operations, comparative currently in incubation and has no public
performance information was only available shareholders. The Board considered the
The discussion below serves as a for one year and that more time was needed effect these fee waivers/expense
summary of the Senior Officer's to adequately assess whether the Fund was limitations would have on the Fund's
independent written evaluation and under-performing. Based on this review, estimated expenses and concluded that the
recommendations to the Board in connection the Board concluded that no changes should levels of fee waivers/expense limitations
therewith, as well as a discussion of the be made to the Fund and that it was not for the Fund were fair and reasonable.
material factors and the conclusions with necessary to change the Fund's portfolio
respect thereto that formed the basis for management team at this time. o Breakpoints and economies of scale. The
the Board's approval of the Advisory Board reviewed the structure of the Fund's
Agreement. After consideration of all of o Meeting with the Fund's portfolio advisory fee under the Advisory Agreement,
the factors below and based on its managers and investment personnel. With noting that it includes two breakpoints.
informed business judgment, the Board respect to the Fund, the Board is meeting The Board reviewed the level of the Fund's
determined that the Advisory Agreement is periodically with such Fund's portfolio advisory fees, and noted that such fees,
in the best interests of the Fund and its managers and/or other investment personnel as a percentage of the Fund's net assets,
shareholders and that the compensation to and believes that such individuals are would decrease as net assets increase
AIM under the Advisory Agreement is fair competent and able to continue to carry because the Advisory Agreement includes
and reasonable and would have been out their responsibilities under the breakpoints. The Board noted that, due to
obtained through arm's length Advisory Agreement. the Fund's current asset levels and the
negotiations. way in which the advisory fee breakpoints
o Overall performance of AIM. The Board have been structured, the Fund has yet to
o The nature and extent of the advisory considered the overall performance of AIM benefit from the breakpoints. The Board
services to be provided by AIM. The Board in providing investment advisory and noted that AIM has contractually agreed to
reviewed the services to be provided by portfolio administrative services to the waive advisory fees of the Fund through
AIM under the Advisory Agreement. Based on Fund and concluded that such performance June 30, 2006 to the extent necessary so
such review, the Board concluded that the was satisfactory. that the advisory fees payable by the Fund
range of services to be provided by AIM do not exceed a specified
under the Advisory Agreement was
appropriate and that AIM currently is
providing services in accordance with the
terms of the Advisory Agreement. (continued)
</Table>
8
AIM SELECT BASIC VALUE FUND
<Table>
maximum advisory fee rate, which maximum o Profitability of AIM and its affiliates. o Other factors and current trends. In
rate includes breakpoints and is based on The Board reviewed information concerning determining whether to continue the
net asset levels. The Board concluded that the profitability of AIM's (and its Advisory Agreement for the Fund, the Board
the Fund's fee levels under the Advisory affiliates') investment advisory and other considered the fact that AIM, along with
Agreement therefore would reflect activities and its financial condition. others in the mutual fund industry, is
economies of scale at higher asset levels The Board considered the overall subject to regulatory inquiries and
and that it was not necessary to change profitability of AIM, as well as the litigation related to a wide range of
the advisory fee breakpoints in the Fund's profitability of AIM in connection with issues. The Board also considered the
advisory fee schedule. managing the Fund. The Board noted that governance and compliance reforms being
AIM's operations remain profitable, undertaken by AIM and its affiliates,
o Investments in affiliated money market although increased expenses in recent including maintaining an internal controls
funds. The Board also took into account years have reduced AIM's profitability. committee and retaining an independent
the fact that uninvested cash and cash Based on the review of the profitability compliance consultant, and the fact that
collateral from securities lending of AIM's and its affiliates' investment AIM has undertaken to cause the Fund to
arrangements (collectively, "cash advisory and other activities and its operate in accordance with certain
balances") of the Fund may be invested in financial condition, the Board concluded governance policies and practices. The
money market funds advised by AIM pursuant that the compensation to be paid by the Board concluded that these actions
to the terms of an SEC exemptive order. Fund to AIM under its Advisory Agreement indicated a good faith effort on the part
The Board found that the Fund may realize was not excessive. of AIM to adhere to the highest ethical
certain benefits upon investing cash standards, and determined that the current
balances in AIM advised money market o Benefits of soft dollars to AIM. The regulatory and litigation environment to
funds, including a higher net return, Board considered the benefits realized by which AIM is subject should not prevent
increased liquidity, increased AIM as a result of brokerage transactions the Board from continuing the Advisory
diversification or decreased transaction executed through "soft dollar" Agreement for the Fund.
costs. The Board also found that the Fund arrangements. Under these arrangements,
will not receive reduced services if it brokerage commissions paid by the Fund
invests its cash balances in such money and/or other funds advised by AIM are used
market funds. The Board noted that, to the to pay for research and execution
extent the Fund invests in affiliated services. This research is used by AIM in
money market funds, AIM has voluntarily making investment decisions for the Fund.
agreed to waive a portion of the advisory The Board concluded that such arrangements
fees it receives from the Fund were appropriate.
attributable to such investment. The Board
further determined that the proposed o AIM's financial soundness in light of
securities lending program and related the Fund's needs. The Board considered
procedures with respect to the lending whether AIM is financially sound and has
Fund is in the best interests of the the resources necessary to perform its
lending Fund and its respective obligations under the Advisory Agreement,
shareholders. The Board therefore and concluded that AIM has the financial
concluded that the investment of cash resources necessary to fulfill its
collateral received in connection with the obligations under the Advisory Agreement.
securities lending program in the money
market funds according to the procedures o Historical relationship between the Fund
is in the best interests of the lending and AIM. In determining whether to
Fund and its respective shareholders. continue the Advisory Agreement for the
Fund, the Board also considered the prior
o Independent written evaluation and relationship between AIM and the Fund, as
recommendations of the Fund's Senior well as the Board's knowledge of AIM's
Officer. The Board noted that, upon their operations, and concluded that it was
direction, the Senior Officer of the Fund, beneficial to maintain the current
who is independent of AIM and AIM's relationship, in part, because of such
affiliates, had prepared an independent knowledge. The Board also reviewed the
written evaluation in order to assist the general nature of the non-investment
Board in determining the reasonableness of advisory services currently performed by
the proposed management fees of the AIM AIM and its affiliates, such as
Funds, including the Fund. The Board noted administrative, transfer agency and
that the Senior Officer's written distribution services, and the fees
evaluation had been relied upon by the received by AIM and its affiliates for
Board in this regard in lieu of a performing such services. In addition to
competitive bidding process. In reviewing such services, the trustees also
determining whether to continue the considered the organizational structure
Advisory Agreement for the Fund, the Board employed by AIM and its affiliates to
considered the Senior Officer's written provide those services. Based on the
evaluation and the recommendation made by review of these and other factors, the
the Senior Officer to the Board that the Board concluded that AIM and its
Board consider implementing a process to affiliates were qualified to continue to
assist them in more closely monitoring the provide non-investment advisory services
performance of the AIM Funds. The Board to the Fund, including administrative,
concluded that it would be advisable to transfer agency and distribution services,
implement such a process as soon as and that AIM and its affiliates currently
reasonably practicable. are providing satisfactory non-investment
advisory services.
</Table>
9
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
===========================================================================================================================
COMMON STOCKS & OTHER EQUITY INTERESTS --99.10%
ADVERTISING--4.92%
Interpublic Group of Cos., Inc. (The) (a) 2,500 $ 25,825
- ---------------------------------------------------------------------------------------------------------------------------
Omnicom Group Inc. 500 41,480
===========================================================================================================================
67,305
===========================================================================================================================
APPAREL RETAIL--2.02%
Gap, Inc. (The) 1,600 27,648
===========================================================================================================================
BREWERS--1.47%
Molson Coors Brewing Co.-Class B 325 20,052
===========================================================================================================================
BUILDING PRODUCTS--2.08%
American Standard Cos. Inc. 750 28,530
===========================================================================================================================
COMPUTER STORAGE & PERIPHERALS--0.61%
Lexmark International, Inc.-Class A (a) 200 8,304
===========================================================================================================================
CONSTRUCTION MATERIALS--2.05%
Cemex S.A. de C.V.-ADR (Mexico) 538 28,014
===========================================================================================================================
DATA PROCESSING & OUTSOURCED SERVICES--3.25%
First Data Corp. 1,100 44,495
===========================================================================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES--2.55%
Cendant Corp. 2,000 34,840
===========================================================================================================================
ENVIRONMENTAL & FACILITIES SERVICES--3.02%
Waste Management, Inc. 1,400 41,314
===========================================================================================================================
FOOD RETAIL--3.76%
Kroger Co. (The) (a) 1,650 32,835
- ---------------------------------------------------------------------------------------------------------------------------
Safeway Inc. 800 18,608
===========================================================================================================================
51,443
===========================================================================================================================
GENERAL MERCHANDISE STORES--2.44%
Target Corp. 600 33,414
===========================================================================================================================
HEALTH CARE DISTRIBUTORS--9.38%
Cardinal Health, Inc. 1,400 87,514
- ---------------------------------------------------------------------------------------------------------------------------
McKesson Corp. 900 40,887
===========================================================================================================================
128,401
===========================================================================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
===========================================================================================================================
HEALTH CARE EQUIPMENT--2.27%
Waters Corp. (a) 860 $ 31,132
===========================================================================================================================
INDUSTRIAL CONGLOMERATES--4.05%
Tyco International Ltd. 2,100 55,419
===========================================================================================================================
INVESTMENT BANKING & BROKERAGE--3.79%
Merrill Lynch & Co., Inc. 800 51,792
===========================================================================================================================
LEISURE PRODUCTS--1.95%
Brunswick Corp. 700 26,691
===========================================================================================================================
MANAGED HEALTH CARE--4.58%
WellPoint, Inc. (a) 840 62,731
===========================================================================================================================
OIL & GAS DRILLING--6.34%
Pride International, Inc. (a) 1,450 40,701
- ---------------------------------------------------------------------------------------------------------------------------
Transocean Inc. (a) 800 45,992
===========================================================================================================================
86,693
===========================================================================================================================
OIL & GAS EQUIPMENT & SERVICES--2.06%
Weatherford International Ltd. (a) 450 28,170
===========================================================================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES--7.63%
Citigroup Inc. 1,100 50,358
- ---------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,475 54,014
===========================================================================================================================
104,372
===========================================================================================================================
PHARMACEUTICALS--8.11%
Pfizer Inc. 1,300 28,262
- ---------------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis (France) (b) 687 55,019
- ---------------------------------------------------------------------------------------------------------------------------
Wyeth 620 27,627
===========================================================================================================================
110,908
===========================================================================================================================
PROPERTY & CASUALTY INSURANCE--3.24%
ACE Ltd. 850 44,285
===========================================================================================================================
SEMICONDUCTOR EQUIPMENT--3.79%
Brooks Automation, Inc. (a) 2,939 34,416
- ---------------------------------------------------------------------------------------------------------------------------
Novellus Systems, Inc. (a) 800 17,488
===========================================================================================================================
51,904
===========================================================================================================================
SPECIALIZED CONSUMER SERVICES--3.16%
Jackson Hewitt Tax Service Inc. 1,750 43,260
===========================================================================================================================
SYSTEMS SOFTWARE--4.19%
Computer Associates International, Inc. 2,050 57,339
===========================================================================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
===========================================================================================================================
THRIFTS & MORTGAGE FINANCE--6.39%
Fannie Mae 1,000 $ 47,520
- ---------------------------------------------------------------------------------------------------------------------------
Freddie Mac 650 39,878
===========================================================================================================================
87,398
===========================================================================================================================
Total Common Stocks & Other Equity Interests (Cost $1,088,881) 1,355,854
===========================================================================================================================
TOTAL INVESTMENTS--99.10% (Cost $1,088,881) 1,355,854
===========================================================================================================================
OTHER ASSETS LESS LIABILITIES--0.90% 12,291
===========================================================================================================================
NET ASSETS--100.00% $1,368,145
===========================================================================================================================
</Table>
Investment Abbreviations:
ADR American Depositary Receipt
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
value of this security at October 31, 2005 represented 4.02% of the Fund's
Net Assets. See Note 1A.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,088,881) $ 1,355,854
- -------------------------------------------------------------------------------------------------------
Cash 17,638
- -------------------------------------------------------------------------------------------------------
Receivables for:
Dividends 470
- -------------------------------------------------------------------------------------------------------
Fund expenses absorbed 15,418
- -------------------------------------------------------------------------------------------------------
Other assets 109
=======================================================================================================
Total assets 1,389,489
=======================================================================================================
LIABILITIES:
Payables for:
Accrued trustees' and officer's fees and benefits 1,341
- -------------------------------------------------------------------------------------------------------
Accrued transfer agent fees 3
- -------------------------------------------------------------------------------------------------------
Accrued operating expenses 20,000
=======================================================================================================
Total liabilities 21,344
=======================================================================================================
Net assets applicable to shares outstanding $ 1,368,145
=======================================================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 1,037,133
- -------------------------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and foreign currencies 64,039
- -------------------------------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 266,973
=======================================================================================================
$ 1,368,145
_______________________________________________________________________________________________________
=======================================================================================================
NET ASSETS:
Class A $ 547,255
_______________________________________________________________________________________________________
=======================================================================================================
Class B $ 410,445
_______________________________________________________________________________________________________
=======================================================================================================
Class C $ 410,445
_______________________________________________________________________________________________________
=======================================================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 42,366
_______________________________________________________________________________________________________
=======================================================================================================
Class B 31,773
_______________________________________________________________________________________________________
=======================================================================================================
Class C 31,773
_______________________________________________________________________________________________________
=======================================================================================================
Class A:
Net asset value per share $ 12.92
- -------------------------------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $12.92 / 94.50%) $ 13.67
_______________________________________________________________________________________________________
=======================================================================================================
Class B:
Net asset value and offering price per share $ 12.92
_______________________________________________________________________________________________________
=======================================================================================================
Class C:
Net asset value and offering price per share $ 12.92
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $155) $ 15,868
=======================================================================================================
EXPENSES:
Advisory fees 10,369
- -------------------------------------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------------------------------------
Custodian fees 2,162
- -------------------------------------------------------------------------------------------------------
Distribution fees:
Class A 1,747
- -------------------------------------------------------------------------------------------------------
Class B 4,148
- -------------------------------------------------------------------------------------------------------
Class C 4,148
- -------------------------------------------------------------------------------------------------------
Market timing and litigation expenses- Note 2 16,477
- -------------------------------------------------------------------------------------------------------
Transfer agent fees 47
- -------------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 16,183
- -------------------------------------------------------------------------------------------------------
Professional services fees 35,860
- -------------------------------------------------------------------------------------------------------
Other 5,247
=======================================================================================================
Total expenses 146,388
=======================================================================================================
Less: Fees waived, expenses reimbursed and expense offset arrangement (122,207)
=======================================================================================================
Net expenses 24,181
=======================================================================================================
Net investment income (loss) (8,313)
=======================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN
CURRENCIES:
Net realized gain from:
Investment securities 64,963
- -------------------------------------------------------------------------------------------------------
Foreign currencies 1
=======================================================================================================
64,964
=======================================================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 34,978
- -------------------------------------------------------------------------------------------------------
Foreign currencies (6)
=======================================================================================================
34,972
=======================================================================================================
Net gain from investment securities
and foreign currencies 99,936
=======================================================================================================
Net increase in net assets resulting from operations $ 91,623
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2005 AND 2004
<Table>
<Caption>
2005 2004
------------ ------------
OPERATIONS:
Net investment income (loss) $ (8,313) $ (8,938)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities
and foreign currencies 64,964 89,846
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities
and foreign currencies 34,972 16,789
=================================================================================================================================
Net increase in net assets resulting from operations 91,623 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 transactions-net:
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 91,623 97,697
=================================================================================================================================
NET ASSETS:
Beginning of year 1,276,522 1,178,825
=================================================================================================================================
End of year (including undistributed net
investment income (loss) of $0 and $0, respectively) $ 1,368,145 $ 1,276,522
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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.
F-7
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. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may determine
the country in which an issuer is located and/or credit risk exposure based
on various factors. These factors include the laws of the country under
which the issuer is organized, where the issuer maintains a principal
office, the country in which the issuer derives 50% or more of its total
revenues and the country that has the primary market for the issuer's
securities, as well as other criteria. Among the other criteria that may be
evaluated for making this determination are the country in which the issuer
maintains 50% or more of its assets, the type of security, financial
guarantees and enhancements, the nature of the collateral and the sponsor
organization. Country of issuer and/or credit risk exposure has been
determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which
F-8
is distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
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,
F-9
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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the expense offset arrangements from which the Fund may benefit are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. 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.
For the year ended October 31, 2005, AIM waived fees of $10,369 and
reimbursed expenses of $84,982.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$16,477.
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 year ended
October 31, 2005, AIM was paid $50,000.
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 year ended October 31, 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 0.25% of the Fund's average daily net assets
of Class A shares and 1.00% of the average daily net assets of Class B and Class
C shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of the average daily
net assets of Class A 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. National Association of Securities
Dealers ("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. 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 $1,747, $4,148, and $4,148 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 ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
October 31, 2005, the Fund received credits from this arrangement which resulted
in the reduction of the Fund's total expenses of $336.
NOTE 4 -- TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the
F-10
Fund to fund such retirement benefits. Obligations under the deferred
compensation and retirement plans represent unsecured claims against the general
assets of the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $2,876
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 year ended October 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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, 2005
and 2004 was as follows:
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------------------
Distributions paid from long-term capital gain $ 61,757 $ --
==========================================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------------------
Undistributed long-term gain $ 64,039
- -----------------------------------------------------------------------------------------
Unrealized appreciation -- investments 266,973
- -----------------------------------------------------------------------------------------
Shares of beneficial interest 1,037,133
=========================================================================================
Total net assets $ 1,368,145
=========================================================================================
</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.
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, 2005.
F-11
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, 2005 was $216,271 and $220,666, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 347,867
- -----------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (80,894)
=========================================================================================
Net unrealized appreciation of investment securities $ 266,973
=========================================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
NOTE 8 -- RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2005, undistributed net investment income was increased by
$8,313, undistributed net realized gain was decreased by $913 and shares of
beneficial interest decreased by $7,400. 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,
2005 2004
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------ ------------------ ------------------ -----------------
Issued as reinvestment of dividends:
Class A 1,889 24,703 -- --
- -----------------------------------------------------------------------------------------------------------------
Class B 1,416 18,527 -- --
- -----------------------------------------------------------------------------------------------------------------
Class C 1,416 18,527 -- --
=================================================================================================================
4,721 $ 61,757 -- $ --
=================================================================================================================
</Table>
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
F-12
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
COMMENCED) TO
YEAR ENDED OCTOBER 31, 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) (0.08) (0.09) (0.07) (0.01)
-------- -------- -------- --------
Net gains (losses) on securities (both realized and unrealized) 1.00 1.05 2.70 (0.86)
======== ======== ======== ========
Total from investment operations 0.92 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 $ 12.92 $ 12.61 $ 11.65 $ 9.13
======== ======== ======== ========
Total return(a) 7.24% 8.24% 29.12% (8.70)%
======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 547 $ 511 $ 472 $ 365
======== ======== ======== ========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.77% 1.83% 1.75%(c)
-------- -------- -------- --------
Without fee waivers and/or expense reimbursements 10.18%(b) 9.96% 10.27% 23.74%(c)
======== ======== ======== ========
Ratio of net investment income (loss) to average net assets (0.60)%(b) (0.70)% (0.75)% (0.49)%(c)
======== ======== ======== ========
Portfolio turnover rate(d) 16% 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 based on average daily net assets of $553,017.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-13
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------
AUGUST 30, 2002
(DATE
OPERATIONS
COMMENCED) TO
YEAR ENDED OCTOBER 31, 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) (0.08) (0.09) (0.07) (0.01)
-------- -------- -------- --------
Net gains (losses) on securities (both realized and unrealized) 0.99 1.06 2.70 (0.86)
======== ======== ======== ========
Total from investment operations 0.91 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 $ 12.92 $ 12.62 $ 11.65 $ 9.13
======== ======== ======== ========
Total return(a) 7.15% 8.33% 29.12% (8.70)%
======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 410 $ 383 $ 354 $ 274
======== ======== ======== ========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.77% 1.83% 1.75%(c)
-------- -------- -------- --------
Without fee waivers and/or expense reimbursements 10.86%(b) 10.61% 10.92% 24.39%(c)
======== ======== ======== ========
Ratio of net investment income (loss) to average net assets (0.60)%(b) (0.70)% (0.75)% (0.49)%(c)
======== ======== ======== ========
Portfolio turnover rate(d) 16% 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 based on average daily net assets of $414,768.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-14
NOTE 10 - FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------
AUGUST 30, 2002
(DATE
OPERATIONS
COMMENCED) TO
YEAR ENDED OCTOBER 31, 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) (0.08) (0.09) (0.07) (0.01)
-------- -------- -------- --------
Net gains (losses) on securities (both realized and unrealized) 0.99 1.06 2.70 (0.86)
======== ======== ======== ========
Total from investment operations 0.91 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 $ 12.92 $ 12.62 $ 11.65 $ 9.13
======== ======== ======== ========
Total return (a) 7.15% 8.33% 29.12% (8.70)%
======== ======== ======== ========
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 410 $ 383 $ 354 $ 274
======== ======== ======== ========
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.77%(b) 1.77% 1.83% 1.75%(c)
-------- -------- -------- --------
Without fee waivers and/or expense reimbursements 10.86%(b) 10.61% 10.92% 24.39%(c)
======== ======== ======== ========
Ratio of net investment income (loss) to average net assets (0.60)%(b) (0.70)% (0.75)% (0.49)%(c)
======== ======== ======== ========
Portfolio turnover rate (d) 16% 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 based on average daily net assets of $414,768.
(c) Annualized.
(d) Not annualized for periods less than one year.
F-15
NOTE 11 -- CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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.
F-16
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
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 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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 (this lawsuit was dismissed by the Court on
August 12, 2005).
F-17
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of
AIM Select Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Select Basic Value Fund (one of
the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2005, 0% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2005, the Fund designated 0%, or the maximum
amount allowable, of its dividend distribution 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. The Fund distributed long-term capital gains of
$61,757 for the Fund's tax year ended October 31, 2005.
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005 and
October 31, 2005 are 5.25%, 5.46%, 5.26% and 7.33%, respectively.
<Table>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation
AIM Charter Fund AIM Gold & Precious Metals Fund Fund
AIM Constellation Fund AIM Leisure Fund
AIM Diversified Dividend Fund AIM Multi-Sector Fund DIVERSIFIED PORTFOLIOS
AIM Dynamics Fund AIM Real Estate Fund(1)
AIM Large Cap Basic Value Fund AIM Technology Fund AIM Income Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund AIM International Allocation Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S.Government Money Portfolio
AIM Weingarten Fund
TAX-FREE
* Domestic equity and income fund
AIM High Income Municipal Fund(1)
INTERNATIONAL/GLOBAL EQUITY AIM Municipal Bond Fund
AIM Tax-Exempt Cash Fund
AIM Asia Pacific Growth Fund AIM Tax-Free Intermediate Fund
AIM Developing Markets Fund Premier Tax-Exempt Portfolio
AIM European Growth Fund
AIM European Small Company Fund(1) =======================================================================================
AIM Global Aggressive Growth Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR THIS
AIM Global Equity Fund AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR
AIM Global Growth Fund AND READ IT CAREFULLY BEFORE INVESTING.
AIM Global Value Fund =======================================================================================
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29, 2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20, 2006, 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 $381 billion in assets under management. Data as of September 30,
2005.
AIMinvestments.com SBV-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>
AIM WEINGARTEN FUND
Annual Report to Shareholders o October 31, 2005
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
AIM WEINGARTEN FUND seeks to provide growth of capital.
o Unless otherwise stated, information presented in this report is as of October
31, 2005, and is based on total net assets.
<Table>
<Caption>
ABOUT SHARE CLASSES o A direct investment cannot be made in The Fund provides a complete list of its
an index. Unless otherwise indicated, holdings four times in each fiscal year,
o Class B shares are not available as an index results include reinvested at the quarter-ends. For the second and
investment for retirement plans dividends, and they do not reflect sales fourth quarters, the lists appear in the
maintained pursuant to Section 401 of charges. Performance of an index of Fund's semiannual and annual reports to
the Internal Revenue Code, including funds reflects fund expenses; shareholders. For the first and third
401(k) plans, money purchase pension performance of a market index does not. quarters, the Fund files the lists with
plans and profit sharing plans. Plans the Securities and Exchange Commission
that had existing accounts invested in OTHER INFORMATION (SEC) on Form N-Q. The most recent list
Class B shares prior to September of portfolio holdings is available at
30, 2003, will continue to be allowed to o The returns shown in management's AIMinvestments.com. From our home page,
make additional purchases. discussion of Fund performance are based click on Products & Performance, then
on net asset values calculated for Mutual Funds, then Fund Overview. Select
o Class R shares are available only to shareholder transactions. Generally your Fund from the drop-down menu and
certain retirement plans. Please see the accepted accounting principles require click on Complete Quarterly Holdings.
prospectus for more information. adjustments to be made to the net assets Shareholders can also look up the Fund's
of the Fund at period end for financial Forms N-Q on the SEC's Web site at
ABOUT INDEXES USED IN THIS REPORT reporting purposes, and as such, the net sec.gov. And copies of the Fund's Forms
asset values for shareholder N-Q may be reviewed and copied at the
o The unmanaged LIPPER LARGE-CAP GROWTH transactions and the returns based on SEC's Public Reference Room at 450 Fifth
FUND INDEX represents an average of the those net asset values may differ from Street, N.W., Washington, D.C.
performance of the 30 largest the net asset values and returns 20549-0102. You can obtain information
large-capitalization growth funds reported in the Financial Highlights. on the operation of the Public Reference
tracked by Lipper, Inc., an independent Room, including information about
mutual fund performance monitor. o Industry classifications used in this duplicating fee charges, by calling
report are generally according to the 202-942-8090 or 800-732-0330, or by
o The unmanaged MSCI WORLD INDEX is a Global Industry Classification Standard, electronic request at the following
group of global securities tracked by which was developed by and is the e-mail address: publicinfo@sec.gov. The
Morgan Stanley Capital International. exclusive property and a service mark of SEC file numbers for the Fund are
Morgan Stanley Capital International 811-01424 and 2-25469.
o The unmanaged RUSSELL 1000 Inc. and Standard & Poor's.
- --Registered Trademark-- GROWTH INDEX is A description of the policies and
a subset of the unmanaged RUSSELL You have recently received or should procedures that the Fund uses to
1000--Registered Trademark-- INDEX, shortly receive a proxy requesting your determine how to vote proxies relating
which represents the performance of the vote on a proposed merger of AIM to portfolio securities is available
stocks of large-capitalization Weingarten Fund into AIM Constellation without charge, upon request, from our
companies; the Growth subset measures Fund. We encourage you to read the proxy Client Services department at
the performance of Russell 1000 materials carefully and to vote 800-959-4246 or on the AIM Web site,
companies with higher price/book ratios promptly. The ways in which you may cast AIMinvestments.com. On the home page,
and higher forecasted growth values. your proxy ballot are detailed in the scroll down and click on AIM Funds Proxy
proxy materials. Policy. The information is also
o The unmanaged Standard & Poor's available on the Securities and Exchange
Composite Index of 500 Stocks (the S&P Commission's Web site, sec.gov.
500--Registered Trademark-- INDEX) is
an index of common stocks frequently Information regarding how the Fund voted
used as a general measure of U.S. stock proxies related to its portfolio
market performance. securities during the 12 months ended
June 30, 2005, is available at our Web
o The Fund is not managed to track the site. Go to AIMinvestments.com, access
performance of any particular index, the About Us tab, click on Required
including the indexes defined here, and Notices and then click on Proxy Voting
consequently, the performance of the Activity. Next, select the Fund from the
Fund may deviate significantly from the drop-down menu. The information is also
performance of the indexes. available on the Securities and Exchange
Commission's Web site, sec.gov.
========================================
FUND NASDAQ SYMBOLS
Class A Shares WEINX
Class B Shares BWEIX
Class C Shares CWEIX
Class R Shares RWEIX
========================================
================================================================================
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
</Table>
AIM WEINGARTEN FUND
DEAR FELLOW AIM FUNDS SHAREHOLDERS:
The fiscal year covered by this report was quite good to
equity investors. Domestically, the broad-based S&P 500
[GRAHAM Index returned 8.72%. Globally, Morgan Stanley's MSCI World
PHOTO] Index rose 13.27%. Much of this good performance, though,
was attained early in the fiscal year as virtually every
equity index declined during October of 2005. Concern about
the inflationary potential of rising energy costs was
frequently cited as a major cause of market weakness.
Within the indexes, there was considerable variability in
the performance of different sectors and markets.
ROBERT H. GRAHAM Domestically, energy sector performance far outpaced that of
the other sectors in the S&P 500 Index, reflecting rising
oil and gas prices. Overseas, emerging markets produced more
[WILLIAMSON attractive results than did developed markets, at least in
PHOTO] part because emerging markets tend to be more closely tied
to the performance of natural resources and commodities.
One could make a strong argument for global
MARK H. WILLIAMSON diversification of a stock portfolio using the performance
data for the fiscal year ended October 31, 2005. Of course,
your financial advisor is the person most qualified to help
you decide whether such diversification is appropriate for
you.
For a discussion of the specific market conditions that
affected your Fund and how your Fund was managed during the
fiscal year, please turn to Page 3.
NEW INFORMATION IN THIS REPORT
We would like to call your attention to two new elements in
this report. First, on Page 2, is a message from Bruce
Crockett, the independent Chair of the Board of Trustees of
the AIM Funds. We first introduced you to Mr. Crockett in
the annual report on your Fund dated October 31,2004. Mr.
Crockett has been on our Funds' Board since 1992; he assumed
his responsibilities as Chair in October 2004.
Mr. Crockett plans to keep AIM shareholders informed of
the work of the Board regularly via letters in the Fund
reports. We certainly think this is 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
manage the assets in your Fund. A discussion of the factors
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 8 and 9.
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,
AIM Funds A I M Advisors, Inc.
December 15, 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. A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
1
AIM WEINGARTEN FUND
DEAR AIM FUNDS 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.
[CROCKETT At our most recent meeting in June 2005, your Board
PHOTO] approved voluntary fee reductions from A I M Advisors, Inc.
(AIM) that save shareholders approximately $20.8 million
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.
BRUCE L. CROCKETT 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 annual report on Pages 8 and
9. 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 Investments
Committee--which functions along with Audit, Governance,
Valuation and Compliance Committees--is the only one of
these five standing committees to include all 14 independent
Board members. Further, our Investments 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
December 15, 2005
2
AIM WEINGARTEN FUND
<Table>
<Caption>
MANAGEMENT'S DISCUSSION Our sell process is designed to
OF FUND PERFORMANCE identify deterioration in the underlying
reasons a stock was initially purchased
====================================================================================== and avoid the risk of capital loss.
PERFORMANCE SUMMARY ========================================= Conditions that may cause us to reduce
FUND VS. INDEXES or sell a position include:
For the year ended October 31, 2005,
Class A shares of AIM Weingarten Fund, TOTAL RETURNS, 10/31/04-10/31/05, o deterioration in business prospects
excluding sales charges, handily EXCLUDING APPLICABLE SALES CHARGES. IF
outperformed the Fund's broad market and SALES CHARGES WERE INCLUDED, RETURNS o worsening competitive position
style-specific indexes. We attribute the WOULD BE LOWER.
Fund's out performance to strong stock o slowing earnings growth
selection--particularly within the Class A Shares 11.73%
health care, financials and energy o extended valuation
sectors. Also, relative to its Class B Shares 10.97
style-specific index, the Fund was o finding more attractive investment
overweight in energy stocks, which, as a Class C Shares 10.96 opportunities
group, led the market for the year.
Class R Shares 11.37 MARKET CONDITIONS AND YOUR FUND
Your Fund's long-term performance
appears on Pages 6 and 7. S&P 500 Index (Broad Market Index) 8.72 Despite widespread concern about the
potential impact of rising short-term
Russell 1000 Growth Index interest rates and historically high
(Style-specific Index) 8.81 energy prices, the U.S. economy
expanded, inflation remained contained
Lipper Large-Cap Growth Fund Index and corporate profits generally rose
(Peer Group Index) 12.09 during the fiscal year covered by this
report. Late in the year, higher energy
Source: Lipper, Inc. prices and rising interest rates
threatened to crimp consumer spending,
========================================= which accounts for approximately
====================================================================================== two-thirds of the U.S. economy.
HOW WE INVEST Fundamental analysis seeks to define Corporate profits, and stock market
a company's key drivers of success and performance, varied widely by sector
We believe a growth investment strategy to assess their durability. We carefully during the year. Rising energy prices
is an essential component of a review financial statements and earnings caused many energy companies and
diversified portfolio. reports, the company's business model utilities to report record earnings and
and management team, the competitive profits--while profits of companies that
Our investment process combines environment and market opportunities. use a lot of energy, such as chemical
quantitative and fundamental analysis to companies and airlines, were weak. The
uncover companies exhibiting long-term, We construct the portfolio by broad stock market rose for the year.
sustainable earnings and cash flow focusing on stocks rather than Not surprisingly, the energy and
growth that is not yet reflected in industries or sectors. While there are utilities sectors led the market with
investor expectations or equity no formal sector guidelines or strong double-digit returns; consumer
valuations. constraints, internal controls and discretionary stocks lagged the broad
proprietary software help us monitor market, one of only two sectors to
Quantitative analysis helps us narrow risk levels and sector concentration. decline for the year.
our investment universe down to a
manageable list of potential (continued)
investments. We focus on the level,
growth rate and sustainability of
earnings, revenue and cash flow, ranking
investment candidates on absolute and
relative attractiveness.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 10 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1.Semiconductors 8.3% 1.Aetna Inc. 3.1%
[PIE CHART] 2.Pharmaceuticals 6.2 2.Goldman Sachs Group, Inc. 2.9
Information Technology 29.8% 3.Managed Health Care 6.0 (The)
Health Care 22.2% 4.Investment Banking & Brokerage 5.2 3.QUALCOMM Inc. 2.9
Consumer Discretionary 16.7% 5.Internet Software & Services 4.8 4.Yahoo! Inc. 2.8
Financials 12.2% 6.Biotechnology 4.2 5.Johnson & Johnson 2.6
Energy 7.7% 7.Communications Equipment 3.9 6.Analog Devices, Inc. 2.5
Industrials 7.3% 8.Aerospace & Defense 3.6 7.Alcon, Inc. (Switzerland) 2.1
Consumer Staples 2.6% 9.Systems Software 3.6 8.EMC Corp. 2.1
Materials 1.3% 10.Computer Hardware 3.4 9.Apple Computer, Inc. 2.0
10.Google Inc.-Class A 2.0
Money Market Funds Plus
Other Assets Less Liabilities 0.2%
TOTAL NET ASSETS $2.4 BILLION
TOTAL NUMBER OF HOLDINGS* 76
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 WEINGARTEN FUND
<Table>
<Caption>
Health care, energy and information oil producer CONOCOPHILLIPS among the broad market in recent years, we believe
technology stocks contributed positively stocks contributing to Fund performance. investors will eventually recognize and
to Fund performance for the year reward these characteristics. We thank
Our bottom-up research helped us you for your continued investment in AIM
Within the health care sector, our identify attractive investment Weingarten Fund.
research led us to managed care stocks opportunities in the information
and to switch some assets from U.S. technology (IT) sector. (IT) stocks THE VIEWS AND OPINIONS EXPRESSED IN
pharmaceutical stocks into non-U.S. helping your Fund's performance included MANAGEMENT'S DISCUSSION OF FUND
pharmaceutical stocks. Many managed care Internet search engine GOOGLE and APPLE PERFORMANCE ARE THOSE OF AIM ADVISORS,
companies have reported strong earnings COMPUTER. As more people worldwide go INC. THESE VIEWS AND OPINIONS ARE
in recent quarters by aggressively online, Google offers advertisers a SUBJECT TO CHANGE AT ANY TIME BASED ON
controlling costs, reducing hospital cost-effective way to reach consumers. FACTORS SUCH AS MARKET AND ECONOMIC
utilization rates and switching plan Google commands the largest market share CONDITIONS. THESE VIEWS AND OPINIONS MAY
participants from name-brand to generic in the rapidly growing online NOT BE RELIED UPON AS INVESTMENT ADVICE
drugs. AETNA, UNITEDHEALTH GROUP, advertising industry. Apple continues to OR RECOMMENDATIONS, OR AS AN OFFER FOR A
WELLPOINT and CIGNA were among the benefit from the phenomenal success of PARTICULAR SECURITY. THE INFORMATION IS
managed care companies that contributed its iPod--Registered Trademark-- musi c NOT A COMPLETE ANALYSIS OF EVERY ASPECT
to Fund performance. Before the close of player. OF ANY MARKET, COUNTRY, INDUSTRY,
the year, we sold our UnitedHealth Group SECURITY OR THE FUND. STATEMENTS OF FACT
stock after it reached our price target. The Fund's consumer staples holdings, ARE FROM SOURCES CONSIDERED RELIABLE,
while contributing positively to BUT AIM ADVISORS, INC. MAKES NO
We increased our ownership of performance for the year, significantly REPRESENTATION OR WARRANTY AS TO THEIR
non-U.S. pharmaceutical companies, lagged those of our style-specific COMPLETENESS OR ACCURACY. ALTHOUGH
including ROCHE HOLDING and NOVARTIS, index. Fortunately, our research caused HISTORICAL PERFORMANCE IS NO GUARANTEE
both of which have developed promising us to be significantly underweight in OF FUTURE RESULTS, THESE INSIGHTS MAY
new cancer treatments. In addition to the sector relative to the index. HELP YOU UNDERSTAND OUR INVESTMENT
being the manufacturer of Tamiflu, the Commodity costs have risen in recent MANAGEMENT PHILOSOPHY.
potential treatment for "bird flu," quarters and Wal-Mart (not a Fund
Roche owns 56% of Genentech, maker of holding) continues to exert considerable See important Fund and index
Avastin--Registered Trademark--, which pricing power over its suppliers; those disclosures inside front cover.
has shown promise in the treatment of a two factors have pressured profit
number of types of cancer margins at many consumer staples
companies, with the notable exception of LANNY H. SACHNOWITZ,
Just as important to Fund Fund holding PROCTER & GAMBLE. [SACHNOWITZ senior portfolio manager,
performance, our research suggested that PHOTO] is lead portfolio manager
we avoid most U.S. pharmaceutical Individual stocks that hindered Fund of AIM Weingarten Fund.
companies. Weak product pipelines, performance for the year included He joined AIM in 1987 as
patent expirations and litigation risk industrial conglomerate TYCO and a money market trader and
have raised questions about the Internet auctioneer EBAY. Tyco's research analyst. In
prospects for a number of these earnings were hurt by rising commodity 1990, Mr. Sachnowitz's trading
companies. We owned JOHNSON & JOHNSON at prices; in addition, management responsibilities were expanded to
year-end, but the company manufactures a overestimated demand for the company's include head of equity trading. He was
broad array of health care products, of products, leading to increased named a portfolio manager in 1991. Mr.
which pharmaceuticals is only a small inventory. In September, eBay proposed Sachnowitz received a B.S. in finance
part. acquiring an Internet phone company, from the University of Southern
Skype Technologies. We question the California and an M.B.A. from the
Energy has not been considered a strategic value of the proposed University of Houston.
traditional growth sector, but supply acquisition, which hurt eBay's
and demand characteristics have clearly short-term performance. JAMES G. BIRDSALL,
changed in recent years, due largely to [BIRDSALL portfolio manager, is a
explosive economic growth in China and Despite this, we continued to hold PHOTO] portfolio manager of AIM
India. Worldwide production and refining Tyco because we believe its difficulties Weingarten Fund. He has
capacity has struggled to keep pace with are likely to be temporary. We held eBay been associated with AIM
rising demand. We believe that any because we believed the company's core Investments since 1995 and was named a
significant improvement in supply is business remains strong, it continues to portfolio manager in 1999. Mr. Birdsall
likely to be years away. generate significant cash flow, and it received his B.B.A. with a concentration
continues to grow faster than most in finance from Stephen F. Austin State
Given these trends, many energy companies. University before earning his M.B.A.
companies have seen notable growth in with a concentration in finance and
their revenue and earnings--using the IN CLOSING international business from the
money to improve their balance sheets University of St. Thomas.
and to benefit shareholders in the form As the fiscal year ended, we considered
of stock buybacks and dividend the fundamentals of large-cap growth
increases. For the year, your Fund was stocks to be good--and getting better. Assisted by the Large/Multi-Cap Growth
significantly overweight energy stocks As a group, large-cap growth companies Team
relative to its style-specific index, boasted healthy cash flows, strong
with refiner Valero Energy and balance sheets and positive earnings
integrated growth, and managements were generally [RIGHT ARROW GRAPHIC]
using capital for the benefit of
shareholders. While large-cap growth FOR A PRESENTATION OF YOUR FUND'S
stocks have lagged the LONG-TERM PERFORMANCE, PLEASE SEE PAGES
6 AND 7.
</Table>
4
AIM WEINGARTEN FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE mate the expenses that you paid over the The hypothetical account values and
period. Simply divide your account value expenses may not be used to estimate the
As a shareholder of the Fund, you incur by $1,000 (for example, an $8,600 actual ending account balance or
two types of costs: (1) transaction account value divided by $1,000 = 8.6), expenses you paid for the period. You
costs, which may include sales charges then multiply the result by the number may use this information to compare the
(loads) on purchase payments; contingent in the table under the heading entitled ongoing costs of investing in the Fund
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to and other funds. To do so, compare this
and redemption fees, if any; and (2) estimate the expenses you paid on your 5% hypothetical example with the 5%
ongoing costs, including management 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
May 1, 2005, through October 31, 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 October 31, 2005, appear in the of owning different funds. In addition,
The table below provides information table "Cumulative Total Returns" on page if these transactional costs were
about actual account values and actual 7. included, your costs would have been
expenses. You may use the information in higher.
this table, together with the amount you
invested, to esti-
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/01/05) (10/31/05)(1) PERIOD(2),(3) (10/31/05) PERIOD(2),(4) RATIO
A $1,000.00 $1,104.40 $7.27 $1,018.30 $6.97 1.37%
B 1,000.00 1,099.70 11.17 1,014.57 10.71 2.11
C 1,000.00 1,099.60 11.17 1,014.57 10.71 2.11
R 1,000.00 1,101.70 8.53 1,017.09 8.19 1.61
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October
31, 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 October 31, 2005, appear in the table "Cumulative Total Returns" on page 7.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year. Effective on July 1, 2005, the distributor
contractually agreed to reduce rule 12b-1 plan fees for Class A shares to 0.25%. The annualized expense ratio restated as if
this agreement had been in effect throughout the entire most recent fiscal half year is 1.36% for Class A shares.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent
fiscal half year are $7.21 for Class A shares.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent
fiscal half year are $6.92 for Class A shares.
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
5
</Table>
AIM WEINGARTEN FUND
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
FUND DATA FROM 6/17/69, INDEX DATA FROM 6/30/69
[MOUNTAIN CHART]
<Table>
<Caption>
===================================================================================================================================
DATE AIM WEINGARTEN FUND- S&P 500 INDEX
CLASS A SHARES
6/17/69 $9450 9/87 147914 71846
6/69 8991 $10000 10/87 113273 56374
7/69 8455 9424 11/87 104426 51728
8/69 9029 9828 12/87 115735 55662
9/69 8914 9609 1/88 116985 58002
10/69 9412 10063 2/88 124180 60693
11/69 9067 9737 3/88 122243 58821
12/69 9013 9584 4/88 121962 59472
1/70 8278 8879 5/88 120303 59979
2/70 8975 9374 6/88 129578 62730
3/70 8665 9414 7/88 125976 62491
4/70 7582 8590 8/88 120849 60373
5/70 7040 8094 9/88 126529 62943
6/70 7040 7717 10/88 127769 64694
7/70 7427 8310 11/88 124587 63770
8/70 7620 8707 12/88 128786 64881
9/70 8239 9023 1/89 138174 69628
10/70 8239 8948 2/89 134250 67897
11/70 8625 9401 3/89 139150 69479
12/70 9167 9963 4/89 146998 73083
1/71 9592 10393 5/89 153863 76029
2/71 9961 10515 6/89 150786 75601
3/71 10895 10929 7/89 167463 82421
4/71 11323 11353 8/89 172788 84027
5/71 10973 10910 9/89 175726 83685
6/71 11285 10946 10/89 172650 81744
7/71 10818 10522 11/89 174757 83404
8/71 11595 10930 12/89 175211 85404
9/71 11790 10882 1/90 160949 79674
10/71 11479 10456 2/90 164522 80698
11/71 11440 10458 3/90 172847 82835
12/71 12723 11387 4/90 170461 80772
1/72 13540 11622 5/90 192451 88631
2/72 14124 11945 6/90 197205 88034
3/72 14319 12042 7/90 192294 87753
4/72 14436 12124 8/90 175949 79830
5/72 14941 12363 9/90 166149 75951
6/72 14708 12123 10/90 165700 75630
7/72 14475 12180 11/90 179370 80509
8/72 14514 12629 12/90 184931 82749
9/72 14319 12598 1/91 196508 86344
10/72 14242 12748 2/91 211128 92511
11/72 14631 13362 3/91 220565 94749
12/72 14865 13550 4/91 219198 94975
1/73 13931 13348 5/91 229105 99058
2/73 12815 12877 6/91 217673 94523
3/73 12600 12888 7/91 232758 98925
4/73 11607 12394 8/91 241742 101262
5/73 11305 12192 9/91 236400 99567
6/73 11089 12144 10/91 240064 100902
7/73 11995 12638 11/91 235791 96848
8/73 11823 12207 12/91 271560 107905
9/73 12728 12728 1/92 262653 105897
10/73 12901 12749 2/92 259895 107268
11/73 11002 11335 3/92 250981 105184
12/73 11521 11560 4/92 247919 108269
1/74 11046 11477 5/92 250696 108798
2/74 11046 11467 6/92 241771 107180
3/74 10312 11234 7/92 251925 111555
4/74 9838 10832 8/92 247768 109276
5/74 9019 10503 9/92 250073 110561
6/74 8846 10384 10/92 256524 110940
7/74 8113 9615 11/92 267606 114708
8/74 7423 8783 12/92 267874 116115
9/74 6473 7772 1/93 265410 117085
10/74 8113 9080 2/93 255059 118680
11/74 7983 8635 3/93 260313 121182
12/74 7681 8501 4/93 249015 118253
1/75 8329 9582 5/93 256909 121409
2/75 9019 10193 6/93 259684 121763
3/75 9624 10451 7/93 258593 121273
4/75 10357 10984 8/93 266170 125864
5/75 11177 11508 9/93 270641 124899
6/75 11565 12057 10/93 272346 127481
7/75 10788 11280 11/93 266927 126266
8/75 10270 11081 12/93 271972 127792
9/75 9925 10737 1/94 284809 132133
10/75 10270 11438 2/94 280679 128548
11/75 10400 11759 3/94 267824 122955
12/75 10227 11665 4/94 268306 124530
1/76 11608 13084 5/94 265918 126566
2/76 11922 12975 6/94 256079 123468
3/76 11965 13412 7/94 264325 127520
4/76 11402 13308 8/94 279708 132736
5/76 10795 13161 9/94 274310 129493
6/76 11272 13743 10/94 282539 132398
7/76 11012 13677 11/94 269373 127582
8/76 10839 13651 12/94 270989 129471
9/76 11099 14005 1/95 269038 132826
10/76 10492 13744 2/95 282759 137998
11/76 11142 13687 3/95 294352 142063
12/76 11922 14456 4/95 302005 146243
1/77 11835 13773 5/95 311639 152079
2/77 11445 13522 6/95 331055 155606
3/77 11619 13379 7/95 355122 160764
4/77 12052 13435 8/95 357253 161165
5/77 12009 13172 9/95 370971 167963
6/77 13309 13823 10/95 362254 167362
7/77 13092 13610 11/95 370622 174701
8/77 13049 13417 12/95 365211 178066
9/77 13439 13437 1/96 369958 184120
10/77 12919 12914 2/96 381501 185833
11/77 13830 13323 3/96 385202 187622
12/77 14177 13422 4/96 394870 190385
1/78 13137 12651 5/96 402294 195287
2/78 13493 12395 6/96 395294 196032
3/78 14584 12760 7/96 373474 187376
4/78 16156 13911 8/96 389346 191334
5/78 17161 14038 9/96 413641 202093
6/78 17204 13846 10/96 415916 207665
7/78 18995 14653 11/96 439208 223348
8/78 20655 15094 12/96 429765 218924
9/78 20044 15046 1/97 452757 232594
10/78 15590 13734 2/97 448365 234420
11/78 16943 14029 3/97 422809 224806
12/78 17992 14304 4/97 439510 238214
1/79 18735 14937 5/97 473879 252778
2/79 17845 14457 6/97 493829 264016
3/79 19833 15319 7/97 539805 285018
4/79 19833 15416 8/97 520318 269063
5/79 19171 15082 9/97 552370 283790
6/79 20451 15737 10/97 527513 274323
7/79 20893 15947 11/97 537272 287011
8/79 23014 16867 12/97 541302 291937
9/79 23412 16940 1/98 545415 295163
10/79 21778 15855 2/98 587031 316439
11/79 24870 16608 3/98 611510 332630
12/79 27124 16964 4/98 622150 336036
1/80 30525 18019 5/98 609396 330268
2/80 30974 18017 6/98 640963 343674
3/80 25488 16266 7/98 637694 340042
4/80 27384 17018 8/98 530179 290914
5/80 28932 17894 9/98 562573 309566
6/80 30676 18460 10/98 592670 334707
7/80 34468 19744 11/98 636587 354985
8/80 36564 19944 12/98 720298 375428
9/80 38509 20531 1/99 763516 391121
10/80 40403 20946 2/99 726104 378967
11/80 46739 23177 3/99 769670 394125
12/80 44892 22479 4/99 767361 409387
1/81 40951 21538 5/99 754316 399731
2/81 41123 21911 6/99 807118 421854
3/81 43969 22788 7/99 785326 408739
4/81 43155 22347 8/99 780378 406716
5/81 45710 22404 9/99 786465 395580
6/81 42167 22265 10/99 821856 420602
7/81 42108 22311 11/99 878153 429151
8/81 38567 21022 12/99 971677 454392
9/81 35605 19986 1/00 936502 431565
10/81 40775 21066 2/00 1080068 423404
11/81 41297 21934 3/00 1104585 464799
12/81 39438 21372 4/00 1037095 450820
1/82 37869 21094 5/00 957757 441578
2/82 35032 19914 6/00 1026141 452453
3/82 34080 19810 7/00 998743 445386
4/82 36874 20706 8/00 1111401 473035
5/82 34761 20000 9/00 999372 448068
6/82 35032 19699 10/00 908729 446165
7/82 34829 19349 11/00 748702 411018
8/82 38441 21698 12/00 773709 413034
9/82 40079 21968 1/01 759704 427679
10/82 46283 24496 2/01 615664 388708
11/82 51531 25485 3/01 559701 364097
12/82 51124 25977 4/01 601678 392369
1/83 53440 26943 5/01 583929 395001
2/83 56849 27560 6/01 569973 385390
3/83 59919 28578 7/01 557148 381595
4/83 65648 30831 8/01 524277 357731
5/83 70217 30562 9/01 469857 328845
6/83 75125 31751 10/01 478173 335120
7/83 71376 30815 11/01 503851 360819
8/83 68721 31277 12/01 509897 363982
9/83 70838 31708 1/02 495518 358673
10/83 65454 31342 2/02 461129 351754
11/83 69067 32003 3/02 491379 364985
12/83 65931 31836 4/02 452462 342867
1/84 60683 31658 5/02 442236 340350
2/84 56551 30544 6/02 402922 316115
3/84 57286 31073 7/02 364362 291480
4/84 57744 31368 8/02 363232 293388
5/84 54430 29631 9/02 326946 261534
6/84 58022 30275 10/02 358332 284528
7/84 56734 29899 11/02 380262 301259
8/84 65023 33202 12/02 349271 283570
9/84 62903 33210 1/03 342844 276156
10/84 63085 33338 2/03 339073 272006
11/84 60877 32964 3/03 343244 274639
12/84 61985 33833 4/03 368953 297251
1/85 69907 36470 5/03 393894 312897
2/85 71382 36917 6/03 397281 316894
3/85 70454 36940 7/03 409001 322484
4/85 70363 36907 8/03 419962 328761
5/85 76294 39038 9/03 411647 325280
6/85 78797 39649 10/03 438116 343672
7/85 77126 39592 11/03 446046 346692
8/85 76201 39209 12/03 456617 364861
9/85 72032 38026 1/04 467941 371557
10/85 75461 39782 2/04 473603 376720
11/85 81211 42511 3/04 467920 371037
12/85 84362 44567 4/04 449765 365220
1/86 86775 44817 5/04 465641 370222
2/86 94073 48165 6/04 475094 377419
3/86 101580 50853 7/04 442217 364929
4/86 103063 50281 8/04 435054 366391
5/86 111256 52955 9/04 445625 370360
6/86 115595 53850 10/04 454315 376018
7/86 107596 50840 11/04 476258 391228
8/86 112234 54609 12/04 492880 404537
9/86 99304 50094 1/05 482677 394676
10/86 107199 52984 2/05 484560 402977
11/86 108024 54271 3/05 478115 395849
12/86 105507 52886 4/05 459612 388345
1/87 121302 60008 5/05 487970 400691
2/87 128070 62377 6/05 491386 401265
3/87 130722 64178 7/05 510648 416181
4/87 127440 63609 8/05 499669 412385
5/87 128702 64159 9/05 512161 415724
6/87 137171 67400 10/05 507834 408790
7/87 145003 70815
8/87 150948 73455
===================================================================================================================================
SOURCE: LIPPER, INC.
The data shown in the chart include This chart, which is a logarithmic
reinvested distributions, applicable chart, presents the fluctuations in the
sales charges, Fund expenses and value of the Fund and its indexes. We
management fees. Index results include believe that a logarithmic chart is more
reinvested dividends, but they do not effective than other types of charts in
reflect sales charges. Performance of an illustrating changes in value during the
index of funds reflects fund expenses early years shown in the chart. The
and management fees; performance of a vertical axis, the one that indicates
market index does not. Performance shown the dollar value of an investment, is
in the chart and table(s) does not constructed with each segment
reflect deduction of taxes a shareholder representing a percent change in the
would pay on Fund distributions or sale value of the investment. In this chart,
of Fund shares. Performance of the each segment represents a doubling, or
indexes does not reflect the effects of 100% change, in the value of the
taxes. investment. In other words, the space
between $10,000 and $20,000 is the same
size as the space between $20,000 and
$40,000, the space between $20,000 and
$40,000 is the same as that between
$40,000 and $80,000, and so on.
</Table>
6
AIM WEINGARTEN FUND
<Table>
<Caption>
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/05, including applicable As of 9/30/05, most recent calendar 6 months ended 10/31/05, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 10.44%
Inception (6/17/69) 11.40% CLASS A SHARES Class B Shares 9.97
10 Years 2.85 Inception (6/17/69) 11.46% Class C Shares 9.96
5 Years -12.00 10 Years 2.69 Class R Shares 10.17
1 Year 5.58 5 Years -13.50 ========================================
1 Year 8.57
CLASS B SHARES
Inception (6/26/95) 3.62% CLASS B SHARES
10 Years 2.81 Inception (6/26/95) 3.74%
5 Years -11.92 10 Years 2.65
1 Year 5.97 5 Years -13.42
1 Year 9.13
CLASS C SHARES
Inception (8/4/97) -1.42% CLASS C SHARES
5 Years -11.63 Inception (8/4/97) -1.32%
1 Year 9.96 5 Years -13.13
1 Year 13.11
CLASS R SHARES
10 Years 3.21% CLASS R SHARES
5 Years -11.20 10 Years 3.06%
1 Year 11.37 5 Years -12.70
1 Year 14.76
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE FORMANCE. PERFORMANCE FIGURES REFLECT BEGINNING OF THE SEVENTH YEAR. THE CDSC
3, 2002. RETURNS SINCE THAT DATE ARE REINVESTED DISTRIBUTIONS, CHANGES IN NET ON CLASS C SHARES IS 1% FOR THE FIRST
HISTORICAL RETURNS. ALL OTHER RETURNS ASSET VALUE AND THE EFFECT OF THE YEAR AFTER PURCHASE. CLASS R SHARES DO
ARE BLENDED RETURNS OF HISTORICAL CLASS MAXIMUM SALES CHARGE UNLESS OTHERWISE NOT HAVE A FRONT-END SALES CHARGE;
R SHARE PERFORMANCE AND RESTATED CLASS A STATED. INVESTMENT RETURN AND PRINCIPAL RETURNS SHOWN ARE AT NET ASSET VALUE AND
SHARE PERFORMANCE (FOR PERIODS PRIOR TO VALUE WILL FLUCTUATE SO THAT YOU MAY DO NOT REFLECT A 0.75% CDSC THAT MAY BE
THE INCEPTION DATE OF CLASS R SHARES) AT HAVE A GAIN OR LOSS WHEN YOU SELL IMPOSED ON A TOTAL REDEMPTION OF
NET ASSET VALUE, ADJUSTED TO REFLECT THE SHARES. RETIREMENT PLAN ASSETS WITHIN THE FIRST
HIGHER RULE 12B-1 FEES APPLICABLE TO YEAR.
CLASS R SHARES. CLASS A SHARE PERFORMANCE REFLECTS
THE MAXIMUM 5.50% SALES CHARGE, AND THE PERFORMANCE OF THE FUND'S SHARE
THE PERFORMANCE DATA QUOTED REPRESENT CLASS B AND CLASS C SHARE PERFORMANCE CLASSES WILL DIFFER DUE TO DIFFERENT
PAST PERFORMANCE AND CANNOT GUARANTEE REFLECTS THE APPLICABLE CONTINGENT SALES CHARGE STRUCTURES AND CLASS
COMPARABLE FUTURE RESULTS; CURRENT DEFERRED SALES CHARGE (CDSC) FOR THE EXPENSES.
PERFORMANCE MAY BE LOWER OR HIGHER. PERIOD INVOLVED. THE CDSC ON CLASS B
PLEASE VISIT AIMinvestments.com FOR THE SHARES DECLINES FROM 5% BEGINNING AT THE
MOST RECENT MONTH-END PER- TIME OF PURCHASE TO 0% AT THE
</Table>
7
AIM WEINGARTEN FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AND
SUMMARY OF INDEPENDENT WRITTEN FEE EVALUATION
<Table>
<Caption>
The Board of Trustees of AIM Equity services to be provided by AIM was o Expense limitations and fee waivers.
Funds (the "Board") oversees the appropriate and that AIM currently is The Board noted that AIM has
management of AIM Weingarten Fund (the providing satisfactory services in contractually agreed to waive advisory
"Fund") and, as required by law, accordance with the terms of the fees of the Fund through December
determines annually whether to approve Advisory Agreement. 31, 2009 to the extent necessary so that
the continuance of the Fund's advisory the advisory fees payable by the Fund do
agreement with A I M Advisors, Inc. o The performance of the Fund relative not exceed a specified maximum advisory
("AIM"). Based upon the recommendation to comparable funds. The Board reviewed fee rate, which maximum rate includes
of the Investments Committee of the the performance of the Fund during the breakpoints and is based on net asset
Board, which is comprised solely of past one, three and five calendar years levels. The Board considered the
independent trustees, at a meeting held against the performance of funds advised contractual nature of this fee waiver
on June 30, 2005, the Board, including by other advisors with investment and noted that it remains in effect
all of the independent trustees, strategies comparable to those of the until December 31, 2009. The Board
approved the continuance of the advisory Fund. The Board noted that the Fund's considered the effect this fee waiver
agreement (the "Advisory Agreement") performance was above the median would have on the Fund's estimated
between the Fund and AIM for another performance of such comparable funds for expenses and concluded that the levels
year, effective July 1, 2005. the one year period and below such of fee waivers/expense limitations for
median performance for the three and the Fund were fair and reasonable.
The Board considered the factors five year periods. Based on this review,
discussed below in evaluating the the Board concluded that no changes o Breakpoints and economies of scale.
fairness and reasonableness of the should be made to the Fund and that it The Board reviewed the structure of the
Advisory Agreement at the meeting on was not necessary to change the Fund's Fund's advisory fee under the Advisory
June 30, 2005 and as part of the Board's portfolio management team at this time. Agreement, noting that it includes two
ongoing oversight of the Fund. In their breakpoints. The Board reviewed the
deliberations, the Board and the o The performance of the Fund relative level of the Fund's advisory fees, and
independent trustees did not identify to indices. The Board reviewed the noted that such fees, as a percentage of
any particular factor that was performance of the Fund during the past the Fund's net assets, have decreased as
controlling, and each trustee attributed one, three and five calendar years net assets increased because the
different weights to the various against the performance of the Lipper Advisory Agreement includes breakpoints.
factors. Large Cap Growth Index. The Board noted The Board noted that AIM has
that the Fund's performance was contractually agreed to waive advisory
One of the responsibilities of the comparable to the performance of such fees of the Fund through December
Senior Officer of the Fund, who is Index for the one year period and below 31, 2009 to the extent necessary so that
independent of AIM and AIM's affiliates, such Index for the three and five year the advisory fees payable by the Fund do
is to manage the process by which the periods. Based on this review, the Board not exceed a specified maximum advisory
Fund's proposed management fees are concluded that no changes should be made fee rate, which maximum rate includes
negotiated to ensure that they are to the Fund and that it was not breakpoints and is based on net asset
negotiated in a manner which is at arm's necessary to change the Fund's portfolio levels. The Board concluded that the
length and reasonable. To that end, the management team at this time. Fund's fee levels under the Advisory
Senior Officer must either supervise a Agreement therefore reflect economies of
competitive bidding process or prepare o Meeting with the Fund's portfolio scale and that it was not necessary to
an independent written evaluation. The managers and investment personnel. With change the advisory fee breakpoints in
Senior Officer has recommended an respect to the Fund, the Board is the Fund's advisory fee schedule.
independent written evaluation in lieu meeting periodically with such Fund's
of a competitive bidding process and, portfolio managers and/or other o Investments in affiliated money market
upon the direction of the Board, has investment personnel and believes that funds. The Board also took into account
prepared such an independent written such individuals are competent and able the fact that uninvested cash and cash
evaluation. Such written evaluation also to continue to carry out their collateral from securities lending
considered certain of the factors responsibilities under the Advisory arrangements (collectively, "cash
discussed below. In addition, as Agreement. balances") of the Fund may be invested
discussed below, the Senior Officer made in money market funds advised by AIM
certain recommendations to the Board in o Overall performance of AIM. The Board pursuant to the terms of an SEC
connection with such written evaluation. considered the overall performance of exemptive order. The Board found that
AIM in providing investment advisory and the Fund may realize certain benefits
The discussion below serves as a portfolio administrative services to the upon investing cash balances in AIM
summary of the Senior Officer's Fund and concluded that such performance advised money market funds, including a
independent written evaluation and was satisfactory. higher net return, increased liquidity,
recommendations to the Board in increased diversification or decreased
connection therewith, as well as a o Fees relative to those of clients of transaction costs. The Board also found
discussion of the material factors and AIM with comparable investment that the Fund will not receive reduced
the conclusions with respect thereto strategies. The Board reviewed the services if it invests its cash balances
that formed the basis for the Board's advisory fee rate for the Fund under the in such money market funds. The Board
approval of the Advisory Agreement. Advisory Agreement. The Board noted noted that, to the extent the Fund
After consideration of all of the that, based on the Fund's current assets invests in affiliated money market
factors below and based on its informed and taking account of the breakpoints in funds, AIM has voluntarily agreed to
business judgment, the Board determined the Fund's advisory fee schedule, this waive a portion of the advisory fees it
that the Advisory Agreement is in the rate was comparable to the advisory fee receives from the Fund attributable to
best interests of the Fund and its rates for a variable insurance fund such investment. The Board further
shareholders and that the compensation advised by AIM and offered to insurance determined that the proposed securities
to AIM under the Advisory Agreement is company separate accounts with lending program and related procedures
fair and reasonable and would have been investment strategies comparable to with respect to the lending Fund is in
obtained through arm's length those of the Fund. The Board noted that the best interests of the lending Fund
negotiations. AIM has agreed to waive advisory fees of and its respective shareholders. The
the Fund, as discussed below. Based on Board therefore concluded that the
o The nature and extent of the advisory this review, the Board concluded that investment of cash collateral received
services to be provided by AIM. The the advisory fee rate for the Fund under in connection with the securities
Board reviewed the services to be the Advisory Agreement was fair and lending program in the money market
provided by AIM under the Advisory reasonable. funds according to the procedures is in
Agreement. Based on such review, the the best interests of the lending Fund
Board concluded that the range of o Fees relative to those of comparable and its respective shareholders.
services to be provided by AIM under the funds with other advisors. The Board
Advisory Agreement was appropriate and reviewed the advisory fee rate for the o Independent written evaluation and
that AIM currently is providing services Fund under the Advisory Agreement. The recommendations of the Fund's Senior
in accordance with the terms of the Board compared effective contractual Officer. The Board noted that, upon
Advisory Agreement. advisory fee rates at a common asset their direction, the Senior Officer of
level and noted that the Fund's rate was the Fund, who is independent of AIM and
o The quality of services to be provided comparable to the median rate of the AIM's affiliates, had prepared an
by AIM. The Board reviewed the funds advised by other advisors with independent written evaluation in order
credentials and experience of the investment strategies comparable to to assist the Board in determining the
officers and employees of AIM who will those of the Fund that the Board reasonableness of the proposed
provide investment advisory services to reviewed. The Board noted that AIM has management fees of the AIM Funds,
the Fund. In reviewing the agreed to waive advisory fees of the including the Fund. The Board noted that
qualifications of AIM to provide Fund, as discussed below. Based on this the Senior Officer's written evaluation
investment advisory services, the Board review, the Board concluded that the had been relied upon by the Board in
reviewed the qualifications of AIM's advisory fee rate for the Fund under the this regard in lieu of a competitive
investment personnel and considered such Advisory Agreement was fair and bidding process. In determining whether
issues as AIM's portfolio and product reasonable. to continue
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
(continued)
</Table>
8
AIM WEINGARTEN FUND
<Table>
<Caption>
the Advisory Agreement for the Fund, the including maintaining an internal the one year period and below such
Board considered the Senior Officer's controls committee and retaining an median performance for the three and
written evaluation and the independent compliance consultant, and five year periods. Based on this review,
recommendation made by the Senior the fact that AIM has undertaken to the Board concluded that no changes
Officer to the Board that the Board cause the Fund to operate in accordance should be made to the Fund and that it
consider implementing a process to with certain governance policies and was not necessary to change the Fund's
assist them in more closely monitoring practices. The Board concluded that portfolio management team at this time.
the performance of the AIM Funds. The these actions indicated a good faith
Board concluded that it would be effort on the part of AIM to adhere to o The performance of the Fund relative
advisable to implement such a process as the highest ethical standards, and to indices. The Board reviewed the
soon as reasonably practicable. determined that the current regulatory performance of the Fund during the past
and litigation environment to which AIM one, three and five calendar years
o Profitability of AIM and its is subject should not prevent the Board against the performance of the Lipper
affiliates. The Board reviewed from continuing the Advisory Agreement Large Cap Growth Index. The Board noted
information concerning the profitability for the Fund. that the Fund's performance was
of AIM's (and its affiliates') comparable to the performance of such
investment advisory and other activities APPROVAL OF SUB-ADVISORY AGREEMENT Index for the one year period and below
and its financial condition. The Board such Index for the three and five year
considered the overall profitability of The Board oversees the management of the periods. Based on this review, the Board
AIM, as well as the profitability of AIM Fund and, as required by law, determines concluded that no changes should be made
in connection with managing the Fund. annually whether to approve the to the Fund and that it was not
The Board noted that AIM's operations continuance of the Fund's sub-advisory necessary to change the Fund's portfolio
remain profitable, although increased agreement. Based upon the recommendation management team at this time.
expenses in recent years have reduced of the Investments Committee of the
AIM's profitability. Based on the review Board, which is comprised solely of o Meetings with the Fund's portfolio
of the profitability of AIM's and its independent trustees, at a meeting held managers and investment personnel. The
affiliates' investment advisory and on June 30, 2005, the Board, including Board is meeting periodically with the
other activities and its financial all of the independent trustees, Fund's portfolio managers and/or other
condition, the Board concluded that the approved the continuance of the investment personnel and believes that
compensation to be paid by the Fund to sub-advisory agreement (the such individuals are competent and able
AIM under its Advisory Agreement was not "Sub-Advisory Agreement") between A I M to continue to carry out
excessive. Capital Management, Inc. (the their responsibilities under the
"Sub-Advisor") and AIM with respect to Sub-Advisory Agreement.
o Benefits of soft dollars to AIM. The the Fund for another year, effective
Board considered the benefits realized July 1, 2005. o Overall performance of the
by AIM as a result of brokerage Sub-Advisor. The Board considered the
transactions executed through "soft The Board considered the factors overall performance of the Sub-Advisor
dollar" arrangements. Under these discussed below in evaluating the in providing investment advisory
arrangements, brokerage commissions paid fairness and reasonableness of the services to the Fund and concluded that
by the Fund and/or other funds advised Sub-Advisory Agreement at the meeting on such performance was satisfactory.
by AIM are used to pay for research and June 30, 2005 and as part of the Board's
execution services. This research is ongoing oversight of the Fund. In their o Advisory fees, expense limitations and
used by AIM in making investment deliberations, the Board and the fee waivers, and breakpoints and
decisions for the Fund. The Board independent trustees did not identify economies of scale. In reviewing these
concluded that such arrangements were any particular factor that was factors, the Board considered only the
appropriate. controlling, and each trustee attributed advisory fees charged to the Fund by AIM
different weights to the various and did not consider the sub-advisory
o AIM's financial soundness in light of factors. fees paid by AIM to the Sub-Advisor. The
the Fund's needs. The Board considered Board believes that this approach is
whether AIM is financially sound and has The discussion below serves as a appropriate because the sub-advisory
the resources necessary to perform its discussion of the material factors and fees have no effect on the Fund or its
obligations under the Advisory the conclusions with respect thereto shareholders, as they are paid by AIM
Agreement, and concluded that AIM has that formed the basis for the Board's rather than the Fund. Furthermore, AIM
the financial resources necessary to approval of the Sub-Advisory Agreement. and the Sub-Advisor are affiliates and
fulfill its obligations under the After consideration of all of the the Board believes that the allocation
Advisory Agreement. factors below and based on its informed of fees between them is a business
business judgment, the Board determined matter, provided that the advisory fees
o Historical relationship between the that the Sub-Advisory Agreement is in charged to the Fund are fair and
Fund and AIM. In determining whether to the best interests of the Fund and its reasonable.
continue the Advisory Agreement for the shareholders.
Fund, the Board also considered the o Profitability of AIM and its
prior relationship between AIM and the o The nature and extent of the advisory affiliates. The Board reviewed
Fund, as well as the Board's knowledge services to be provided by the information concerning the profitability
of AIM's operations, and concluded that Sub-Advisor. Board reviewed the services of AIM's (and its affiliates')
it was beneficial to maintain the to be provided by the Sub-Advisor under investment advisory and other activities
current relationship, in part, because the Sub-Advisory Agreement. Based on and its financial condition. The Board
of such knowledge. The Board also such review, the Board concluded that considered the overall profitability of
reviewed the general nature of the the range of services to be provided by AIM, as well as the profitability of AIM
non-investment advisory services the Sub-Advisor under the Sub-Advisory in connection with managing the Fund.
currently performed by AIM and its Agreement was appropriate and that the The Board noted that AIM's operations
affiliates, such as administrative, Sub-Advisor currently is providing remain profitable, although increased
transfer agency and distribution services in accordance with the terms of expenses in recent years have reduced
services, and the fees received by AIM the Sub-Advisory Agreement. AIM's profitability. Based on the review
and its affiliates for performing such of the profitability of AIM's and its
services. In addition to reviewing such o The quality of services to be provided affiliates' investment advisory and
services, the trustees also considered by the Sub-Advisor. The Board reviewed other activities and its financial
the organizational structure employed by the credentials and experience of the condition, the Board concluded that the
AIM and its affiliates to provide those officers and employees of the compensation to be paid by the Fund to
services. Based on the review of these Sub-Advisor who will provide investment AIM under its Advisory Agreement was not
and other factors, the Board concluded advisory services to the Fund. Based on excessive.
that AIM and its affiliates were the review of these and other factors,
qualified to continue to provide the Board concluded that the quality of o The Sub-Advisor's financial soundness
non-investment advisory services to the services to be provided by the in light of the Fund's needs. The Board
Fund, including administrative, transfer Sub-Advisor was appropriate, and that considered whether the Sub-Advisor is
agency and distribution services, and the Sub-Advisor currently is providing financially sound and has the resources
that AIM and its affiliates currently satisfactory services in accordance with necessary to perform its obligations
are providing satisfactory the terms of the Sub-Advisory Agreement. under the Sub-Advisory Agreement, and
non-investment advisory services. concluded that the Sub-Advisor has the
o The performance of the Fund relative financial resources necessary to fulfill
o Other factors and current trends. In to comparable funds. The Board reviewed its obligations under the Sub-Advisory
determining whether to continue the the performance of the Fund during the Agreement.
Advisory Agreement for the Fund, the past one, three and five calendar years
Board considered the fact that AIM, against the performance of funds advised
along with others in the mutual fund by other advisors with investment
industry, is subject to regulatory strategies comparable to those of the
inquiries and litigation related to a Fund. The Board noted that the Fund's
wide range of issues. The Board also performance was above the median
considered the governance and compliance performance of such comparable funds for
reforms being undertaken by AIM and its
affiliates,
</Table>
9
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/05
AIM WEINGARTEN FUND
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE
For periods ended 10/31/05 IS NOT INDICATIVE OF FUTURE RESULTS.
The following information has been MORE RECENT RETURNS MAY BE MORE OR LESS
prepared to provide Institutional Class Inception (10/8/91) 6.23% THAN THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview 10 Years 3.94 REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 5 Years -10.49 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered 1 Year 12.33 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, 6 Months* 10.68 SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. ======================================== FULL REPORT FOR INFORMATION ON
COMPARATIVE BENCHMARKS. PLEASE CONSULT
AVERAGE ANNUAL TOTAL RETURNS YOUR FUND PROSPECTUS FOR MORE
For periods ended 9/30/05, most recent INFORMATION. FOR THE MOST CURRENT
calendar quarter-end MONTH-END PERFORMANCE, PLEASE CALL
800-451-4246 OR VISIT
Inception (10/8/91) 6.33% AIMINVESTMENTS.COM.
10 Years 3.78
5 Years -12.02
1 Year 15.54
6 Months* 7.37
* Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES HAVE NO SALES
CHARGE; THEREFORE, PERFORMANCE IS AT NET
ASSET VALUE (NAV). PERFORMANCE OF
INSTITUTIONAL CLASS SHARES WILL DIFFER
FROM PERFORMANCE OF OTHER SHARE CLASS-
ES DUE TO DIFFERING SALES CHARGES AND
CLASS EXPENSES.
========================================
NASDAQ SYMBOL IWEIX
========================================
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.
[YOUR GOALS.
OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
- REGISTERED TRADEMARK - - REGISTERED TRADEMARK -
AIMINVESTMENTS.COM WEI-INS-1
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE divide your account value by $1,000 (for The hypothetical account values
example, an $8,600 account value divided and expenses may not be used to estimate
As a shareholder of the Fund, you incur by $1,000 = 8.6), then multiply the the actual ending account balance or
ongoing costs, including management result by the number in the table under expenses you paid for the period. You
fees and other Fund expenses. This the heading entitled "Actual Expenses may use this information to compare the
example is intended to help you Paid During Period" to estimate the ongoing costs of investing in the Fund
understand your ongoing costs (in expenses you paid on your account during and other funds. To do so, compare this
dollars) of investing in the Fund and to this period. 5% hypothetical example with the 5%
compare these costs with ongoing costs hypothetical examples that appear in the
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
example is based on an investment of PURPOSES
$1,000 invested at the beginning of the Please note that the expenses
period and held for the entire period The table below also provides shown in the table are meant to
May 1, 2005, through October 31, 2005. information about hypothetical account highlight your ongoing costs only.
values and hypothetical expenses based Therefore, the hypothetical informa-
ACTUAL EXPENSES on the Fund's actual expense ratio and tion is useful in comparing ongoing
an assumed rate of return of 5% per year costs only, and will not help you
The table below provides information before expenses, which is not the Fund's determine the relative total costs of
about actual account values and actual actual return. The Fund's actual cumu- owning different funds.
expenses. You may use the information in lative total return after expenses for
this table, together with the amount you the six months ended October 31, 2005,
invested, to estimate the expenses that appears in the table on the front of
you paid over the period. Simply this supplement.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (5/1/05) (10/31/05)(1) PERIOD(2) (10/31/05) PERIOD(2) RATIO
Institutional $ 1,000.00 $ 1,106.80 $ 4.25 $ 1,021.17 $4.08 0.80%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2005, through October 31,
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 October 31, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the one-half year period.
====================================================================================================================================
AIMINVESTMENTS.COM WEI-INS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2005
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-99.78%
AEROSPACE & DEFENSE-3.64%
Boeing Co. (The) 575,000 $ 37,168,000
- --------------------------------------------------------------------------
General Dynamics Corp. 215,000 25,004,500
- --------------------------------------------------------------------------
Precision Castparts Corp. 495,259 23,455,466
==========================================================================
85,627,966
==========================================================================
APPAREL RETAIL-1.05%
Chico's FAS, Inc.(a) 625,000 24,712,500
==========================================================================
APPLICATION SOFTWARE-1.91%
Amdocs Ltd.(a) 1,700,000 44,999,000
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.96%
Legg Mason, Inc. 210,000 22,535,100
==========================================================================
BIOTECHNOLOGY-4.24%
Amgen Inc.(a) 550,000 41,668,000
- --------------------------------------------------------------------------
Genzyme Corp.(a) 315,000 22,774,500
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 750,000 35,437,500
==========================================================================
99,880,000
==========================================================================
BROADCASTING & CABLE TV-0.67%
XM Satellite Radio Holdings Inc.-Class
A(a)(b) 550,000 15,856,500
==========================================================================
COMMUNICATIONS EQUIPMENT-3.91%
Cisco Systems, Inc.(a) 1,400,000 24,430,000
- --------------------------------------------------------------------------
QUALCOMM Inc. 1,700,000 67,592,000
==========================================================================
92,022,000
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.01%
Best Buy Co., Inc. 540,000 23,900,400
==========================================================================
COMPUTER HARDWARE-3.37%
Apple Computer, Inc.(a) 825,000 47,511,750
- --------------------------------------------------------------------------
Dell Inc.(a) 1,000,000 31,880,000
==========================================================================
79,391,750
==========================================================================
COMPUTER STORAGE & PERIPHERALS-2.06%
EMC Corp.(a) 3,475,000 48,511,000
==========================================================================
CONSUMER FINANCE-0.77%
American Express Co. 365,000 18,166,050
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.45%
Alliance Data Systems Corp.(a) 300,000 10,668,000
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DEPARTMENT STORES-3.24%
Federated Department Stores, Inc. 275,000 $ 16,876,750
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 500,000 25,600,000
- --------------------------------------------------------------------------
Nordstrom, Inc. 975,000 33,783,750
==========================================================================
76,260,500
==========================================================================
DIVERSIFIED BANKS-1.33%
Kookmin Bank (South Korea)(c) 220,000 12,646,988
- --------------------------------------------------------------------------
Bank of America Corp. 425,000 18,589,500
==========================================================================
31,236,488
==========================================================================
DIVERSIFIED CHEMICALS-0.50%
Dow Chemical Co. (The) 255,000 11,694,300
==========================================================================
DRUG RETAIL-0.93%
CVS Corp. 900,000 21,969,000
==========================================================================
FOOTWEAR-1.02%
NIKE, Inc.-Class B 285,000 23,954,250
==========================================================================
GENERAL MERCHANDISE STORES-1.65%
Target Corp. 700,000 38,983,000
==========================================================================
HEALTH CARE EQUIPMENT-1.16%
Bard (C.R.), Inc. 255,000 15,906,900
- --------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 250,000 11,390,000
==========================================================================
27,296,900
==========================================================================
HEALTH CARE FACILITIES-1.25%
HCA Inc. 610,000 29,395,900
==========================================================================
HEALTH CARE SERVICES-1.28%
Caremark Rx, Inc.(a) 575,000 30,130,000
==========================================================================
HEALTH CARE SUPPLIES-2.12%
Alcon, Inc. (Switzerland) 375,000 49,837,500
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.66%
Electronic Arts Inc.(a) 275,000 15,642,000
==========================================================================
HOME IMPROVEMENT RETAIL-1.96%
Home Depot, Inc. (The) 1,125,000 46,170,000
==========================================================================
HOUSEHOLD PRODUCTS-1.62%
Procter & Gamble Co. (The) 682,500 38,213,175
==========================================================================
HOUSEWARES & SPECIALTIES-0.73%
Fortune Brands, Inc. 225,000 17,093,250
==========================================================================
</Table>
F-1
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-2.77%
Textron Inc. 350,000 $ 25,214,000
- --------------------------------------------------------------------------
Tyco International Ltd. 1,520,000 40,112,800
==========================================================================
65,326,800
==========================================================================
INTEGRATED OIL & GAS-2.75%
ConocoPhillips 600,000 39,228,000
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 325,000 25,636,000
==========================================================================
64,864,000
==========================================================================
INTERNET RETAIL-2.28%
Amazon.com, Inc.(a) 550,000 21,934,000
- --------------------------------------------------------------------------
eBay Inc.(a) 800,000 31,680,000
==========================================================================
53,614,000
==========================================================================
INTERNET SOFTWARE & SERVICES-4.80%
Google Inc.-Class A(a) 125,000 46,517,500
- --------------------------------------------------------------------------
Yahoo! Inc.(a) 1,800,000 66,546,000
==========================================================================
113,063,500
==========================================================================
INVESTMENT BANKING & BROKERAGE-5.24%
Goldman Sachs Group, Inc. (The) 545,000 68,871,650
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 300,000 35,901,000
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 1,225,000 18,620,000
==========================================================================
123,392,650
==========================================================================
MANAGED HEALTH CARE-5.99%
Aetna Inc. 815,000 72,176,400
- --------------------------------------------------------------------------
CIGNA Corp. 318,000 36,846,660
- --------------------------------------------------------------------------
WellPoint, Inc.(a) 430,000 32,112,400
==========================================================================
141,135,460
==========================================================================
MOVIES & ENTERTAINMENT-0.52%
Pixar(a) 240,000 12,175,200
==========================================================================
MULTI-LINE INSURANCE-1.07%
Hartford Financial Services Group, Inc. (The) 315,000 25,121,250
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.10%
BJ Services Co. 1,200,000 41,700,000
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 500,000 31,235,000
==========================================================================
72,935,000
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.54%
Burlington Resources Inc. 175,000 12,638,500
==========================================================================
OIL & GAS REFINING & MARKETING-1.34%
Valero Energy Corp. 300,000 31,572,000
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
PHARMACEUTICALS-6.19%
Novartis A.G.-ADR (Switzerland) 575,000 $ 30,946,500
- --------------------------------------------------------------------------
Roche Holding A.G. (Switzerland) 240,000 35,858,966
- --------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(b) 500,000 17,920,000
- --------------------------------------------------------------------------
Johnson & Johnson 975,000 61,054,500
==========================================================================
145,779,966
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.01%
Allstate Corp. (The) 450,000 23,755,500
==========================================================================
RAILROADS-0.88%
Burlington Northern Santa Fe Corp. 335,000 20,790,100
==========================================================================
RESTAURANTS-1.03%
YUM! Brands, Inc. 475,000 24,163,250
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.74%
KLA-Tencor Corp. 375,000 17,358,750
==========================================================================
SEMICONDUCTORS-8.27%
Marvell Technology Group Ltd. (Singapore)(a) 575,000 26,685,750
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 3,070,900 24,812,872
- --------------------------------------------------------------------------
Analog Devices, Inc. 1,700,000 59,126,000
- --------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B(a) 875,000 20,895,000
- --------------------------------------------------------------------------
Microchip Technology Inc. 1,050,000 31,678,500
- --------------------------------------------------------------------------
National Semiconductor Corp. 1,400,000 31,682,000
==========================================================================
194,880,122
==========================================================================
SPECIALIZED FINANCE-0.85%
Chicago Mercantile Exchange Holdings Inc. 55,000 20,083,250
==========================================================================
SPECIALTY CHEMICALS-0.83%
Rohm and Haas Co. 450,000 19,588,500
==========================================================================
SPECIALTY STORES-1.52%
Office Depot, Inc.(a) 1,300,000 35,789,000
==========================================================================
SYSTEMS SOFTWARE-3.63%
Oracle Corp.(a) 3,425,000 43,429,000
- --------------------------------------------------------------------------
Symantec Corp.(a) 1,765,000 42,095,250
==========================================================================
85,524,250
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.94%
MGIC Investment Corp. 375,000 22,215,000
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,894,305,723) 2,349,912,577
==========================================================================
</Table>
F-2
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-0.51%
Liquid Assets Portfolio-Institutional
Class(d) 6,032,595 $ 6,032,595
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 6,032,595 6,032,595
==========================================================================
Total Money Market Funds (Cost
$12,065,190) 12,065,190
==========================================================================
TOTAL INVESTMENTS-100.29% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,906,370,913) 2,361,977,767
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
MONEY MARKET FUNDS-0.75%
Liquid Assets Portfolio-Institutional
Class(d)(e) 17,633,925 $ 17,633,925
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $17,633,925) 17,633,925
==========================================================================
TOTAL INVESTMENTS-101.04% (Cost
$1,924,004,838) 2,379,611,692
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.04%) (24,486,627)
==========================================================================
NET ASSETS-100.00% $2,355,125,065
__________________________________________________________________________
==========================================================================
</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 October 31, 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
value of this security at October 31, 2005 represented 0.54% of the Fund's
Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(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 to Financial Statements which are an integral part of the
financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
<Table>
ASSETS:
Investments, at value (cost $1,894,305,723)* $2,349,912,577
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $29,699,115) 29,699,115
============================================================
Total Investments (Cost $1,924,004,838) 2,379,611,692
============================================================
Receivables for:
Investments sold 39,992,832
- ------------------------------------------------------------
Fund shares sold 539,346
- ------------------------------------------------------------
Dividends 1,248,556
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 259,575
- ------------------------------------------------------------
Other assets 101,428
============================================================
Total assets 2,421,753,429
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 40,143,507
- ------------------------------------------------------------
Fund shares reacquired 5,486,411
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 590,292
- ------------------------------------------------------------
Collateral upon return of securities
loaned 17,633,925
- ------------------------------------------------------------
Accrued distribution fees 855,161
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 5,031
- ------------------------------------------------------------
Accrued transfer agent fees 1,323,604
- ------------------------------------------------------------
Accrued operating expenses 590,433
============================================================
Total liabilities 66,628,364
============================================================
Net assets applicable to shares outstanding $2,355,125,065
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $5,054,539,780
- ------------------------------------------------------------
Undistributed net investment income (loss) (531,198)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (3,154,490,371)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 455,606,854
============================================================
$2,355,125,065
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,720,672,237
____________________________________________________________
============================================================
Class B $ 511,024,311
____________________________________________________________
============================================================
Class C $ 119,790,779
____________________________________________________________
============================================================
Class R $ 1,855,933
____________________________________________________________
============================================================
Institutional Class $ 1,781,805
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 128,158,915
____________________________________________________________
============================================================
Class B 41,761,379
____________________________________________________________
============================================================
Class C 9,781,712
____________________________________________________________
============================================================
Class R 139,293
____________________________________________________________
============================================================
Institutional Class 124,613
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 13.43
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $13.43 divided by
94.50%) $ 14.21
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 12.24
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 12.25
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 13.32
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 14.30
____________________________________________________________
============================================================
</Table>
* At October 31, 2005, securities with an aggregate value of $17,453,893 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended October 31, 2005
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $110,467) $ 19,591,116
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $74,827, less compensation to
counterparties of $1,372,436) 373,045
==========================================================================
Total investment income 19,964,161
==========================================================================
EXPENSES:
Advisory fees 14,894,347
- --------------------------------------------------------------------------
Administrative services fees 489,142
- --------------------------------------------------------------------------
Custodian fees 176,622
- --------------------------------------------------------------------------
Distribution fees:
Class A 5,000,109
- --------------------------------------------------------------------------
Class B 4,434,705
- --------------------------------------------------------------------------
Class C 890,560
- --------------------------------------------------------------------------
Class R 8,489
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 8,946,794
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 1,806
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 101,591
- --------------------------------------------------------------------------
Other 870,972
==========================================================================
Total expenses 35,815,137
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (379,260)
==========================================================================
Net expenses 35,435,877
==========================================================================
Net investment income (loss) (15,471,716)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(2,661,214)) 355,774,364
- --------------------------------------------------------------------------
Foreign currencies 109,924
- --------------------------------------------------------------------------
Option contracts written 2,439,287
==========================================================================
358,323,575
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (97,738,530)
- --------------------------------------------------------------------------
Option contracts written (157,245)
==========================================================================
(97,895,775)
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 260,427,800
==========================================================================
Net increase in net assets resulting from operations $244,956,084
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2005 and 2004
<Table>
<Caption>
2005 2004
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (15,471,716) $ (21,767,576)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 358,323,575 236,255,314
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (97,895,775) (114,821,148)
==============================================================================================
Net increase in net assets resulting from operations 244,956,084 99,666,590
==============================================================================================
Share transactions-net:
Class A (320,580,173) (395,056,301)
- ----------------------------------------------------------------------------------------------
Class B 35,550,092 (138,803,397)
- ----------------------------------------------------------------------------------------------
Class C 34,112,393 (15,793,039)
- ----------------------------------------------------------------------------------------------
Class R 231,144 1,126,374
- ----------------------------------------------------------------------------------------------
Institutional Class (187,992) (547,138)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (250,874,536) (549,073,501)
==============================================================================================
Net increase (decrease) in net assets (5,918,452) (449,406,911)
==============================================================================================
NET ASSETS:
Beginning of year 2,361,043,517 2,810,450,428
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(531,198) and $(484,385), respectively) $2,355,125,065 $2,361,043,517
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
October 31, 2005
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 eleven 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.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The 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 are 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-7
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to use a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, 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.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. 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.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. 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
F-8
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.
J. 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.
K. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund 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>
Under the terms of a master sub-advisory agreement between AIM and A I M
Capital Management, Inc. ("AIM Capital"), AIM paid AIM Capital 50% of the amount
paid by the Fund to AIM. Effective October 31, 2005, the master sub-advisory
agreement between AIM and AIM Capital was terminated.
Effective July 18, 2005, AIM 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 1.90%, 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 numbers reflected above: (i) interest;
(ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the expense offset arrangements from which the Fund may benefit are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. AIM did not waive
fees and/or reimburse expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the year ended October 31, 2005, AIM waived fees of $159,568.
F-9
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. These expenses along with the related expense
reimbursement are included in the Statement of Operations. For the year ended
October 31, 2005, AMVESCAP reimbursed expenses of the Fund in the amount of
$152,501.
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 year ended
October 31, 2005, AIM was paid $489,142.
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 year ended October 31, 2005, the
Fund paid AISI $8,946,794 for Class A, Class B, Class C and Class R share
classes and $1,806 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. Prior to July 1, 2005, the Fund paid ADI
0.30% of the average daily net assets of Class A 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. National Association of Securities
Dealers ("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, 2005, the Class A, Class
B, Class C and Class R shares paid $5,000,109, $4,434,705, $890,560 and $8,489,
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, 2005, ADI advised the Fund that it retained $170,928 in
front-end sales commissions from the sale of Class A shares and $3,305,
$215,389, $11,937 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.
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, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,546,085 $ 380,373,320 $ (380,886,810) $ -- $ 6,032,595 $148,749 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,546,085 380,373,320 (380,886,810) -- 6,032,595 149,469 --
==================================================================================================================================
Subtotal $13,092,170 $ 760,746,640 $ (761,773,620) $ -- $12,065,190 $298,218 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 10/31/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 216,548,136 $ (198,914,211) $ -- $17,633,925 $ 23,907 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 40,952,850 430,612,220 (471,565,070) -- -- 50,920 --
==================================================================================================================================
Subtotal $40,952,850 $ 647,160,356 $ (670,479,281) $ -- $17,633,925 $ 74,827 $ --
==================================================================================================================================
Total $54,045,020 $1,407,906,996 $(1,432,252,901) $ -- $29,699,115 $373,045 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of compensation to counterparties.
F-10
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, 2005, the Fund
engaged in securities purchases of $35,918,457 and sales of $13,926,851, which
resulted in net realized gains (losses) of $(2,661,214).
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, 2005, the
Fund received credits from this arrangement which resulted in the reduction of
the Fund's total expenses of $67,191.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended October 31, 2005, the Fund paid legal fees of $9,242
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.
During the year ended October 31, 2005, the average interfund borrowings for
the 20 days the borrowings were outstanding was $6,672,883 with a weighted
average interest rate of 2.60% and interest expense of $9,493.
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 year ended October 31, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the rate contractually agreed upon.
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.
F-11
At October 31, 2005, securities with an aggregate value of $17,453,893 were
on loan to brokers. The loans were secured by cash collateral of $17,633,925
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2005, the Fund received dividends on cash
collateral of $74,827 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of year 3,000 $ 421,040
- --------------------------------------------------------------------------------------
Written 7,793 2,372,514
- --------------------------------------------------------------------------------------
Closed (5,027) (1,689,410)
- --------------------------------------------------------------------------------------
Exercised (924) (132,776)
- --------------------------------------------------------------------------------------
Expired (4,842) (971,368)
======================================================================================
End of year -- $ --
______________________________________________________________________________________
======================================================================================
</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, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2005, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2005
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 451,352,944
- -----------------------------------------------------------------------------
Temporary book/tax differences (531,198)
- -----------------------------------------------------------------------------
Capital loss carryforward (3,150,236,461)
- -----------------------------------------------------------------------------
Shares of beneficial interest 5,054,539,780
=============================================================================
Total net assets $ 2,355,125,065
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the deferral of losses on certain straddle transactions.
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, 2005 to utilizing $2,999,879,894 of capital loss carryforward in the fiscal
year ended October 31, 2006.
The Fund utilized $340,226,136 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, 2005 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2009 $2,188,690,559
- ------------------------------------------------------------------------------
October 31, 2010 764,934,634
- ------------------------------------------------------------------------------
October 31, 2011 196,611,268
==============================================================================
Total capital loss carryforward $3,150,236,461
______________________________________________________________________________
==============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of July 18, 2005, the date of the
reorganization of AIM Dent Demographic Trends 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 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, 2005 was $2,128,877,407 and $2,597,741,956, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $479,101,326
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (27,748,382)
==============================================================================
Net unrealized appreciation of investment securities $451,352,944
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,928,258,748.
</Table>
NOTE 12--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses, capital loss carryforward limitations and
reorganization expenses, on October 31, 2005, undistributed net investment
income increased by $15,483,680, undistributed net realized gain (loss) was
increased by $614,687,916 and shares of beneficial interest decreased by
$630,171,596. Further, as a result of tax deferrals and capital loss
carryforwards acquired in the reorganization of AIM Dent Demographic Trends Fund
into the Fund, undistributed net investment income (loss) was decreased by
$58,777, undistributed net realized gain (loss) was decreased by $788,093,677
and shares of beneficial interest increased by $788,152,454. This
reclassification had no effect on the net assets of the Fund.
F-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
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2005(A) 2004
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,684,595 $ 47,405,672 6,161,430 $ 74,474,713
- ----------------------------------------------------------------------------------------------------------------------------
Class B 1,953,789 23,064,031 2,836,554 31,535,843
- ----------------------------------------------------------------------------------------------------------------------------
Class C 638,971 7,534,486 1,109,204 12,390,482
- ----------------------------------------------------------------------------------------------------------------------------
Class R 43,630 559,768 139,257 1,669,192
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class 15,295 207,637 13,498 172,948
============================================================================================================================
Issued in connection with acquisitions:(b)
Class A 10,994,575 148,017,153 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class B 14,861,652 182,888,810 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Class C 5,026,212 61,895,026 -- --
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,836,412 36,430,722 4,502,782 54,704,748
- ----------------------------------------------------------------------------------------------------------------------------
Class B (3,100,579) (36,430,722) (4,888,349) (54,704,748)
============================================================================================================================
Reacquired:
Class A (42,842,730) (552,433,720) (43,655,916) (524,235,762)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (11,340,321) (133,972,027) (10,449,964) (115,634,492)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (2,976,253) (35,317,119) (2,535,106) (28,183,521)
- ----------------------------------------------------------------------------------------------------------------------------
Class R (25,472) (328,624) (45,049) (542,818)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class (29,171) (395,629) (56,324) (720,086)
============================================================================================================================
(20,259,395) $(250,874,536) (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 owns 16% of
the outstanding shares of the Fund. ADI has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these entities are also owned beneficially.
(b) As of the open of business on July 18, 2005, the Fund acquired all of
the net assets of AIM Dent Demographic Trends Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on March 21, 2005
and AIM Dent Demographic Trends Fund shareholders on June 30, 2005. The
acquisition was accomplished by a tax-free exchange of 30,882,439 shares
of the Fund for 45,436,978 shares of AIM Dent Demographic Trends Fund
outstanding as of the close of business on July 15, 2005. AIM Dent
Demographic Trends Fund's net assets at that date of $392,800,989
including $81,828,660 of unrealized appreciation, were combined with
those of the Fund. The aggregate net assets of the Fund immediately
before the acquisition were $2,162,767,565.
F-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,
---------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.02 $ 11.59 $ 9.47 $ 12.65 $ 28.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a)(b) (0.08)(b) (0.07) (0.07)(b) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.47 0.51 2.19 (3.11) (11.87)
=================================================================================================================================
Total from investment operations 1.41 0.43 2.12 (3.18) (11.97)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.54)
=================================================================================================================================
Net asset value, end of period $ 13.43 $ 12.02 $ 11.59 $ 9.47 $ 12.65
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 11.73% 3.71% 22.39% (25.14)% (47.38)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,720,672 $1,844,930 $2,160,823 $2,104,660 $4,001,552
_________________________________________________________________________________________________________________________________
=================================================================================================================================
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%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.39%(d) 1.40% 1.47% 1.33% 1.22%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.51)%(d) (0.67)% (0.68)% (0.64)% (0.56)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 96% 74% 111% 217% 240%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 (0.61)%, 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.
(d) Ratios are based on average daily net assets of $1,765,060,329.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.03 $ 10.71 $ 8.82 $ 11.86 $ 26.82
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a)(b) (0.15)(b) (0.14) (0.15)(b) (0.21)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.35 0.47 2.03 (2.89) (11.21)
=========================================================================================================================
Total from investment operations 1.21 0.32 1.89 (3.04) (11.42)
=========================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.54)
=========================================================================================================================
Net asset value, end of period $ 12.24 $ 11.03 $ 10.71 $ 8.82 $ 11.86
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 10.97% 2.99% 21.43% (25.63)% (47.75)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $511,024 $434,572 $555,779 $533,224 $922,476
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.10%(d) 2.09% 2.17% 2.04% 1.92%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.11%(d) 2.10% 2.17% 2.04% 1.93%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.23)%(d) (1.37)% (1.38)% (1.34)% (1.27)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 96% 74% 111% 217% 240%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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 $(0.16) and (1.33)%, 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.
(d) Ratios are based on average daily net assets of $443,470,459.
F-16
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.04 $ 10.72 $ 8.83 $ 11.87 $ 26.85
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a)(b) (0.15)(b) (0.14) (0.15)(b) (0.21)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.35 0.47 2.03 (2.89) (11.23)
=================================================================================================================================
Total from investment operations 1.21 0.32 1.89 (3.04) (11.44)
=================================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.54)
=================================================================================================================================
Net asset value, end of period $ 12.25 $ 11.04 $ 10.72 $ 8.83 $ 11.87
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 10.96% 2.99% 21.40% (25.61)% (47.77)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $119,791 $78,330 $91,325 $86,455 $150,604
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.10%(d) 2.09% 2.17% 2.04% 1.92%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.11%(d) 2.10% 2.17% 2.04% 1.93%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.23)%(d) (1.37)% (1.38)% (1.34)% (1.27)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 96% 74% 111% 217% 240%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 $(0.16) and (1.33)%, 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.
(d) Ratios are based on average daily net assets of $89,055,987.
F-17
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------ OCTOBER 31,
2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.95 $11.56 $ 9.47 $ 11.36
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a)(b) (0.10)(b) (0.06) (0.03)(b)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.46 0.49 2.15 (1.86)
===============================================================================================================
Total from investment operations 1.37 0.39 2.09 (1.89)
===============================================================================================================
Net asset value, end of period $13.32 $11.95 $11.56 $ 9.47
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(c) 11.46% 3.37% 22.07% (16.64)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,856 $1,448 $ 311 $ 76
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.60%(d) 1.59% 1.67% 1.53%(e)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.61%(d) 1.60% 1.67% 1.53%(e)
===============================================================================================================
Ratio of net investment income (loss) to average net assets (0.73)%(d) (0.87)% (0.88)% (0.84)%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate 96% 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 $(0.11) and (0.83)%, 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 based on average daily net assets of $1,697,788.
(e) Annualized.
F-18
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.73 $12.20 $ 9.91 $13.16 $29.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a)(b) (0.01)(b) 0.00 (0.01)(b) (0.01)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.56 0.54 2.29 (3.24) (12.29)
====================================================================================================================
Total from investment operations 1.57 0.53 2.29 (3.25) (12.30)
====================================================================================================================
Less distributions from net realized gains -- -- -- -- (3.54)
====================================================================================================================
Net asset value, end of period $14.30 $12.73 $12.20 $ 9.91 $13.16
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 12.33% 4.34% 23.11% (24.70)% (47.11)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,782 $1,763 $2,213 $1,883 $7,667
____________________________________________________________________________________________________________________
====================================================================================================================
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%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.82%(d) 0.85% 0.78% 0.82% 0.70%
====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.06%(d) (0.12)% 0.01% (0.12)% (0.04)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 96% 74% 111% 217% 240%
____________________________________________________________________________________________________________________
====================================================================================================================
</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 $(0.01) and (0.04)%, 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.
(d) Ratios are based on average daily net assets of $1,811,032.
NOTE 15--CHANGE IN INDEPENDENT PUBLIC ACCOUNTING FIRM
On June 29, 2005, the Audit Committee (the "Audit Committee") of the Board of
Trustees (the "Board") of the Trust appointed PricewaterhouseCoopers LLP ("PwC")
as the independent registered public accounting firm of the Fund for the fiscal
year ending October 31, 2005. Such appointment was ratified and approved by the
Independent Trustees of the Board. For the prior fiscal year, Ernst & Young
("E&Y") was the Fund's independent registered public accounting firm. On June
29, 2005, the Trust obtained a formal resignation from E&Y as the independent
registered public accounting firm of the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period E&Y was engaged, there were no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to E&Y's satisfaction, would have
caused E&Y to make reference to that matter in connection with such reports.
NOTE 16--SUBSEQUENT EVENT
The Board of Trustees of the Trust ("Seller") unanimously approved, on November
14, 2005, an Agreement and Plan of Reorganization (the "Agreement") pursuant to
which the Fund ("Selling Fund") a series of Seller, would transfer all of its
assets to AIM Constellation Fund ("Buying 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 February 28, 2006. 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.
F-19
NOTE 17--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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
ss. 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 June 13, 2005, the MDL Court (as defined below) issued a Conditional
Transfer Order transferring this lawsuit to the MDL Court, which Conditional
Transfer Order was finalized on October 19, 2005. 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. 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 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 contest the WVASC's findings and conclusions, which they
intend to do.
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;
F-20
NOTE 17--LEGAL PROCEEDINGS--(CONTINUED)
- 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 (this lawsuit was dismissed by the Court on
August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the 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.
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-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds and Shareholders of
AIM Weingarten 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 Weingarten Fund (one of the
funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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
audit, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets of the Fund for the year
ended October 31, 2004 and the financial highlights for each of the periods
ended on or before October 31, 2004 were audited by another independent
registered public accounting firm whose report, dated December 15, 2004,
expressed an unqualified opinion on those statements.
As described in Note 16, on November 14, 2005, the Board of Trustees of the Fund
approved a plan of merger for the Fund with AIM Constellation Fund. This merger
is expected to take place in early 2006 upon the approval of the Fund's
shareholders.
/s/ PRICEWATERHOUSECOOPERS LLP
December 19, 2005
Houston, Texas
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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 1988 Director and Chairman, A I M Management None
Trustee, Vice Chair, Group Inc. (financial services holding
Principal Executive Officer company); Director and Vice Chairman,
and President 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 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; and Chairman,
AIM Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 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 None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); 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
- -------------------------------------------------------------------------------------------------------------------------------
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 Owner, Dos Angelos Ranch,
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1988 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS--(CONTINUED)
As of October 31, 2005
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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>
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
- -------------------------------------------------------------------------------------------------------------------------------
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, 2005 Retired None
Jr.(3) -- 1944
Trustee
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 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 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 N/A
Senior Vice President and Assistant General Counsel, ICON
Senior Officer Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
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. and A I M
Officer 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; 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, Principal Advisors, Inc.
Financial Officer and
Treasurer Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment 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.; and
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(3) Mr. Stickel was elected as a trustee of the Trust effective October 1, 2005.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Americas
New York, NY 10036-2714
</Table>
U.S. ESTATE TAX FOR NON-RESIDENT ALIEN SHAREHOLDERS (UNAUDITED)
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2005, April 30, 2005, July 31, 2005, and
October 31, 2005, are 1.83%, 6.44%, 4.92%, 8.77%, respectively.
<Table>
<Caption>
DOMESTIC EQUITY SECTOR EQUITY AIM ALLOCATION SOLUTIONS
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund AIM Conservative Allocation Fund
AIM Basic Balanced Fund* AIM Energy Fund AIM Growth Allocation Fund(2)
AIM Basic Value Fund AIM Financial Services Fund AIM Moderate Allocation Fund
AIM Blue Chip Fund AIM Global Health Care Fund AIM Moderate Growth Allocation Fund
AIM Capital Development Fund AIM Global Real Estate Fund AIM Moderately Conservative Allocation Fund
AIM Charter Fund AIM Gold & Precious Metals Fund
AIM Constellation Fund AIM Leisure Fund DIVERSIFIED PORTFOLIOS
AIM Diversified Dividend Fund AIM Multi-Sector Fund
AIM Dynamics Fund AIM Real Estate Fund(1) AIM Income Allocation Fund
AIM Large Cap Basic Value Fund AIM Technology Fund AIM International Allocation Fund
AIM Large Cap Growth Fund AIM Utilities Fund
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(1) AIM Money Market Fund
AIM Small Company Growth Fund AIM Short Term Bond Fund
AIM Summit Fund AIM Total Return Bond Fund
AIM Trimark Endeavor Fund Premier Portfolio
AIM Trimark Small Companies Fund Premier U.S. Government Money Portfolio
AIM Weingarten Fund
TAX-FREE
*Domestic equity and income fund
AIM High Income Municipal Fund(1)
AIM Municipal Bond Fund
INTERNATIONAL/GLOBAL EQUITY AIM Tax-Exempt Cash Fund
AIM Tax-Free Intermediate Fund
AIM Asia Pacific Growth Fund Premier Tax-Exempt Portfolio
AIM Developing Markets Fund
AIM European Growth Fund ================================================================================
AIM European Small Company Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Global Aggressive Growth Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Global Equity Fund FINANCIAL ADVISOR AND READ IT CAREFULLY BEFORE INVESTING.
AIM Global Growth Fund ================================================================================
AIM Global Value Fund
AIM International Core Equity Fund
AIM International Growth Fund
AIM International Small Company Fund(1)
AIM Trimark Fund
</Table>
(1) This fund has limited public sales of its shares to certain investors. For
more information on who may continue to invest in the fund, please see the
appropriate prospectus.
(2) Effective April 29,2005, AIM Aggressive Allocation Fund was renamed AIM
Growth Allocation Fund.
If used after January 20,2006, 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 $381 billion in assets under management. Data as of
September 30, 2005.
AIMinvestments.com WEI-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
- --------------------------------------------------------------------------------
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period covered by
the report. The Registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the PEO or PFO during the
period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least one
audit committee financial expert serving on its Audit Committee.
On the date of the reporting period, October 31, 2005, the Registrant's
audit committee financial expert was Prema Mathai-Davis. Dr. Mathai-Davis
is "independent" within the meaning of that term as used in Form N-CSR.
On October 27, 2005, the Board of Trustees determined that Raymond
Stickel, Jr. is an audit committee financial expert. Mr. Stickel was
appointed to the Registrant's Audit Committee effective as of October 1,
2005. Mr. Stickel is "independent" within the meaning of that term as used
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Registrant's Audit Committee appointed PricewaterhouseCoopers LLP
("PWC") as Registrant's principal independent registered public accounting
firm for the fiscal year 2005. Such appointment was ratified and approved
by the independent trustees of the Registrant's Board of Trustees. For the
fiscal year ended 2004, Ernst & Young LLP ("E&Y") served as the
Registrant's principal registered public accounting firm.
The information set forth below for the 2005 fiscal year relates to fees
billed by PWC. The information set forth below for the 2004 fiscal year
relates to fees billed by E&Y.
FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO THE REGISTRANT
PWC (for 2005) and E&Y (for 2004) billed the Registrant aggregate fees for
services rendered to the Registrant as follows:
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Fees Billed by PWC Services Provided Non-Audit Services
for Services for fiscal year end Fees Billed by E&Y Provided for fiscal
Rendered to the 2005 Pursuant to for Services year end 2004
Registrant for Waiver of Rendered to the Pursuant to Waiver
fiscal Pre-Approval Registrant for of Pre-Approval
year end 2005 Requirement(1) fiscal year end 2004 Requirement(1)
------------------ ------------------ -------------------- --------------------
Audit Fees $ 366,905 N/A $ 477,418 N/A
Audit-Related Fees(2) $ 26,125 0% $ 16,800 0%
Tax Fees(3) $ 70,120 0% $ 39,795 0%
All Other Fees $ 0 0% $ 0 0%
-------------- --------------
Total Fees $ 463,150 0% $ 534,013 0%
PWC billed the Registrant aggregate non-audit fees of $96,245 for the fiscal
year ended 2005 for non-audit services rendered to the Registrant. E&Y billed
the Registrant aggregate non-audit fees of $56,595 for the fiscal year ended
2004 for non-audit services rendered to the Registrant.
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees paid
by the Registrant during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Audit-Related Fees for the fiscal year ended October 31, 2005 includes
fees billed for completing agreed-upon procedures related to fund mergers.
Audit-Related Fees for the fiscal year ended October 31, 2004 includes
fees billed for completing agreed-upon procedures related to fund mergers.
(3) Tax Fees for the fiscal year end October 31, 2005 includes fees billed for
reviewing tax returns and consultation services. Tax fees for fiscal year
end October 31, 2004 includes fees billed for reviewing tax returns and
consultation services.
FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO AIM AND AIM AFFILIATES
PWC (for 2005) and E&Y (for 2004) billed AIM Advisors, Inc. ("AIM"), the
Registrant's adviser, and any entity controlling, controlled by or under
common control with AIM that provides ongoing services to the Registrant
("AIM Affiliates") aggregate fees for pre-approved non-audit services
rendered to AIM and AIM Affiliates as follows:
Fees Billed by PWC Fees Billed by E&Y
for Non-Audit for Non-Audit
Services Rendered to Percentage of Fees Services Rendered to Percentage of Fees
AIM and AIM Billed Applicable to AIM and AIM Billed Applicable to
Affiliates for Non-Audit Services Affiliates for Non-Audit Services
fiscal year end 2005 Provided for fiscal fiscal year end 2004 Provided for fiscal
That Were Required year end 2005 That Were Required year end 2004
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
-------------------- ------------------- -------------------- ---------------------
Audit-Related Fees(2) $0 0% $185,000 0%
Tax Fees $0 0% $ 0 0%
All Other Fees $0 0% $ 0 0%
-- --------
Total Fees(3) $0 0% $185,000 0%
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees paid
by the Registrant, AIM and AIM Affiliates during a fiscal year; and (iii)
such services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Audit-Related Fees for the fiscal year ended October 31, 2004 includes
fees billed for services to test and report on the controls and operations
of an affiliated transfer agent.
(3) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2005, and E&Y billed AIM
and AIM Affiliates aggregate non-audit fees of $265,511 for the fiscal
year ended 2004, for non-audit services rendered to AIM and AIM
Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining the principal accountant's independence.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 13, 2005
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of estimated
pre-approved fee levels provided at the time the service was pre-approved will
also require specific approval by the Audit Committees before payment is made.
The Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
II. DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
III. AUDIT SERVICES
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial
statements with SEC registration statements, periodic reports and other
documents filed with the SEC or other documents issued in connection with
securities offerings.
IV. NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers, compliance with ratings agency requirements and
interfund lending activities.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER AUDITOR SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
V. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit Committee will always factor
in the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
VI. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the
Auditor. The list will describe the non-audit services in reasonable detail and
will include an estimated range of fees and such other information as the Audit
Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation
o Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines
by regulation is impermissible.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as
part of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 15, 2005, an evaluation was performed under the
supervision and with the participation of the officers of the
Registrant, including the PEO and PFO, to assess the effectiveness
of the Registrant's disclosure controls and procedures, as that term
is defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act"), as amended. Based on that evaluation, the Registrant's
officers, including the PEO and PFO, concluded that, as of December
15, 2005, the Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2)
that material information relating to the Registrant is made known
to the PEO and PFO as appropriate to allow timely decisions
regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by
this report that have materially affected, or are reasonably likely
to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Equity Funds
By: /s/ Robert H. Graham
---------------------------
Robert H. Graham
Principal Executive Officer
Date: January 9, 2006
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ Robert H. Graham
---------------------------
Robert H. Graham
Principal Executive Officer
Date: January 9, 2006
By:
/s/ Sidney M. Dilgren
---------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: January 9, 2006
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.