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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 811-01424
----------------------------------------------
AIM Equity Funds
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Philip A. Taylor 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------------
Date of fiscal year end: 10/31
------------
Date of reporting period: 10/31/06
--------------
Item 1. Reports to Stockholders.
AIM Capital Development Fund
Annual Report to Shareholders o October 31, 2006
DOMESTIC EQUITY
Mid-Cap Growth
Table of Contents
Supplemental Information................ 2
Letters to Shareholders................. 3
Performance Summary..................... 5
Management Discussion................... 5
Fund Expenses........................... 7
Long-term Fund Performance.............. 8
Approval of Advisory Agreement.......... 10
Schedule of Investments................. F-1
Financial Statements.................... F-5
Notes to Financial Statements........... F-8
Financial Highlights.................... F-16
Auditor's Report........................ F-20
Tax Disclosures......................... F-21
Trustees and Officers................... F-22
[COVER GLOBE IMAGE]
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
AIM Capital Development Fund
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, 2006, and is based on total net assets.
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT values for shareholder transactions and
the returns based on those net asset
o Class B shares are not available as an o The unmanaged STANDARD & POOR'S values may differ from the net asset
investment for retirement plans COMPOSITE INDEX OF 500 STOCKS (the S&P values and returns reported in the
maintained pursuant to Section 401 of the 500--Registered Trademark-- Index) is an Financial Highlights.
Internal Revenue Code, including 401(k) index of common stocks frequently used as
plans, money purchase pension plans and a general measure of U.S. stock market o Industry classifications used in this
profit sharing plans. Plans that had performance. report are generally according to the
existing accounts invested in Class B Global Industry Classification Standard,
shares prior to September 30, 2003, will o The unmanaged RUSSELL MIDCAP--Registered which was developed by and is the
continue to be allowed to make additional Trademark-- GROWTH INDEX is a subset of the exclusive property and a service mark of
purchases. RUSSELL MIDCAP--Registered Trademark-- Morgan Stanley Capital International Inc.
INDEX, which performance of the stocks and Standard & Poor's.
o Class R shares are available only to of domestic mid-capitalization companies;
certain retirement plans. Please see the the Growth subset measures the performance The Fund provides a complete list of its
prospectus for more information. of Russell Midcap companies with higher holdings four times in each fiscal year,
price/ book ratios and higher with higher at the quarter-ends. For the second and
o Investor Class shares are closed to growth values. fourth quarters, the lists appear in the
most investors. For more information on Fund's semiannual and annual reports to
who may continue to invest in the o The unmanaged LIPPER MID-CAP GROWTH shareholders. For the first and third
Investor Class shares, please see the FUNDS INDEX represents an average of the quarters, the Fund files the lists with
prospectus. performance of the 30 largest the Securities and Exchange Commission
mid-capitalization growth funds tracked (SEC) on Form N-Q. The most recent list
PRINCIPAL RISKS OF INVESTING IN THE FUND by Lipper Inc., an independent mutual of portfolio holdings is available at
fund performance monitor. AIMinvestments.com. From our home page,
o Foreign securities have additional click on Products & Performance, then
risks, including exchange rate changes, o The Fund is not managed to track the Mutual Funds, then Fund Overview. Select
political and economic upheaval, the performance of any particular index, your Fund from the drop-down menu and
relative lack of information about these including the indexes defined here, and click on Complete Quarterly Holdings.
companies, relatively low market consequently, the performance of the Fund Shareholders can also look up the Fund's
liquidity and the potential lack of may deviate significantly from the Forms N-Q on the SEC Web site at sec.gov.
strict financial and accounting controls performance of the indexes. Copies of the Fund's Forms N-Q may be
and standards. reviewed and copied at the SEC Public
o A direct investment cannot be made in Reference Room in Washington, D.C. You
o Investing in a fund that invests in an index. Unless otherwise indicated, can obtain information on the operation
smaller companies involves risks not index results include reinvested of the Public Reference Room, including
associated with investing in more dividends, and they do not reflect sales information about duplicating fee
established companies, such as business charges. Performance of an index of funds charges, by calling 202-942-8090 or
risk, stock price fluctuations and reflects fund expenses; performance of a 800-732-0330, or by electronic request at
illiquidity. market index does not. the following e-mail address:
publicinfo@sec.gov. The SEC file numbers
o Prices of equity securities change in OTHER INFORMATION for the Fund are 811-01424 and 002-25469.
response to many factors including the
historical and prospective earnings of o The returns shown in management's A description of the policies and
the issuer, the value of its assets, discussion of Fund performance are based procedures that the Fund uses to
general economic conditions, interest on net asset values calculated for determine how to vote proxies relating to
rates, investor perceptions and market shareholder transactions. Generally portfolio securities is available without
liquidity. accepted accounting principles require charge, upon request, from our Client
adjustments to be made to the net assets Services department at 800-959-4246 or on
of the Fund at period end for financial the AIM Web site, AIMinvestments.com. On
reporting purposes, and as such, the net the home page, scroll down and click on
asset AIM Funds Proxy Policy. The information
is also available on the SEC Web site,
sec.gov.
Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2006, 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 SEC Web site, sec.gov.
=========================================
FUND NASDAQ SYMBOLS
======================================================================================
Class A Shares ACDAX
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS, Class B Shares ACDBX
WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. Class C Shares ACDCX
INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class R Shares ACDRX
Investor Class Shares ACDIX
======================================================================================
=========================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
2
AIM Capital Development Fund
Dear Shareholders of The AIM Family of Funds--Registered
Trademark--:
We're pleased to provide you with this report, which includes
a discussion of how your Fund was managed during the review
period ended October 31, 2006, and what factors affected its
performance.
[TAYLOR As we approach the end of 2006, it seems likely that many
PHOTO] investors may see the value of their investments increase
this year. Global equity markets, collectively, recorded
double-digit gains for the year ended October 31, 2006, as
did the U.S. stock market. Also, the investment grade bond
market in the United States rose for the same period.
Philip Taylor
While stock and bond markets generally enjoyed positive
year-to-date returns, their performance was affected by
short-term economic and geopolitical events. For example, the
U.S. stock market was weak in the second quarter of 2006 when
it appeared that inflation might be rising. Only after the
U.S. Federal Reserve Board decided in August that inflation
was contained and that short-term interest rates need not be
increased--the first time it kept rates unchanged in more
than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for all
investors. At AIM Investments--Registered Trademark--, we
believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio. AIM
Investments can help by offering a broad product line that
gives your financial advisor the necessary tools to build a
portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each asset
class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed income.
A legend in the left column illustrates the methodology. Your
report cover now shows your Fund's asset class color, plus
the asset class and sub-asset class name are shown in the
upper-left corner. The reason for these changes is to help
you better understand where your Fund fits into your overall
portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial advisor
can help allocate your portfolio appropriately and review
your investments regularly to help ensure they remain
suitable as your financial situation changes. While there are
no guarantees with any investment program, a long-term plan
that's based on your financial goals, risk tolerance and time
horizon is more likely to keep you and your investments on
track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is their
unpredictability. While past performance cannot guarantee
comparable future results, we believe that staying invested
for the long term with a thoughtful plan offers the best
opportunity for weathering that unpredictability. We at AIM
Investments remain committed to building enduring solutions
to help you achieve your investment goals, and we're pleased
you've placed your trust in us.
Information about investing, the markets and your Fund is
always available on our Web site, AIMinvestments.com. If you
have questions about your individual account, we invite you
to contact one of our highly trained client services
representatives at 800-959-4246.
Sincerely,
/S/ PHILIP TAYLOR
Philip Taylor
President -- AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Capital Development Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed its
comprehensive review* of each fund's advisory agreement with
A I M Advisors, Inc. (AIM) to make certain your interests are
being served in terms of fees, performance and operations.
[CROCKETT Looking ahead, your Board finds many reasons to be
PHOTO] positive about AIM's management and strategic direction. Most
importantly, AIM's investment management discipline has paid
off in terms of improved overall performance. We are also
pleased with AIM's efforts to seek more cost-effective ways
of delivering superior service.
Bruce L. Crockett
In addition, AIM is realizing the benefits of belonging to
a leading independent global investment management
organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few years,
your Board will be meeting at these various centers of
excellence to learn about their progress and how they may
serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction and
progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a letter
addressed to me at AIM Investments, AIM Investments Tower, 11
Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
* To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the
"Products & Performance" tab at the AIM Web site
(AIMinvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of advisory agreement
information for your Fund is also included in this annual
report on pages 10-11.
4
AIM Capital Development Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Stocks that are ranked highest by our
quantitative model are the focus of our
=================================================================================== fundamental research efforts. Our
fundamental analysis focuses on
PERFORMANCE SUMMARY identifying both industries and companies
with strong drivers of growth.
For the year ended October 31, 2006, Class A shares of AIM Capital
Development Fund, excluding applicable sales charges, had double-digit Risk management plays an important
returns and outperformed the broad market, as measured by the S&P 500 Index, role in portfolio construction, as our
and the Fund's style-specific index, the Russell Midcap Growth Index. target portfolio attempts to limit
volatility and downside risk. We seek to
Solid stock selection and strong performance by mid-cap stocks enabled the accomplish this goal by investing in
Fund to outperform the large-cap oriented S&P 500 Index. Stock selection sectors, industries and companies with
across sectors also enabled the Fund to outperform the Russell Midcap Growth attractive fundamental prospects. We
Index; the Fund outperformed the Russell Midcap Growth Index in seven out of limit the Fund's sector exposure and also
10 sectors. seek to minimize stock-specific risk by
building a diversified portfolio of 100
Your Fund's long-term performance appears on pages 8 and 9. to 120 holdings with an approximate
weight of 1% at the time of purchase.
FUND VS. INDEXES
We consider selling a stock for any of
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If the following reasons:
sales charges were included, returns would be lower.
o The stock is overvalued based on our
Class A Shares 19.86% analysis.
Class B Shares 18.92
Class C Shares 18.88 o A change in fundamental metrics
Class R Shares 19.52 indicates potential problems.
Investor Class Shares 19.78
S&P 500 Index (Broad Market Index) 16.33 o A change in market capitalization--if a
Russell Midcap Growth Index (Style-Specific Index) 14.51 stock grows and moves into the large-cap
Lipper Mid-Cap Growth Funds Index (Peer Group Index) 13.14 range.
SOURCE: LIPPER INC. o A better stock candidate with higher
potential return is found.
===================================================================================
MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST correlated with outperformance in the
mid-cap growth universe, including: Domestic equities posted solid returns
We believe a growth investment strategy during the 12 month reporting period,
is an essential component of a o Earnings--focus on companies exhibiting leaving several major market indexes near
diversified portfolio. strong growth in earnings, revenue and multi-year highs. Strong economic growth,
cash flows. favorable corporate earnings results and
Our investment process combines continued benign inflation boosted
quantitative and fundamental analysis to o Quality--focus on companies with equities, despite high energy prices and
uncover companies exhibiting long-term, sustainable earnings growth and the U.S. Federal Reserve Board's (the
sustainable earnings and cash flow growth management teams that profitably reinvest Fed) tightening campaign.
that is not yet reflected by the stock's shareholder cash flow.
market price. Mid- and small-cap stocks outperformed
o Valuation--focus on companies that are large-cap stocks, and the value style
Our quantitative model ranks companies attractively valued given their growth outper-
based on factors we have found to be potential.
highly
(continued)
========================================= ========================================= =========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Application Software 4.8 1. CB Richard Ellis Group,
2. Wireless Telecommunication Inc.-Class A 1.8%
[PIE CHART] Services 4.4 2. Precision Castparts Corp. 1.7
3. Apparel, Accessories & Luxury 3. Polo Ralph Lauren Corp. 1.5
Information Technology 19.4% Goods 3.8 4. Corrections Corp. of America 1.4
Consumer Discretionary 17.3% 4. Aerospace & Defense 3.6 5. NII Holdings Inc. 1.4
Health Care 16.3% 5. Managed Health Care 3.3 6. Shoppers Drug Mart Corp.
Industrials 13.1% (Canada) 1.3
Energy 9.3% 7. Jarden Corp. 1.3
Financials 9.0% Total Net Assets $1.52 billion 8. Allegheny Technologies, Inc. 1.2
Telecommunication Services 7.2% 9. Chicago Mercantile Exchange
Consumer Staples 2.8% Total Number of Holdings* 108 Holdings Inc. 1.2
Materials 1.7% 10. WESCO International Inc. 1.2
Money Market Funds Plus
Other Assets Less Liabilities 3.9% 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.
========================================= ========================================= =========================================
5
AIM Capital Development Fund
formed the growth style. Positive juvenile facilities, was also one of the trading at what we believe are attractive
performance was broad among Russell top contributors to Fund performance. valuations.
Midcap Growth Index sectors, with the
best returns found in telecommunication In the information technology (IT) IN CLOSING
services, materials and utilities. sector, our investment process led us to
invest in a number of stocks in the IT Although we are pleased to have provided
The Fund benefited from positive services, semiconductor and electronic positive returns for our investors for
absolute performance in nine out of 10 equipment industries that performed well the reporting period, we are always
economic sectors. On a relative basis, during the period. One example is MEMC striving to improve performance and help
the Fund outperformed the Russell Midcap ELECTRONIC MATERIALS, one of the leading you meet your financial goals. We remain
Growth Index in seven out of 10 sectors, suppliers of silicon wafers to committed to our investment process of
with the widest margin of outperformance semiconductor manufacturers. focusing on the attractively priced
in the consumer discretionary, stocks of mid-cap companies with growing
telecommunication services, industrials One other holding that was a cash flow and earnings. We thank you for
and information technology sectors. significant contributor to performance your commitment to AIM Capital
was HANSEN NATURAL, a maker of natural Development Fund.
In the consumer discretionary sector, sodas, juices and energy drinks including
the Fund benefited from solid stock the popular Monster Energy product. The THE VIEWS AND OPINIONS EXPRESSED IN
selection in a number of different areas, company benefited from solid revenue and MANAGEMENT'S DISCUSSION OF FUND
including media, retail and household earnings growth due to strong sales of PERFORMANCE ARE THOSE OF A I M ADVISORS,
durables. Media holding Clear Channel its products. We sold the stock. INC. THESE VIEWS AND OPINIONS ARE SUBJECT
Outdoors benefited from demand for TO CHANGE AT ANY TIME BASED ON FACTORS
advertising on its signs and bill- The Fund underperformed relative to SUCH AS MARKET AND ECONOMIC CONDITIONS.
boards, as demand for the lower-cost form the Russell Midcap Growth Index in three THESE VIEWS AND OPINIONS MAY NOT BE
of billboard advertising was strong sectors--financials, utilities and RELIED UPON AS INVESTMENT ADVICE OR
during the period. The share price also materials. The widest margin of RECOMMENDATIONS, OR AS AN OFFER FOR A
appreciated due to speculation of a underperformance was in the financials PARTICULAR SECURITY. THE INFORMATION IS
potential buyout. Other holdings that sector, where stock selection and an NOT A COMPLETE ANALYSIS OF EVERY ASPECT
made meaningful contributions included underweight position in real estate OF ANY MARKET, COUNTRY, INDUSTRY,
office products retailer Office Depot and investment trust (REIT) holdings were the SECURITY OR THE FUND. STATEMENTS OF FACT
appliance manufacturer Whirlpool. key detractors to performance. However, ARE FROM SOURCES CONSIDERED RELIABLE, BUT
one holding that offset some of this A I M ADVISORS, INC. MAKES NO
Our investment process led us to underperformance in the financials sector REPRESENTATION OR WARRANTY AS TO THEIR
increase the Fund's exposure in the was commercial real estate services COMPLETENESS OR ACCURACY. ALTHOUGH
telecommunication services sector as we holding CB Richard Ellis, which was up HISTORICAL PERFORMANCE IS NO GUARANTEE OF
identified a number of attractive more than 75% during the reporting FUTURE RESULTS, THESE INSIGHTS MAY HELP
investment opportunities. Within this period. YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
sector, the Fund's overweight position PHILOSOPHY.
AND stock selection drove outperformance Underperformance in the utilities
versus the Russell Midcap Growth Index as sector was largely due to the Fund's See important Fund and index
the telecommunication services sector was underweight position, as many utilities disclosures on the inside front cover.
the top-performing sector in the Russell stocks performed well during the
Midcap Growth Index during the reporting reporting period.
period. Examples of holdings that made Paul J. Rasplicka
key contributions to performance An underweight position and stock
included American Tower and Qwest selection in the materials sector also [RASPLICKA Chartered Financial
Communications. contributed to underperformance. In this PHOTO] Analyst, is lead portfolio
sector, SMURFIT STONE CONTAINER detracted manager of AIM Capital
The industrials sector also rallied from Fund returns. We subsequently sold Development Fund. Mr.
during the period, and the Fund benefited this holding due to deteriorating Rasplicka has been associated with
from solid performance from holdings in a fundamentals. advisor and/or its affiliates since
number of different industries. Two of 1994. He began his investment career in
the Fund's holdings that made significant Other significant detractors from Fund 1982 as an equity research analyst. A
contributions to performance were IHS and performance during the reporting period native of Denver, Mr. Rasplicka is a
Corrections Corp. of America. IHS, a included TELLABS, ADC TELECOMMUNICATIONS magna cum laude graduate of the
publisher of technical documents focusing and MERCURY INTERACTIVE. All three stocks University of Colorado in Boulder with a
on engineering, energy and regulatory were subsequently sold. B.S. in business administration. He
issues, benefited from strong demand for earned an M.B.A. from the University of
its products and was the top contributor During the reporting period, the most Chicago. He is a Chartered Investment
to Fund performance during the reporting significant changes to portfolio Counselor.
period. Corrections Corp. of America, a positioning included additions to the
company that contracts with federal, industrials, telecommunication services Assisted by the Mid Cap Growth/GARP
state and local authorities to manage and consumer discretionary sectors, and a Team
detention and reduction in the IT sector. All changes
to the Fund were based on our bottom-up FOR A PRESENTATION OF YOUR FUND'S
stock selection process of identifying LONG-TERM PERFORMANCE, PLEASE SEE PAGES 8
high quality growth companies AND 9.
6
AIM Capital Development Fund
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, to The hypothetical account values and
estimate the expenses that you paid over expenses may not be used to estimate the
As a shareholder of the Fund, you incur the period. Simply divide your account actual ending account balance or expenses
two types of costs: (1) transaction value by $1,000 (for example, an $8,600 you paid for the period. You may use this
costs, which may include sales charges account value divided by $1,000 = 8.6), information to compare the ongoing costs
(loads) on purchase payments or then multiply the result by the number in of investing in the Fund and other funds.
contingent deferred sales charges on the table under the heading entitled To do so, compare this 5% hypothetical
redemptions, and redemption fees, if any; "Actual Expenses Paid During Period" to example with the 5% hypothetical examples
and (2) ongoing costs, including estimate the expenses you paid on your that appear in the shareholder reports of
management fees; distribution and/or account during this period. the other funds.
service (12b-1) fees; and other Fund
expenses. This example is intended to HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown in
help you understand your ongoing costs COMPARISON PURPOSES the table are meant to highlight your
(in dollars) of investing in the Fund and ongoing costs only and do not reflect any
to compare these costs with ongoing costs The table below also provides information transaction costs, such as sales charges
of investing in other mutual funds. The about hypothetical account values and (loads) on purchase payments, contingent
example is based on an investment of hypothetical expenses based on the Fund's deferred sales charges on redemptions,
$1,000 invested at the beginning of the actual expense ratio and an assumed rate and redemption fees, if any. Therefore,
period and held for the entire period May of return of 5% per year before expenses, the hypothetical information is useful in
1, 2006, through October 31, 2006. which is not the Fund's actual return. comparing ongoing costs only, and will
The Fund's actual cumulative total not help you determine the relative total
ACTUAL EXPENSES returns at net asset value after expenses costs of owning different funds. In
for the six months ended October 31, addition, if these transaction costs were
The table below provides information 2006, appear in the table "Cumulative included, your costs would have been
about actual account values and actual Total Returns" on page 9. 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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $983.10 $ 6.30 $1,018.85 $ 6.41 1.26%
B 1,000.00 979.30 10.03 1,015.07 10.21 2.01
C 1,000.00 979.30 10.03 1,015.07 10.21 2.01
R 1,000.00 981.90 7.54 1,017.59 7.68 1.51
Investor 1,000.00 983.10 6.30 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, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
AIM Capital Development Fund
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund data from 6/17/96, index data from 6/30/96
================================================================================
[MOUNTAIN CHART]
AIM CAPITAL LIPPER
DEVELOPMENT FUND S&P 500 RUSSELL MIDCAP MID-CAP GROWTH
DATE -CLASS A SHARES INDEX GROWTH INDEX FUNDS INDEX
6/17/96 $ 9450
6/96 9563 $10000 $10000 $10000
7/96 8977 9558 9224 8906
8/96 9904 9760 9722 9483
9/96 10669 10309 10340 10127
10/96 10480 10593 10219 9747
11/96 10744 11393 10821 9970
12/96 10971 11168 10638 9919
1/97 11131 11865 11109 10172
2/97 10470 11958 10864 9496
3/97 9752 11468 10251 8774
4/97 9648 12152 10502 8698
5/97 11046 12895 11443 9831
6/97 11831 13468 11759 10245
7/97 12766 14539 12885 10871
8/97 13183 13725 12759 10841
9/97 14241 14477 13405 11617
10/97 13768 13994 12734 10966
11/97 13485 14641 12868 10791
12/97 13570 14892 13036 11044
1/98 13503 15057 12802 10835
2/98 14836 16142 14005 11755
3/98 15697 16968 14592 12364
4/98 15744 17142 14791 12417
5/98 14714 16848 14182 11694
6/98 14902 17532 14583 12232
7/98 13797 17346 13959 11417
8/98 10829 14840 11295 8956
9/98 11783 15792 12149 9890
10/98 12180 17074 13044 10254
11/98 13002 18109 13923 11033
12/98 14183 19151 15365 12456
1/99 13974 19952 15826 13074
2/99 12689 19332 15052 12059
3/99 12953 20105 15890 12918
4/99 13302 20884 16614 13448
5/99 13454 20391 16401 13392
6/99 14285 21520 17546 14472
7/99 14144 20851 16987 14274
8/99 13464 20747 16810 14201
9/99 13842 20179 16667 14616
10/99 14400 21456 17956 15908
11/99 15893 21892 19815 17904
12/99 18123 23180 23247 21638
1/00 17811 22015 23242 21267
2/00 22148 21599 28128 26596
3/00 22177 23710 28157 24724
4/00 20296 22997 25424 21463
5/00 19125 22526 23570 19533
6/00 20391 23081 26072 22569
7/00 19835 22720 24421 21633
8/00 22019 24131 28103 24462
9/00 21083 22857 26730 23286
10/00 20591 22760 24900 21403
11/00 18267 20967 19489 16927
12/00 19905 21070 20515 18148
1/01 20387 21817 21687 18394
2/01 18829 19829 17936 15635
3/01 17304 18573 15369 13976
4/01 18927 20016 17931 15819
5/01 19387 20150 17847 15949
6/01 19562 19660 17856 15887
7/01 19047 19466 16652 15051
8/01 18192 18249 15445 14043
9/01 15791 16775 12892 12017
10/01 16108 17095 14247 12686
11/01 17326 18406 15781 13728
12/01 18182 18568 16381 14324
1/02 17787 18297 15849 13776
2/02 17721 17944 14951 13091
3/02 19125 18619 16092 13916
4/02 18949 17490 15240 13454
5/02 18598 17362 14785 13005
6/02 17228 16126 13154 11836
7/02 15178 14869 11876 10560
8/02 15024 14966 11834 10434
9/02 13565 13341 10894 9786
10/02 14038 14514 11738 10279
11/02 14860 15368 12657 10890
12/02 14235 14466 11892 10246
1/03 13971 14087 11775 10094
2/03 13818 13876 11673 9938
3/03 13905 14010 11890 10080
4/03 14815 15163 12700 10787
5/03 15869 15962 13922 11679
6/03 16286 16165 14120 11862
7/03 16670 16451 14625 12330
8/03 17372 16771 15430 12936
9/03 16966 16593 15131 12502
10/03 18270 17531 16350 13483
11/03 18764 17686 16788 13804
12/03 19253 18612 16971 13875
1/04 19771 18954 17532 14225
2/04 20311 19217 17826 14421
3/04 20311 18927 17792 14418
4/04 19738 18631 17289 13960
5/04 19851 18886 17697 14264
6/04 20290 19253 17979 14608
7/04 19086 18616 16788 13570
8/04 18829 18690 16581 13335
9/04 19604 18893 17200 13905
10/04 20077 19182 17784 14316
11/04 21302 19957 18702 15112
12/04 22228 20636 19598 15821
1/05 21815 20133 19074 15310
2/05 22094 20557 19557 15508
3/05 21681 20193 19271 15199
4/05 20638 19810 18508 14467
5/05 21827 20440 19568 15325
6/05 22409 20469 19932 15676
7/05 23622 21230 21095 16578
8/05 23634 21037 20966 16526
9/05 23766 21207 21238 16815
10/05 22856 20853 20613 16347
11/05 24044 21641 21731 17231
12/05 24354 21649 21969 17337
1/06 26257 22222 23285 18527
2/06 26228 22282 22999 18367
3/06 27159 22559 23641 18980
4/06 27868 22862 23741 19158
5/06 26494 22205 22624 18091
6/06 26438 22234 22531 18099
7/06 25507 22372 21724 17334
8/06 26035 22903 22224 17617
9/06 26481 23493 22732 17869
10/06 27402 24258 23604 18495
================================================================================
SOURCE: LIPPER INC.
Past performance cannot guarantee chart and table(s) does not reflect The vertical axis, the one that indicates
comparable future results. deduction of taxes a shareholder would the dollar value of an investment, is
pay on Fund distributions or sale of Fund constructed with each segment
The data shown in the chart include shares. Performance of the indexes does representing a percent change in the
reinvested distributions, applicable not reflect the effects of taxes. value of the investment. In this chart,
sales charges, Fund expenses and each segment represents a doubling, or
management fees. Index results include This chart, which is a logarithmic 100% change, in the value of the
reinvested dividends, but they do not chart, presents the fluctuations in the investment. In other words, the space
reflect sales charges. Performance of an value of the Fund and its indexes. We between $10,000 and $20,000 is the same
index of funds reflects fund expenses and believe that a logarithmic chart is size as the space between $20,000, and
management fees; performance of a market more effective than other types of charts $40,000 and so on.
index does not. Performance shown in the in illustrating changes in value during
the early years shown in the chart.
8
AIM Capital Development Fund
========================================= ========================================= =========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares -1.69%
Inception (6/17/96) 10.21% CLASS A SHARES Class B Shares -2.07
10 Years 9.46 Inception (6/17/96) 9.93% Class C Shares -2.07
5 Years 9.96 10 Years 8.90 Class R Shares -1.81
1 Year 13.25 5 Years 9.64 Investor Class Shares -1.69
1 Year 5.29
CLASS B SHARES =========================================
Inception (10/1/96) 9.23% CLASS B SHARES
10 Years 9.49 Inception (10/1/96) 8.94%
5 Years 10.18 5 Years 9.88
1 Year 13.92 1 Year 5.83
CLASS C SHARES CLASS C SHARES
Inception (8/4/97) 7.81% Inception (8/4/97) 7.50%
5 Years 10.44 5 Years 10.15
1 Year 17.88 1 Year 9.66
CLASS R SHARES CLASS R SHARES
10 Years 9.90% 10 Years 9.34%
5 Years 10.99 5 Years 10.69
1 Year 19.52 1 Year 11.16
INVESTOR CLASS SHARES INVESTOR CLASS SHARES
10 Years 10.09% 10 Years 9.52%
5 Years 11.21 5 Years 10.90
1 Year 19.78 1 Year 11.41
========================================= =========================================
CLASS R SHARES INCEPTION DATE IS JUNE 3, CLASS A SHARES FOR THE PERIOD USING (CDSC) FOR THE PERIOD INVOLVED. IS THE
2002. RETURNS SINCE THAT DATE ARE INCEPTION BLENDED RETURNS. CLASS A CDSC ON CLASS B SHARES DECLINES FROM 5%
HISTORICAL RETURNS. ALL OTHER RETURNS ARE SHARES' INCEPTION DATE IS JUNE 17, 1996. BEGINNING AT THE TIME OF PURCHASE TO 0%
BLENDED RETURNS OF HISTORICAL CLASS R AT THE BEGINNING OF THE SEVENTH YEAR. THE
SHARE PERFORMANCE AND RESTATED CLASS A THE PERFORMANCE DATA QUOTED REPRESENT CDSC ON CLASS C SHARES IS 1% FOR THE
SHARE PERFORMANCE (FOR PERIODS PRIOR TO PAST PERFORMANCE AND CANNOT GUARANTEE FIRST YEAR AFTER PURCHASE. CLASS R SHARES
THE INCEPTION DATE OF CLASS R SHARES) AT COMPARABLE FUTURE RESULTS; CURRENT DO NOT HAVE A FRONT-END SALES CHARGE;
NET ASSET VALUE, ADJUSTED TO REFLECT THE PERFORMANCE MAY BE LOWER OR HIGHER. RETURNS SHOWN ARE AT NET ASSET VALUE AND
HIGHER RULE 12b-1 FEES APPLICABLE TO PLEASE VISIT AIMINVESTMENTS.COM FOR THE DO NOT REFLECT A 0.75% CDSC THAT MAY BE
CLASS R SHARES. CLASS A SHARES' INCEPTION MOST RECENT MONTH-END PERFORMANCE. INCEPTION IMPOSED ON A TOTAL
DATE IS JUNE 17, 1996. PERFORMANCE FIGURES REFLECT REINVESTED REDEMPTION DATE OF RETIREMENT PLAN ASSETS
DISTRIBUTIONS, CHANGES IN NET ASSET VALUE WITHIN THE INCEPTION FIRST YEAR. INVESTOR
INVESTOR CLASS SHARES' INCEPTION DATE AND THE EFFECT OF THE MAXIMUM SALES CLASS SHARES DO NOT HAVE A FRONT-END
IS NOVEMBER 30, 2004. RETURNS SINCE THAT CHARGE UNLESS OTHERWISE STATED. SALES CHARGE OR A CDSC; THEREFORE,
DATE ARE HISTORICAL RETURNS. ALL OTHER INVESTMENT RETURN AND PRINCIPAL VALUE PERFORMANCE IS AT NET ASSET VALUE.
RETURNS ARE BLENDED RETURNS OF HISTORICAL WILL FLUCTUATE SO THAT YOU MAY HAVE A
INVESTOR CLASS SHARE PERFORMANCE AND GAIN OR LOSS WHEN YOU SELL SHARES. THE PERFORMANCE OF THE FUND'S SHARE
RESTATED CLASS A SHARE PERFORMANCE (FOR CLASSES WILL DIFFER PRIMARILY DUE TO
PERIODS PRIOR TO THE INCEPTION DATE OF CLASS A SHARE PERFORMANCE REFLECTS THE DIFFERENT SALES CHARGE STRUCTURES AND
INVESTOR CLASS SHARES), AT NET ASSET MAXIMUM 5.50% SALES CHARGE, AND CLASS B CLASS EXPENSES.
VALUE, WHICH RESTATED PERFORMANCE WILL AND CLASS C SHARE PERFORMANCE REFLECTS
REFLECT THE HIGHER RULE 12b-1 FEES THE APPLICABLE CONTINGENT DEFERRED SALES
APPLICABLE TO CHARGE
9
AIM Capital Development Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Equity Funds services to be provided by AIM under the o Meetings with the Fund's portfolio
(the "Board") oversees the management of Advisory Agreement was appropriate and managers and investment personnel. With
AIM Capital Development Fund (the "Fund") that AIM currently is providing services respect to the Fund, the Board is meeting
and, as required by law, determines in accordance with the terms of the periodically with such Fund's portfolio
annually whether to approve the Advisory Agreement. managers and/or other investment
continuance of the Fund's advisory personnel and believes that such
agreement with A I M Advisors, Inc. o The quality of services to be provided individuals are competent and able to
("AIM"). Based upon the recommendation of by AIM. The Board reviewed the continue to carry out their
the Investments Committee of the Board, credentials and experience of the responsibilities under the Advisory
at a meeting held on June 27, 2006, the officers and employees of AIM who will Agreement.
Board, including all of the independent provide investment advisory services to
trustees, approved the continuance of the the Fund. In reviewing the qualifications o Overall performance of AIM. The Board
advisory agreement (the "Advisory of AIM to provide investment advisory considered the overall performance of AIM
Agreement") between the Fund and AIM for services, the Board considered such in providing investment advisory and
another year, effective July 1, 2006. issues as AIM's portfolio and product portfolio administrative services to the
review process, various back office Fund and concluded that such performance
The Board considered the factors support functions provided by AIM and was satisfactory.
discussed below in evaluating the AIM's equity and fixed income trading
fairness and reasonableness of the operations. Based on the review of these o Fees relative to those of clients of
Advisory Agreement at the meeting on June and other factors, the Board concluded AIM with comparable investment
27, 2006 and as part of the Board's that the quality of services to be strategies. The Board reviewed the
ongoing oversight of the Fund. In their provided by AIM was appropriate and that effective advisory fee rate (before
deliberations, the Board and the inde- AIM currently is providing satisfactory waivers) for the Fund under the Advisory
pendent trustees did not identify any services in accordance with the terms of Agreement. The Board noted that this rate
particular factor that was controlling, the Advisory Agreement. was (i) above the effective advisory fee
and each trustee attributed different rate (before waivers) for a mutual fund
weights to the various factors. o The performance of the Fund relative to advised by AIM with investment strategies
comparable funds. The Board reviewed the comparable to those of the Fund; (ii)
One responsibility of the independent performance of the Fund during the past below the effective advisory fee rates
Senior Officer of the Fund is to manage one, three and five calendar years (before waivers) for two variable
the process by which the Fund's proposed against the performance of funds advised insurance funds advised by AIM and
management fees are negotiated to ensure by other advisors with investment offered to insurance company separate
that they are negotiated in a manner strategies comparable to those of the accounts with investment strategies
which is at arms' length and reasonable. Fund. The Board noted that the Fund's comparable to those of the Fund; (iii)
To that end, the Senior Officer must performance was below the median above the effective sub-advisory fee rate
either supervise a competitive bidding performance of such comparable funds for for one offshore fund advised and
process or prepare an independent written the one year period and above such median sub-advised by AIM affiliates with
evaluation. The Senior Officer has performance for the three and five year investment strategies comparable to those
recommended an independent written periods. Based on this review and after of the Fund, although the total advisory
evaluation in lieu of a competitive taking account of all of the other fees for such offshore fund were above
bidding process and, upon the direction factors that the Board considered in those for the Fund; and (iv) above the
of the Board, has prepared such an determining whether to continue the effective sub-advisory fee rates for two
independent written evaluation. Such Advisory Agreement for the Fund, the variable insurance funds sub-advised by
written evaluation also considered Board concluded that no changes should be an AIM affiliate and offered to insurance
certain of the factors discussed below. made to the Fund and that it was not company separate accounts with investment
In addition, as discussed below, the necessary to change the Fund's portfolio strategies comparable to those of the
Senior Officer made a recommendation to management team at this time. Although Fund, although the total advisory fees
the Board in connection with such writ- the independent written evaluation of the for such variable insurance funds were
ten evaluation. Fund's Senior Officer (discussed below) above those for the Fund. The Board noted
only considered Fund performance through that AIM has agreed to waive advisory
The discussion below serves as a the most recent calendar year, the Board fees of the Fund and to limit the Fund's
summary of the Senior Officer's also reviewed more recent Fund total operating expenses, as discussed
independent written evaluation and performance, which did not change their below. Based on this review, the Board
recommendation to the Board in connection conclusions. concluded that the advisory fee rate for
therewith, as well as a discussion of the the Fund under the Advisory Agreement was
material factors and the conclusions with o The performance of the Fund relative to fair and reasonable.
respect thereto that formed the basis for indices. The Board reviewed the
the Board's approval of the Advisory performance of the Fund during the past o Fees relative to those of comparable
Agreement. After consideration of all of one, three and five calendar years funds with other advisors. The Board
the factors below and based on its against the performance of the Lipper reviewed the advisory fee rate for the
informed business judgment, the Board Mid-Cap Growth Funds Index. The Board Fund under the Advisory Agreement. The
determined that the Advisory Agreement is noted that the Fund's performance was Board compared effective contractual
in the best interests of the Fund and its comparable to the performance of such advisory fee rates at a common asset
shareholders and that the compensation to Index for the one and three year periods level at the end of the past calendar
AIM under the Advisory Agreement is fair and below such Index for the five year year and noted that the Fund's rate was
and reasonable and would have been period. Based on this review and after below the median rate of the funds
obtained through arm's length taking account of all of the other advised by other advisors with investment
negotiations. factors that the Board considered in strategies comparable to those of the
determining whether to continue the Fund that the Board reviewed. The Board
Unless otherwise stated, information Advisory Agreement for the Fund, the noted that AIM has agreed to waive
presented below is as of June 27, 2006 Board concluded that no changes should advisory fees of the Fund and to limit
and does not reflect any changes that may be made to the Fund and that it was not the Fund's total operating expenses, as
have occurred since June 27, 2006, necessary to change the Fund's portfolio discussed below. Based on this review,
including but not limited to changes to management team at this time. Although the Board concluded that the advisory fee
the Fund's performance, advisory fees, the independent written evaluation of the rate for the Fund under the Advisory
expense limitations and/or fee waivers. Fund's Senior Officer (discussed below) Agreement was fair and reasonable.
only considered Fund performance through
o The nature and extent of the advisory the most recent calendar year, the Board o Expense limitations and fee waivers.
services to be provided by AIM. The Board also reviewed more recent Fund perform- The Board noted that AIM has
reviewed the services to be provided by ance, which did not change their contractually agreed to waive advisory
AIM under the Advisory Agreement. Based conclusions. fees of the Fund through June 30, 2007 to
on such review, the Board concluded that the extent necessary so that the advisory
the range of fees payable by
(continued)
10
AIM Capital Development Fund
the Fund do not exceed a specified o Independent written evaluation and by AIM and its affiliates, such as
maximum advisory fee rate, which maximum recommendations of the Fund's Senior administrative, transfer agency and
rate includes breakpoints and is based on Officer. The Board noted that, upon their distribution services, and the fees
net asset levels. The Board considered direction, the Senior Officer of the received by AIM and its affiliates for
the contractual nature of this fee waiver Fund, who is independent of AIM and AIM's performing such services. In addition to
and noted that it remains in effect until affiliates, had prepared an independent reviewing such services, the trustees
June 30, 2007. The Board noted that AIM written evaluation in order to assist the also considered the organizational
has voluntarily agreed to waive fees Board in determining the reasonableness structure employed by AIM and its
and/or limit expenses of the Fund in an of the proposed management fees of the affiliates to provide those services.
amount necessary to limit total annual AIM Funds, including the Fund. The Board Based on the review of these and other
operating expenses to a specified noted that the Senior Officer's written factors, the Board concluded that AIM and
percentage of average daily net assets evaluation had been relied upon by the its affiliates were qualified to continue
for each class of the Fund. The Board Board in this regard in lieu of a to provide non-investment advisory
considered the voluntary nature of this competitive bidding process. In services to the Fund, including
fee waiver/expense limitation and noted determining whether to continue the administrative, transfer agency and
that it can be terminated at any time by Advisory Agreement for the Fund, the distribution services, and that AIM and
AIM without further notice to investors. Board considered the Senior Officer's its affiliates currently are providing
The Board considered the effect these fee written evaluation and the recommendation satisfactory non-investment advisory
waivers/expense limitations would have on made by the Senior Officer to the Board services.
the Fund's estimated expenses and that the Board consider whether the
concluded that the levels of fee advisory fee waivers for certain equity o Other factors and current trends. The
waivers/expense limitations for the Fund AIM Funds, including the Fund, should be Board considered the steps that AIM and
were fair and reasonable. simplified. The Board concluded that it its affiliates have taken over the last
would be advisable to consider this issue several years, and continue to take, in
o Breakpoints and economies of scale. The and reach a decision prior to the order to improve the quality and
Board reviewed the structure of the expiration date of such advisory fee efficiency of the services they provide
Fund's advisory fee under the Advisory waivers. to the Funds in the areas of investment
Agreement, noting that it includes one performance, product line
breakpoint. The Board reviewed the level o Profitability of AIM and its diversification, distribution, fund
of the Fund's advisory fees, and noted affiliates. The Board reviewed operations, shareholder services and
that such fees, as a percentage of the information concerning the profitability compliance. The Board concluded that
Fund's net assets, have decreased as net of AIM's (and its affiliates') investment these steps taken by AIM have improved,
assets increased because the Advisory advisory and other activities and its and are likely to continue to improve,
Agreement includes a breakpoint. The financial condition. The Board considered the quality and efficiency of the
Board noted that AIM has contractually the overall profitability of AIM, as well services AIM and its affiliates provide
agreed to waive advisory fees of the Fund as the profitability of AIM in connection to the Fund in each of these areas, and
through June 30, 2007 to the extent with managing the Fund. The Board noted support the Board's approval of the
necessary so that the advisory fees that AIM's operations remain profitable, continuance of the Advisory Agreement for
payable by the Fund do not exceed a although increased expenses in recent the Fund.
specified maximum advisory fee rate, years have reduced AIM's profitability.
which maximum rate includes breakpoints Based on the review of the profitability
and is based on net asset levels. The of AIM's and its affiliates' investment
Board concluded that the Fund's fee advisory and other activities and its
levels under the Advisory Agreement financial condition, the Board concluded
therefore reflect economies of scale. that the compensation to be paid by the
Fund to AIM under its Advisory Agreement
o Investments in affiliated money market was not excessive.
funds. The Board also took into account
the fact that uninvested cash and cash o Benefits of soft dollars to AIM. The
collateral from securities lending Board consid- ered the benefits realized
arrangements, if any (collectively, "cash by AIM as a result of brokerage
balances") of the Fund may be invested in transactions executed through "soft
money market funds advised by AIM dollar" arrangements. Under these
pursuant to the terms of an SEC exemptive arrangements, brokerage commissions paid
order. The Board found that the Fund may by the Fund and/or other funds advised by
realize certain benefits upon investing AIM are used to pay for research and exe-
cash balances in AIM advised money market cution services. This research may be
funds, including a higher net return, used by AIM in making investment
increased liquidity, increased diver- decisions for the Fund. The Board
sification or decreased transaction concluded that such arrangements were
costs. The Board also found that the Fund appropriate.
will not receive reduced services if it
invests its cash balances in such money o AIM's financial soundness in light of
market funds. The Board noted that, to the Fund's needs. The Board considered
the extent the Fund invests uninvested whether AIM is financially sound and has
cash in affiliated money market funds, the resources necessary to perform its
AIM has voluntarily agreed to waive a obligations under the Advisory Agreement,
portion of the advisory fees it receives and concluded that AIM has the financial
from the Fund attributable to such resources necessary to fulfill its
investment. The Board further determined obligations under the Advisory Agreement.
that the proposed securities lending pro-
gram and related procedures with respect o Historical relationship between the
to the lending Fund is in the best Fund and AIM. In determining whether to
interests of the lending Fund and its continue the Advisory Agreement for the
respective shareholders. The Board Fund, the Board also considered the prior
therefore concluded that the investment relationship between AIM and the Fund, as
of cash collateral received in connection well as the Board's knowledge of AIM's
with the securities lending program in operations, and concluded that it was
the money market funds according to the beneficial to maintain the current
procedures is in the best interests of relationship, in part, because of such
the lending Fund and its respective knowledge. The Board also reviewed the
shareholders. general nature of the non-investment
advisory services currently performed
11
Supplement to Annual Report dated 10/31/06
AIM Capital Development Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been prepared For periods ended 10/31/06 RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
to provide Institutional Class shareholders ALL RETURNS ASSUME REINVESTMENT OF
with a performance overview specific Inception (3/15/02) 8.92% DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
to their holdings. Institutional Class 1 Year 20.43 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
shares are offered exclusively to 6 Months* -1.45 SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
institutional investors, including defined LESS THAN THEIR ORIGINAL COST. SEE FULL
contribution plans that meet certain =================================== REPORT FOR INFORMATION ON COMPARATIVE
criteria. BENCHMARKS. PLEASE CONSULT YOUR FUND
AVERAGE ANNUAL TOTAL RETURNS PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
For periods ended 9/30/06, most CURRENT MONTH-END PERFORMANCE, PLEASE CALL
recent calendar quarter-end 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
Inception (3/15/02) 8.27%
1 Year 11.92
6 Months* -2.29
*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
PRIMARILY DUE TO DIFFERING SALES
CHARGES AND CLASS EXPENSES.
==============================================
NASDAQ SYMBOL ACDVX
==============================================
Over for information on your Fund's expenses.
====================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND
EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
====================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature for
public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM CHT-INS-1 A I M Distributors, Inc. --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example divide your account value by $1,000 The hypothetical account values and
(for example, an $8,600 account expenses may not be used to estimate the
As a shareholder of the Fund, you incur value divided by $1,000 = 8.6), actual ending account balance or expenses you
ongoing costs, including management fees and then multiply the result by the paid for the period. You may use this
other Fund expenses. This example is intended number in the table under the information to compare the ongoing costs of
to help you understand your ongoing costs (in heading entitled "Actual Expenses investing in the Fund and other funds. To do
dollars) of investing in the Fund and to Paid During Period" to estimate the so, compare this 5% hypothetical example with
compare these costs with ongoing costs of expenses you paid on your account the 5% hypothetical examples that appear in
investing in other mutual funds. The example during this period. the shareholder reports of the other funds.
is based on an investment of $1,000 invested
at the beginning of the period and held for Hypothetical example for
the entire period May 1, 2006, through October comparison purposes
31, 2006.
The table below also provides Please note that the expenses shown in
Actual expenses information about hypothetical the table are meant to highlight your ongoing
account values and hypothetical costs only. Therefore, the hypothetical
The table below provides information about expenses based on the Fund's actual information is useful in comparing ongoing
actual account values and actual expenses. You expense ratio and an assumed rate costs only, and will not help you determine
may use the information in this table, of return of 5% per year before the relative total costs of owning different
together with the amount you invested, to expenses, which is not the Fund's funds.
estimate the expenses that you paid over the actual return. The Fund's actual
period. Simply cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
Institutional $1,000.00 $985.50 $3.80 $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, 2006, through October 31,
2006, 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, 2006, 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 A I M Distributors, Inc.
AIM Capital Development Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.08%
ADVERTISING-1.18%
Clear Channel Outdoor Holdings, Inc.-Class
A(a) 487,727 $ 11,973,698
- -------------------------------------------------------------------------
Lamar Advertising Co.-Class A(a) 103,822 5,988,453
=========================================================================
17,962,151
=========================================================================
AEROSPACE & DEFENSE-3.56%
Armor Holdings, Inc.(a) 269,608 13,874,028
- -------------------------------------------------------------------------
L-3 Communications Holdings, Inc. 180,818 14,559,465
- -------------------------------------------------------------------------
Precision Castparts Corp. 375,506 25,556,938
=========================================================================
53,990,431
=========================================================================
AGRICULTURAL PRODUCTS-1.50%
Archer-Daniels-Midland Co. 275,732 10,615,682
- -------------------------------------------------------------------------
Bunge Ltd. 190,443 12,209,301
=========================================================================
22,824,983
=========================================================================
AIR FREIGHT & LOGISTICS-1.00%
Robinson (C.H.) Worldwide, Inc. 362,404 15,126,743
=========================================================================
ALTERNATIVE CARRIERS-1.90%
Level 3 Communications, Inc.(a)(b) 2,270,017 12,008,390
- -------------------------------------------------------------------------
Time Warner Telecom Inc.-Class A(a) 841,400 16,777,516
=========================================================================
28,785,906
=========================================================================
APPAREL RETAIL-2.48%
Abercrombie & Fitch Co.-Class A 213,496 16,364,468
- -------------------------------------------------------------------------
AnnTaylor Stores Corp.(a) 180,372 7,939,975
- -------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 175,156 6,060,398
- -------------------------------------------------------------------------
Talbots, Inc. (The) 259,075 7,264,463
=========================================================================
37,629,304
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-3.82%
Carter's, Inc.(a) 597,285 16,861,356
- -------------------------------------------------------------------------
Coach, Inc.(a) 447,472 17,737,790
- -------------------------------------------------------------------------
Polo Ralph Lauren Corp. 329,615 23,402,665
=========================================================================
58,001,811
=========================================================================
APPLICATION SOFTWARE-4.79%
Amdocs Ltd.(a) 430,379 16,681,490
- -------------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 796,226 14,220,596
- -------------------------------------------------------------------------
Citrix Systems, Inc.(a) 504,000 14,883,120
- -------------------------------------------------------------------------
Informatica Corp.(a) 731,122 9,058,602
- -------------------------------------------------------------------------
TIBCO Software Inc.(a) 1,938,900 17,934,825
=========================================================================
72,778,633
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
ASSET MANAGEMENT & CUSTODY BANKS-0.76%
Ameriprise Financial, Inc. 223,510 $ 11,510,765
=========================================================================
BIOTECHNOLOGY-1.60%
Celgene Corp.(a)(c) 225,000 12,024,000
- -------------------------------------------------------------------------
Genzyme Corp.(a) 182,000 12,286,820
=========================================================================
24,310,820
=========================================================================
CASINOS & GAMING-1.19%
Scientific Games Corp.-Class A(a) 643,851 18,047,144
=========================================================================
COAL & CONSUMABLE FUELS-0.81%
Aventine Renewable Energy Holdings,
Inc.(a)(d) 477,228 11,739,809
- -------------------------------------------------------------------------
Aventine Renewable Energy Holdings, Inc.(a) 20,000 492,000
=========================================================================
12,231,809
=========================================================================
COMMUNICATIONS EQUIPMENT-1.27%
Harris Corp. 355,603 15,148,688
- -------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 35,552 4,176,649
=========================================================================
19,325,337
=========================================================================
COMPUTER STORAGE & PERIPHERALS-1.96%
Logitech International S.A. (Switzerland)(a) 514,417 13,606,330
- -------------------------------------------------------------------------
Network Appliance, Inc.(a) 228,612 8,344,338
- -------------------------------------------------------------------------
QLogic Corp.(a) 381,683 7,855,036
=========================================================================
29,805,704
=========================================================================
CONSTRUCTION & ENGINEERING-2.12%
Foster Wheeler Ltd.(a) 377,471 16,967,322
- -------------------------------------------------------------------------
Washington Group International, Inc.(a) 269,228 15,243,689
=========================================================================
32,211,011
=========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.60%
Joy Global Inc. 234,732 9,180,368
=========================================================================
CONSUMER ELECTRONICS-1.16%
Harman International Industries, Inc. 171,779 17,581,581
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.20%
Alliance Data Systems Corp.(a) 279,297 16,958,914
- -------------------------------------------------------------------------
CheckFree Corp.(a) 392,569 15,498,624
- -------------------------------------------------------------------------
Fidelity National Information Services, Inc. 387,200 16,095,904
=========================================================================
48,553,442
=========================================================================
DEPARTMENT STORES-0.96%
Nordstrom, Inc. 306,225 14,499,754
=========================================================================
</Table>
F-1
AIM Capital Development Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.50%
Corrections Corp. of America(a) 480,385 $ 21,948,790
- -------------------------------------------------------------------------
IHS Inc.-Class A(a) 463,847 16,035,191
=========================================================================
37,983,981
=========================================================================
DIVERSIFIED METALS & MINING-0.48%
Southern Copper Corp. (Peru) 141,036 7,246,430
=========================================================================
DRUG RETAIL-1.25%
Shoppers Drug Mart Corp. (Canada) 469,300 19,048,723
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.07%
Cooper Industries, Ltd.-Class A 180,800 16,172,560
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.17%
Amphenol Corp.-Class A 261,456 17,752,862
=========================================================================
ELECTRONIC MANUFACTURING SERVICES-1.04%
Molex Inc. 453,348 15,821,845
=========================================================================
HEALTH CARE DISTRIBUTORS-0.97%
Schein (Henry), Inc.(a) 295,651 14,690,898
=========================================================================
HEALTH CARE EQUIPMENT-0.64%
ResMed Inc.(a) 219,806 9,669,266
=========================================================================
HEALTH CARE FACILITIES-1.01%
Psychiatric Solutions, Inc.(a) 460,000 15,272,000
=========================================================================
HEALTH CARE SERVICES-3.23%
DaVita, Inc.(a) 255,000 14,185,650
- -------------------------------------------------------------------------
Express Scripts, Inc.(a) 220,841 14,071,988
- -------------------------------------------------------------------------
Omnicare, Inc. 161,144 6,104,135
- -------------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 328,000 14,737,040
=========================================================================
49,098,813
=========================================================================
HEALTH CARE SUPPLIES-0.47%
PolyMedica Corp.(b) 170,284 7,075,300
=========================================================================
HEALTH CARE TECHNOLOGY-0.98%
Cerner Corp.(a) 308,000 14,879,480
=========================================================================
HOTELS, RESORTS & CRUISE LINES-2.17%
Hilton Hotels Corp. 579,300 16,753,356
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 270,716 16,172,574
=========================================================================
32,925,930
=========================================================================
HOUSEHOLD APPLIANCES-1.02%
Whirlpool Corp. 177,673 15,445,114
=========================================================================
HOUSEWARES & SPECIALTIES-1.25%
Jarden Corp.(a) 529,214 19,041,120
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
INSURANCE BROKERS-0.74%
National Financial Partners Corp. 286,870 $ 11,302,678
=========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.89%
Qwest Communications International Inc.(a) 1,566,376 13,517,825
=========================================================================
INVESTMENT BANKING & BROKERAGE-2.02%
E*TRADE Financial Corp.(a) 328,630 7,650,506
- -------------------------------------------------------------------------
FBR Capital Markets Corp. (Acquired 07/14/06;
Cost $7,044,000)(a)(d)(e)(f) 469,600 7,044,000
- -------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 874,099 15,926,084
=========================================================================
30,620,590
=========================================================================
INVESTMENT COMPANIES - EXCHANGE TRADED
FUNDS-1.05%
iShares Nasdaq Biotechnology Index Fund(a)(b) 201,313 16,014,449
=========================================================================
IT CONSULTING & OTHER SERVICES-0.92%
Cognizant Technology Solutions Corp.-Class
A(a) 185,277 13,947,653
=========================================================================
LIFE SCIENCES TOOLS & SERVICES-0.53%
Invitrogen Corp.(a) 140,000 8,121,400
=========================================================================
MANAGED HEALTH CARE-3.34%
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost
$13,947,028)(a)(e)(f) 1,014,837 17,252,229
- -------------------------------------------------------------------------
Centene Corp.(a) 450,000 10,615,500
- -------------------------------------------------------------------------
Coventry Health Care, Inc.(a) 313,984 14,741,549
- -------------------------------------------------------------------------
Health Net Inc.(a) 195,000 8,094,450
=========================================================================
50,703,728
=========================================================================
OFFICE SERVICES & SUPPLIES-1.05%
Knoll, Inc. 803,231 15,903,974
=========================================================================
OIL & GAS DRILLING-2.07%
ENSCO International Inc. 320,000 15,670,400
- -------------------------------------------------------------------------
Noble Corp. 225,000 15,772,500
=========================================================================
31,442,900
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.48%
FMC Technologies, Inc.(a) 183,000 11,062,350
- -------------------------------------------------------------------------
Grant Prideco, Inc.(a) 349,807 13,212,210
- -------------------------------------------------------------------------
Weatherford International Ltd.(a) 327,000 13,433,160
=========================================================================
37,707,720
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.99%
Chesapeake Energy Corp. 446,000 14,468,240
- -------------------------------------------------------------------------
Rosetta Resources, Inc.(a)(d) 765,100 13,833,008
- -------------------------------------------------------------------------
Southwestern Energy Co.(a) 480,000 17,078,400
=========================================================================
45,379,648
=========================================================================
</Table>
F-2
AIM Capital Development Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION-0.95%
Williams Cos., Inc. (The) 590,000 $ 14,413,700
=========================================================================
PHARMACEUTICALS-2.52%
Allergan, Inc. 131,000 15,130,500
- -------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 275,000 14,401,750
- -------------------------------------------------------------------------
Warner Chilcott Ltd.-Class A(a) 660,000 8,712,000
=========================================================================
38,244,250
=========================================================================
PROPERTY & CASUALTY INSURANCE-1.16%
Security Capital Assurance Ltd. 698,467 17,601,368
=========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.78%
CB Richard Ellis Group, Inc.-Class A(a)(c) 900,000 27,027,000
=========================================================================
REGIONAL BANKS-1.05%
Centennial Bank Holdings Inc.(a)(d) 874,600 8,396,160
- -------------------------------------------------------------------------
Centennial Bank Holdings Inc.(a)(b) 5,000 48,000
- -------------------------------------------------------------------------
Signature Bank(a) 249,200 7,558,236
=========================================================================
16,002,396
=========================================================================
RESTAURANTS-1.00%
Burger King Holdings Inc.(a) 904,689 15,180,681
=========================================================================
SEMICONDUCTOR EQUIPMENT-2.28%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 643,903 14,706,745
- -------------------------------------------------------------------------
Lam Research Corp.(a) 158,554 7,840,495
- -------------------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 342,031 12,142,100
=========================================================================
34,689,340
=========================================================================
SEMICONDUCTORS-1.86%
Advanced Micro Devices, Inc.(a) 293,788 6,248,871
- -------------------------------------------------------------------------
Microsemi Corp.(a) 788,407 15,452,777
- -------------------------------------------------------------------------
Spansion Inc.-Class A(a)(b) 457,159 6,519,087
=========================================================================
28,220,735
=========================================================================
SPECIALIZED FINANCE-1.22%
Chicago Mercantile Exchange Holdings Inc. 37,080 18,577,080
=========================================================================
SPECIALTY STORES-1.08%
Office Depot, Inc.(a) 391,666 16,446,055
=========================================================================
STEEL-1.25%
Allegheny Technologies, Inc. 240,631 18,944,879
=========================================================================
TECHNOLOGY DISTRIBUTORS-0.87%
Avnet, Inc.(a) 559,994 13,260,658
=========================================================================
THRIFTS & MORTGAGE FINANCE-0.26%
People's Choice Financial Corp. (Acquired
12/21/04-06/09/06; Cost $12,018,114)(e)(f) 1,311,388 3,934,164
=========================================================================
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
TRADING COMPANIES & DISTRIBUTORS-1.21%
WESCO International, Inc.(a) 280,938 $ 18,336,823
=========================================================================
WIRELESS TELECOMMUNICATION SERVICES-4.40%
American Tower Corp.-Class A(a) 322,329 11,610,291
- -------------------------------------------------------------------------
Crown Castle International Corp.(a) 219,330 7,380,455
- -------------------------------------------------------------------------
Leap Wireless International, Inc.(a) 204,516 11,342,457
- -------------------------------------------------------------------------
NII Holdings Inc.(a) 324,400 21,095,732
- -------------------------------------------------------------------------
SBA Communications Corp.-Class A(a) 573,110 15,307,768
=========================================================================
66,736,703
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,164,738,943) 1,458,760,416
=========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS PURCHASED-0.00%
AGRICULTURAL PRODUCTS-0.00%
Archer-Daniels-Midland Co. (Cost $382,120)(f) 2,757 $37 Nov-06 7,719
=================================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-5.11%
Liquid Assets Portfolio-Institutional
Class(g) 38,764,321 $ 38,764,321
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 38,764,321 38,764,321
==========================================================================
Total Money Market Funds (Cost
$77,528,642) 77,528,642
==========================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-101.19% (Cost
$1,242,649,705) 1,536,296,777
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.33%
Liquid Assets Portfolio-Institutional
Class(g)(h) 17,687,319 17,687,319
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 17,687,318 17,687,318
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $35,374,637) 35,374,637
==========================================================================
TOTAL INVESTMENTS-103.52% (Cost
$1,278,024,342) 1,571,671,414
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.52)% (53,408,406)
==========================================================================
NET ASSETS-100.00% $1,518,263,008
__________________________________________________________________________
==========================================================================
</Table>
F-3
AIM Capital Development Fund
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security was out on loan at October 31, 2006.
(c) A portion of this security is subject to call options written. See Note 1K
and Note 9.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at October 31, 2006 was $41,012,977, which represented 2.70% of
the Fund's Net Assets. See Note 1A.
(e) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate value of these securities at October 31, 2006 was $28,230,393,
which represented 1.86% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(f) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at October 31, 2006 was
$28,238,112, which represented 1.86% of the Fund's Net Assets.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(h) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Capital Development Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,165,121,063)* $1,458,768,135
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $112,903,279) 112,903,279
============================================================
Total investments (cost $1,278,024,342) 1,571,671,414
============================================================
Cash 2,782,170
- ------------------------------------------------------------
Receivables for:
Investments sold 6,372,916
- ------------------------------------------------------------
Fund shares sold 4,156,387
- ------------------------------------------------------------
Dividends 257,232
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 87,976
- ------------------------------------------------------------
Other assets 207,960
============================================================
Total assets 1,585,536,055
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 26,424,496
- ------------------------------------------------------------
Fund shares reacquired 2,857,183
- ------------------------------------------------------------
Options written, at value (premiums
received $409,932) 921,295
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 167,306
- ------------------------------------------------------------
Collateral upon return of securities
loaned 35,374,637
- ------------------------------------------------------------
Accrued distribution fees 534,419
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 2,142
- ------------------------------------------------------------
Accrued transfer agent fees 840,083
- ------------------------------------------------------------
Accrued operating expenses 151,486
============================================================
Total liabilities 67,273,047
============================================================
Net assets applicable to shares outstanding $1,518,263,008
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,068,467,383
- ------------------------------------------------------------
Undistributed net investment income (loss) (139,752)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and option contracts 156,799,668
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 293,135,709
============================================================
$1,518,263,008
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,095,203,848
____________________________________________________________
============================================================
Class B $ 236,175,004
____________________________________________________________
============================================================
Class C $ 109,423,888
____________________________________________________________
============================================================
Class R $ 22,577,361
____________________________________________________________
============================================================
Investor Class $ 9,866,350
____________________________________________________________
============================================================
Institutional Class $ 45,016,557
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 55,519,912
____________________________________________________________
============================================================
Class B 13,134,182
____________________________________________________________
============================================================
Class C 6,091,378
____________________________________________________________
============================================================
Class R 1,156,000
____________________________________________________________
============================================================
Investor Class 499,801
____________________________________________________________
============================================================
Institutional Class 2,214,374
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 19.73
- ------------------------------------------------------------
Offering price per share
(Net asset value of $19.73 divided by
94.50%) $ 20.88
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 17.98
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 17.96
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 19.53
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 19.74
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 20.33
____________________________________________________________
============================================================
</Table>
* At October 31, 2006, securities with an aggregate value of $34,482,739 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Capital Development Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $37,292) $ 7,752,776
- ----------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $270,228) 2,576,645
============================================================================
Total investment income 10,329,421
============================================================================
EXPENSES:
Advisory fees 9,230,304
- ----------------------------------------------------------------------------
Administrative services fees 373,575
- ----------------------------------------------------------------------------
Custodian fees 119,967
- ----------------------------------------------------------------------------
Distribution fees:
Class A 2,395,434
- ----------------------------------------------------------------------------
Class B 2,895,282
- ----------------------------------------------------------------------------
Class C 1,000,475
- ----------------------------------------------------------------------------
Class R 66,133
- ----------------------------------------------------------------------------
Investor Class 20,584
- ----------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 3,902,590
- ----------------------------------------------------------------------------
Transfer agent fees -- Institutional 12,110
- ----------------------------------------------------------------------------
Trustees' and officer's fees and benefits 49,560
- ----------------------------------------------------------------------------
Other 437,921
============================================================================
Total expenses 20,503,935
============================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (98,751)
============================================================================
Net expenses 20,405,184
============================================================================
Net investment income (loss) (10,075,763)
============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains (losses) from
securities sold to affiliates of $(1,092,951)) 168,863,846
- ----------------------------------------------------------------------------
Foreign currencies 29,103
- ----------------------------------------------------------------------------
Option contracts written 204,492
============================================================================
169,097,441
============================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 82,885,677
- ----------------------------------------------------------------------------
Option contracts written (511,363)
============================================================================
82,374,314
============================================================================
Net gain from investment securities, foreign currencies and
option contracts 251,471,755
============================================================================
Net increase in net assets resulting from operations $241,395,992
____________________________________________________________________________
============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Capital Development Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (10,075,763) $ (9,903,323)
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 169,097,441 198,651,455
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 82,374,314 (42,649,993)
==============================================================================================
Net increase in net assets resulting from operations 241,395,992 146,098,139
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (107,817,775) (50,047,808)
- ----------------------------------------------------------------------------------------------
Class B (44,259,534) (30,863,202)
- ----------------------------------------------------------------------------------------------
Class C (12,706,433) (6,304,790)
- ----------------------------------------------------------------------------------------------
Class R (1,177,080) (466,191)
- ----------------------------------------------------------------------------------------------
Investor Class (945,563) (46,094)
- ----------------------------------------------------------------------------------------------
Institutional Class (3,635,659) (282,499)
==============================================================================================
Decrease in net assets resulting from distributions (170,542,044) (88,010,584)
==============================================================================================
Share transactions-net:
Class A 239,870,039 144,724,899
- ----------------------------------------------------------------------------------------------
Class B (90,057,266) (74,233,309)
- ----------------------------------------------------------------------------------------------
Class C 17,249,712 10,965,505
- ----------------------------------------------------------------------------------------------
Class R 13,214,775 2,405,509
- ----------------------------------------------------------------------------------------------
Investor Class 2,708,301 6,814,869
- ----------------------------------------------------------------------------------------------
Institutional Class 17,652,216 24,840,069
==============================================================================================
Net increase in net assets resulting from share
transactions 200,637,777 115,517,542
==============================================================================================
Net increase in net assets 271,491,725 173,605,097
==============================================================================================
NET ASSETS:
Beginning of year 1,246,771,283 1,073,166,186
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(139,752) and $(116,433), respectively) $1,518,263,008 $1,246,771,283
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-7
AIM Capital Development Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Capital Development Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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
F-8
AIM Capital Development Fund
ratios of expenses and net investment income reported in the Financial
Highlights, nor are they limited by any expense limitation arrangements
between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a written
option is exercised, the Fund realizes a gain or a loss from the sale of
the underlying security and the proceeds of the sale are increased by the
premium originally received. Realized gains and losses on these contracts
are included in the Statement of Operations. A risk in writing a call
option is that the Fund gives up
F-9
AIM Capital Development Fund
the opportunity for profit if the market price of the security increases
and the option is exercised. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. Realized and unrealized gains and losses on these contracts are
included in the Statement of Operations. A risk in buying an option is that
the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
M. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $350 million 0.75%
- --------------------------------------------------------------------
Over $350 million 0.625%
___________________________________________________________________
====================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). 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, 2006, AIM waived advisory fees of $11,368.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the
amount of $3,956.
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, 2006, AIM was paid $373,575.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the Trust's Board of Trustees. For
the year ended October 31, 2006, the Fund paid AIS $3,902,590 for Class A, Class
B, Class C, Class R and Investor Class shares and $12,110 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. Of the Rule 12b-1 payments,
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, 2006, the Class A, Class B, Class C, Class
R and Investor Class shares paid $2,395,434, $2,895,282, $1,000,475, $66,133 and
$20,584, 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, 2006, ADI advised the Fund that it retained $214,742 in
front-end sales commissions from the sale of Class A shares and $6,200,
$104,937, $7,290 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
F-10
AIM Capital Development Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in affiliated money market funds. The Fund and the money
market funds below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 24,940,812 $351,398,601 $ (337,575,092) $ -- $ 38,764,321 $1,151,154 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 132,708,544 (93,944,223) -- 38,764,321 398,071 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 24,940,812 237,285,258 (262,226,070) -- -- 757,191 --
===================================================================================================================================
Subtotal $ 49,881,624 $721,392,403 $ (693,745,385) $ -- $ 77,528,642 $2,306,416 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 90,554,944 $125,887,462 $ (198,755,087) $ -- $ 17,687,319 $ 134,667 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 90,554,944 125,887,462 (198,755,088) -- 17,687,318 135,561 --
===================================================================================================================================
Subtotal $181,109,888 $251,774,924 $ (397,510,175) $ -- $ 35,374,637 $ 270,228 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $230,991,512 $973,167,327 $(1,091,255,560) $ -- $112,903,279 $2,576,644 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the year ended October 31, 2006, the Fund
engaged in securities sales of $76,189,369, which resulted in net realized gains
(losses) of $(1,092,951), and securities purchases of $70,686,258.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $83,427.
F-11
AIM Capital Development Fund
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to 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, 2006, the Fund paid legal fees of $8,457
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At October 31, 2006, securities with an aggregate value of $34,482,739 were
on loan to brokers. The loans were secured by cash collateral of $35,374,637
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2006, the Fund received dividends on cash
collateral investments of $270,228 for securities lending transactions, which
are net of compensation to counterparties.
F-12
AIM Capital Development Fund
NOTE 9--OPTIONS CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of period -- $ --
- ------------------------------------------------------------------------------------
Written 5,284 614,424
- ------------------------------------------------------------------------------------
Expired (2,700) (204,492)
====================================================================================
End of period 2,584 $ 409,932
____________________________________________________________________________________
====================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 10/31/06 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
CALLS
CB Richard Ellis Group, Inc.-
Class A Nov-06 $25 1,459 $246,965 $746,133 $(499,168)
- ---------------------------------------------------------------------------------------------------------------------------------
Celgene Corp. Jan-07 58 1,125 162,967 175,162 (12,195)
=================================================================================================================================
$409,932 $921,295 $(511,363)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years October 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 21,613,933 $ --
- -----------------------------------------------------------------------------------------
Long-term capital gain 148,928,111 88,010,584
=========================================================================================
Total distributions $170,542,044 $88,010,584
_________________________________________________________________________________________
=========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 45,460,564
- ------------------------------------------------------------------------------
Undistributed long-term gain 113,008,479
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 291,466,334
- ------------------------------------------------------------------------------
Temporary book/tax differences (139,752)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,068,467,383
==============================================================================
Total net assets $1,518,263,008
______________________________________________________________________________
==============================================================================
</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 straddles. The tax-basis net
unrealized appreciation on investments amount includes appreciation
(depreciation) on options written of $(511,363).
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, 2006.
F-13
AIM Capital Development Fund
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $1,722,325,750 and
$1,714,015,261, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $312,605,622
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (20,627,925)
==============================================================================
Net unrealized appreciation of investment securities $291,977,697
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,279,693,717.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses and reorganization expenses, on October 31,
2006, undistributed net investment income (loss) was increased by $10,052,444,
undistributed net realized gain was decreased by $10,043,548 and shares of
beneficial interest decreased by $8,896. This reclassification had no effect on
the net assets of the Fund.
F-14
AIM Capital Development Fund
NOTE 13--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A, Class
B, Class C, Class R, Investor Class and Institutional Class. Investor Class
shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge unless certain waiver
criteria are met. Class B shares and Class C shares are sold with CDSC. Class R
shares, Investor Class and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares are subject to CDSC.
Generally, Class B shares will automatically convert to Class A shares on or
about the month-end which is at least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2006(a) 2005
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,936,052 $ 282,982,886 10,348,935 $ 190,673,466
- -------------------------------------------------------------------------------------------------------------------------
Class B 2,475,593 42,932,168 2,667,018 45,749,438
- -------------------------------------------------------------------------------------------------------------------------
Class C 1,776,759 30,953,586 1,289,052 22,136,153
- -------------------------------------------------------------------------------------------------------------------------
Class R 869,095 16,294,099 257,080 4,728,499
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 382,671 7,315,702 91,260 1,700,432
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 1,196,492 22,967,887 490,561 9,221,195
=========================================================================================================================
Issued as reinvestment of dividends:
Class A 5,748,823 101,006,824 2,609,950 47,005,197
- -------------------------------------------------------------------------------------------------------------------------
Class B 2,598,963 41,895,285 1,735,416 29,207,054
- -------------------------------------------------------------------------------------------------------------------------
Class C 759,877 12,234,018 358,665 6,032,744
- -------------------------------------------------------------------------------------------------------------------------
Class R 67,532 1,177,080 25,963 465,263
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(b) 53,056 932,721 2,559 46,094
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class 201,601 3,632,851 15,412 282,499
=========================================================================================================================
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 5,789,200 109,833,095 3,983,902 73,470,591
- -------------------------------------------------------------------------------------------------------------------------
Class B (6,322,555) (109,833,095) (4,272,532) (73,470,591)
=========================================================================================================================
Reacquired:
Class A (13,432,084) (253,952,766) (9,830,016) (181,643,724)
- -------------------------------------------------------------------------------------------------------------------------
Class B (3,748,272) (65,051,624) (4,826,915) (82,906,893)
- -------------------------------------------------------------------------------------------------------------------------
Class C (1,492,559) (25,937,892) (1,233,703) (21,199,965)
- -------------------------------------------------------------------------------------------------------------------------
Class R (227,925) (4,256,404) (151,929) (2,788,253)
- -------------------------------------------------------------------------------------------------------------------------
Investor Class(b) (295,877) (5,540,122) (56,512) (1,078,108)
- -------------------------------------------------------------------------------------------------------------------------
Institutional Class (479,208) (8,948,522) (90,294) (1,687,079)
=========================================================================================================================
10,857,234 $ 200,637,777 6,043,452 $ 115,517,542
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and own 17% 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 entity, 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) Investor Class shares commenced sales on November 30, 2004.
(c) As of the opening 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 on March 22, 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. Each class of shares of AIM Mid Cap
Stock Fund was exchanged for the like class of shares of the Fund based on
the relative net asset value of AIM Mid Cap Stock Fund to the net asset
value of the Fund on the close of business, July 15, 2005. AIM Mid Cap Stock
Fund's net assets as of the close of business on July 15, 2005 of
$49,573,530 including $5,830,760 of unrealized appreciation were combined
with the net assets of the Fund immediately before the acquisition of
$1,228,658,758. The combined aggregate net assets of the Fund subsequent to
the reorganization were $1,278,232,288.
F-15
AIM Capital Development Fund
NOTE 14--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 15--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,
----------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.85 $ 17.86 $ 16.66 $ 12.80 $ 14.69
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.10) (0.11) (0.08) (0.08) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.53 2.52 1.70 3.94 (1.85)
==============================================================================================================================
Total from investment operations 3.43 2.41 1.62 3.86 (1.89)
==============================================================================================================================
Less distributions from net realized gains (2.55) (1.42) (0.42) -- --
==============================================================================================================================
Net asset value, end of period $ 19.73 $ 18.85 $ 17.86 $ 16.66 $ 12.80
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 19.86% 13.87% 9.87% 30.16% (12.87)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,095,204 $800,830 $617,194 $545,691 $456,268
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 1.26%(c) 1.36% 1.40%(d) 1.53% 1.38%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.52)%(c) (0.58)% (0.46)% (0.56)% (0.29)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 126% 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 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 $958,173,662.
(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,
--------------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.51 $ 16.79 $ 15.79 $ 12.21 $ 14.10
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.22) (0.22) (0.18) (0.16) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.24 2.36 1.60 3.74 (1.75)
============================================================================================================================
Total from investment operations 3.02 2.14 1.42 3.58 (1.89)
============================================================================================================================
Less distributions from net realized gains (2.55) (1.42) (0.42) -- --
============================================================================================================================
Net asset value, end of period $ 17.98 $ 17.51 $ 16.79 $ 15.79 $ 12.21
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 18.92% 13.09% 9.13% 29.32% (13.40)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $236,175 $317,492 $376,355 $392,382 $346,456
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.01%(c) 2.04% 2.05%(d) 2.18% 2.03%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.27)%(c) (1.26)% (1.11)% (1.21)% (0.94)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 126% 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 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 $289,528,224.
(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-16
AIM Capital Development Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.50 $ 16.77 $ 15.78 $ 12.20 $ 14.10
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.22) (0.22) (0.18) (0.16) (0.14)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.23 2.37 1.59 3.74 (1.76)
========================================================================================================================
Total from investment operations 3.01 2.15 1.41 3.58 (1.90)
========================================================================================================================
Less distributions from net realized gains (2.55) (1.42) (0.42) -- --
========================================================================================================================
Net asset value, end of period $ 17.96 $ 17.50 $ 16.77 $ 15.78 $ 12.20
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 18.88% 13.16% 9.07% 29.34% (13.48)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $109,424 $88,316 $73,929 $68,356 $56,298
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 2.01%(c) 2.04% 2.05%(d) 2.18% 2.03%
========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.27)%(c) (1.26)% (1.11)% (1.21)% (0.94)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 126% 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 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 $100,047,537.
(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,
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.73 $17.78 $16.62 $12.79 $ 16.62
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.14) (0.14) (0.10) (0.10) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.49 2.51 1.68 3.93 (3.80)
==========================================================================================================================
Total from investment operations 3.35 2.37 1.58 3.83 (3.83)
==========================================================================================================================
Less distributions from net realized gains (2.55) (1.42) (0.42) -- --
==========================================================================================================================
Net asset value, end of period $ 19.53 $18.73 $17.78 $16.62 $ 12.79
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 19.52% 13.69% 9.65% 29.95% (23.05)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,577 $8,379 $5,622 $1,154 $ 10
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 1.51%(c) 1.54% 1.55%(d) 1.68% 1.54%(e)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.77)%(c) (0.76)% (0.61)% (0.71)% (0.44)%(e)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(f) 126% 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 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 $13,226,616.
(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) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-17
AIM Capital Development Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
-------------------------------
NOVEMBER 30,
2004
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $18.87 $18.95
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.10) (0.09)
- ---------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 3.52 1.43
=============================================================================================
Total from investment operations 3.42 1.34
=============================================================================================
Less distributions from net realized gains (2.55) (1.42)
=============================================================================================
Net asset value, end of period $19.74 $18.87
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 19.78% 7.43%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,866 $6,791
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets 1.26%(c) 1.29%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.52)%(c) (0.51)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 126% 120%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $8,233,520.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------------------------
MARCH 15,
2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.27 $ 18.13 $16.83 $12.84 $ 17.25
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.00) (0.01) 0.01 0.01 0.02
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.61 2.57 1.71 3.98 (4.43)
========================================================================================================================
Total from investment operations 3.61 2.56 1.72 3.99 (4.41)
========================================================================================================================
Less distributions from net realized gains (2.55) (1.42) (0.42) -- --
========================================================================================================================
Net asset value, end of period $ 20.33 $ 19.27 $18.13 $16.83 $ 12.84
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 20.43% 14.52% 10.38% 31.08% (25.57)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $45,017 $24,964 $ 67 $ 10 $ 7
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.76%(c) 0.81% 0.86% 0.87% 0.84%(d)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.76%(c) 0.81% 1.15% 1.25% 0.99%(d)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.02)%(c) (0.03)% 0.08% 0.10% 0.25%(d)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 126% 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 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 $37,639,083.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-18
AIM Capital Development Fund
NOTE 16--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor --
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds and failed to disclose these arrangements in the
prospectuses for such Funds, and conclusions of law to the effect that AIM and
ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to
cease any further violations and seeks to impose monetary sanctions, including
restitution to affected investors, disgorgement of fees, reimbursement of
investigatory, administrative and legal costs and an "administrative
assessment," to be determined by the Commissioner. Initial research indicates
that these damages could be limited or capped by statute.
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; and
- 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 (all the claims in
this category of lawsuits were dismissed with prejudice by the court on
September 29, 2006, except for the Section 36(b) claim which was dismissed
with leave to amend to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-19
AIM Capital Development Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Capital Development Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
October 31, 2004 were audited by another independent registered public
accounting firm whose report, dated December 15, 2004, expressed an unqualified
opinion on those financial highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-20
AIM Capital Development Fund
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2006, 29.51% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $148,928,111 for
the Fund's tax year ended October 31, 2006.
For its tax year ended October 31, 2006, the Fund designates 30.64%, 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 in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended October 31, 2006, the Fund designates 0%, or the maximum
amount allowable, of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt
from U.S. tax for non-resident alien shareholders of $6,412 for the Fund's tax
year end October 31, 2006.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 8.19%, 6.84%, 5.75% and 8.82%, respectively.
F-21
AIM Capital Development Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-22
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Capital Development Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-23
[EDELIVERY GO PAPERLESS
AIMINVESTMENTS.COM/EDELIVERY GRAPHIC]
REGISTER FOR EDELIVERY
eDelivery is the process of receiving your fund and account If used after January 20, 2007, this report must be
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send you an e-mail notification containing links to these Mutual funds distributed by A I M Distributors, Inc.
documents. For security purposes, you will need to log in to
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investment management industry since 1976. AIM Investment
WHY SIGN UP? Services, Inc. is the transfer agent for the products and
services represented by AIM Investments. AIM is a subsidiary
Register for eDelivery to: of AMVESCAP PLC, one of the world's largest independent
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o reduce the amount of paper you receive. under management as of October 31, 2006.
o gain access to your documents faster by not waiting for
the mail. CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND
EXPENSES CAREFULLY. FOR THIS AND OTHER INFORMATION ABOUT AIM
o view your documents online anytime at your convenience. FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL ADVISOR AND
READ IT CAREFULLY BEFORE INVESTING.
o save the documents to your personal computer or print
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HOW DO I SIGN UP?
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This AIM service is provided by AIM Investment Services, Inc. AIMinvestments.com CDV-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
- ------------------------------------------------------------------------
DOMESTIC EQUITY AIM CHARTER FUND
Large-Cap Blend Annual Report to Shareholders o October 31, 2006
Table of Contents
Supplemental Information .............. 2
Letters to Shareholders ............... 3
Performance Summary ................... 5
Management Discussion ................. 5
Fund Expenses ......................... 7
Long-term Fund Performance ............ 8
Approval of Advisory Agreement ........ 10
Schedule of Investments ............... F-1
Financial Statements .................. F-4
Notes to Financial Statements ......... F-7
Financial Highlights .................. F-15
Auditor's Report ...................... F-20 [COVER GLOBE IMAGE]
Tax Disclosures ....................... F-21
Trustees and Officers ................. F-22
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
AIM Charter Fund
AIM CHARTER FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October 31, 2006, 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 FUNDS 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 Class R shares are available only to performance of any particular index, your Fund from the drop-down menu and
certain retirement plans. Please see the including the indexes defined here, and click on Complete Quarterly Holdings.
prospectus for more information. consequently, the performance of the Shareholders can also look up the Fund's
Fund may deviate significantly from the Forms N-Q on the SEC Web site at
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of the indexes. sec.gov. Copies of the Fund's Forms N-Q
may be reviewed and copied at the SEC
o Foreign securities have additional o A direct investment cannot be made in Public Reference Room in Washington,
risks, including exchange rate changes, an index. Unless otherwise indicated, D.C. You can obtain information on the
political and economic upheaval, the index results include reinvested operation of the Public Reference Room,
relative lack of information about these dividends, and they do not reflect sales including information about duplicating
companies, relatively low market charges. Performance of an index of fee charges, by calling 202-942-8090 or
liquidity and the potential lack of funds reflects fund expenses; 800-732-0330, or by electronic request
strict financial and accounting controls performance of a market index does not. at the following e-mail address:
and standards. publicinfo@sec.gov. The SEC file numbers
OTHER INFORMATION for the Fund are 811-01424 and
o Prices of equity securities change in 002-25469.
response to many factors including the o Industry classifications used in this
historical and prospective earnings of report are generally according to the A description of the policies and
the issuer, the value of its assets, Global Industry Classification Standard, procedures that the Fund uses to
general economic conditions, interest which was developed by and is the determine how to vote proxies relating
rates, investor perceptions and market exclusive property and a service mark of to portfolio securities is available
liquidity. Morgan Stanley Capital International without charge, upon request, from our
Inc. and Standard & Poor's. Client Services department at
o To the extent the Fund holds cash or 800-959-4246 or on the AIM Web site,
cash equivalents rather than equity o The returns shown in management's AIMinvestments.com. On the home page,
securities for risk management purposes, discussion of Fund performance are based scroll down and click on AIM Funds Proxy
the Fund may not achieve its investment on net asset values calculated for Policy. The information is also
objective. shareholder transactions. Generally available on the SEC Web site, sec.gov.
accepted accounting principles require
ABOUT INDEXES USED IN THIS REPORT adjustments to be made to the net assets Information regarding how the Fund voted
of the Fund at period end for financial proxies related to its portfolio
o The unmanaged STANDARD & POOR'S reporting purposes, and as such, the net securities during the 12 months ended
COMPOSITE INDEX OF 500 STOCKS (the S&P asset values for shareholder June 30, 2006, is available at our Web
500--Registered Trademark-- Index) is transactions and the returns based on site. Go to AIMinvestments.com, access
an index of common stocks frequently those net asset values may differ from the About Us tab, click on Required
used as a general measure of U.S. stock the net asset values and returns Notices and then click on Proxy Voting
market performance. reported in the Financial Highlights Activity. Next, select the Fund from the
drop-down menu. The information is also
available on the SEC 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 CHTRX
====================================================================================== Class B Shares BCHTX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares CHTCX
AIMinvestments.com Class R Shares CHRRX
=========================================
2
AIM Charter Fund
Dear Shareholders of The AIM Family of Funds
--Registered Trademark--:
We're pleased to provide you with this report, which
includes a discussion of how your Fund was managed during the
review period ended October 31, 2006, and what factors
affected its performance.
As we approach the end of 2006, it seems likely that many
[TAYLOR investors may see the value of their investments increase
PHOTO] this year. Global equity markets, collectively, recorded
double-digit gains for the year ended October 31, 2006, as
did the U.S. stock market. Also, the investment grade bond
market in the United States rose for the same period.
While stock and bond markets generally enjoyed positive
Phillip Taylor year-to-date returns, their performance was affected by
short-term economic and geopolitical events. For example, the
U.S. stock market was weak in the second quarter of 2006 when
it appeared that inflation might be rising. Only after the
U.S. Federal Reserve Board decided in August that inflation
was contained and that short-term interest rates need not be
increased--the first time it kept rates unchanged in more
than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for all
investors. At AIM Investments--Registered Trademark--, we
believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio. AIM
Investments can help by offering a broad product line that
gives your financial advisor the necessary tools to build a
portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each asset
class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed income.
A legend in the left column illustrates the methodology. Your
report cover now shows your Fund's asset class color, plus
the asset class and sub-asset class name are shown in the
upper-left corner. The reason for these changes is to help
you better understand where your Fund fits into your overall
portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial advisor
can help allocate your portfolio appropriately and review
your investments regularly to help ensure they remain
suitable as your financial situation changes. While there are
no guarantees with any investment program, a long-term plan
that's based on your financial goals, risk tolerance and time
horizon is more likely to keep you and your investments on
track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is
their unpredictability. While past performance cannot
guarantee comparable future results, we believe that staying
invested for the long term with a thoughtful plan offers the
best opportunity for weathering that unpredictability. We at
AIM Investments remain committed to building enduring
solutions to help you achieve your investment goals, and
we're pleased you've placed your trust in us.
Information about investing, the markets and your Fund is
always available on our Web site, AIMinvestments.com. If you
have questions about your individual account, we invite you
to contact one of our highly trained client services
representatives at 800-959-4246.
Sincerely,
/s/ PHILIP TAYLOR
Philip Taylor
President -- AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Charter Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed
its comprehensive review* of each fund's advisory agreement
with A I M Advisors, Inc. (AIM) to make certain your
interests are being served in terms of fees, performance and
operations.
[CROCKETT Looking ahead, your Board finds many reasons to be
PHOTO] positive about AIM's management and strategic direction. Most
importantly, AIM's investment management discipline has paid
off in terms of improved overall performance. We are also
pleased with AIM's efforts to seek more cost-effective ways
of delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
Bruce L. Crockett organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few years,
your Board will be meeting at these various centers of
excellence to learn about their progress and how they may
serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction and
progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a letter
addressed to me at AIM Investments, AIM Investments Tower, 11
Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
*To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the "Products
& Performance" tab at the AIM Web site (AIMinvestments.com)
and click on "Investment Advisory Agreement Renewals." The
approval of advisory agreement information for your Fund is
also included in this annual report on pages 10-11.
4
AIM Charter Fund
Management's discussion of competitive advantages. Capital
of Fund performance analysis provides vital insight into
historical and potential returns on
================================================================================ invested capital, a key indicator of
PERFORMANCE SUMMARY business quality and the caliber of
management. Both the business and
For the fiscal year ended October 31, 2006, Class A shares of AIM Charter Fund, capital analyses serve as a basis to
excluding applicable sales charges, delivered positive returns, outperforming construct valuation models that help us
the S&P 500 Index and the Russell 1000 Index. Performance for the Fund was led by estimate a company's value. We use three
holdings within the information technology, consumer staples and energy sectors primary valuation techniques, including
while more modest returns were seen in the telecommunication services and discounted cash flow, traditional
utilities sectors. valuation multiples and net asset value.
Your Fund's long-term performance appears on pages 8 and 9. Our risk management strategy includes
fundamental research, as well as
FUND VS. INDEXES diversifying Fund holdings across
industries and sectors and generally
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales limiting the size of individual holdings
charges were included, returns would be lower. to less than 5% of the portfolio.
Class A Shares 17.49% We consider selling a stock when:
Class B Shares 16.63
Class C Shares 16.67 o It exceeds our target price.
Class R Shares 17.21
S&P 500 Index (Broad Market Index) 16.33 o We have not seen a demonstrable
Russell 1000 Index (Style-Specific Index) 16.02 improvement in fundamentals.
Lipper Large-Cap Core Funds Index (Peer Group Index) 14.65
o More compelling investment
SOURCE: LIPPER INC. opportunities exist.
================================================================================
MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST and return on invested capital (ROIC).
The process we use to identify potential The economy has enjoyed several years of
We manage your Fund as a core fund, investments for the Fund includes three economic growth fueled by low interest
seeking to provide upside potential as phases: rates, a strong real estate market and
well as a measure of protection in resilient consumer spending. However, in
difficult markets. As part of an overall o Business analysis to determine the past year we have begun to see a
well-diversified asset allocation competitive positioning moderation of economic growth as the
strategy, the Fund can serve by U.S. Federal Reserve Board (the Fed)
providing a cornerstone of large-cap o Capital analysis to determine ROIC and raised short-term interest rates 17
core investments to complement more capital allocation times since June 2004 before pausing at
aggressive value and growth investments. 5.25% in August 2006. Although the
o Valuation to identify attractively current level of interest rates is low
We conduct fundamental research of valued companies by historical standards, a five-fold
companies to gain a thorough increase over a two-year period can
understanding of their business Business analysis allows us to affect the economy. Despite a moderating
prospects, appreciation potential identify key drivers of the company, (continued)
understand industry challenges and
evaluate the sustainability
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 7.8% 1. Tyco International Ltd. 3.2%
2. Industrial Conglomerates 6.0 2. Exxon Mobil Corp. 2.8
[PIE CHART] 3. Packaged Foods & Meats 5.0 3. Berkshire Hathaway Inc.-
4. Property & Casualty Class A 2.6
Health Care 9.9% Insurance 4.9 4. AT&T Inc. 2.5
Energy 7.9% 5. Communications Equipment 4.2 5. Cadbury Schweppes PLC (United
Consumer Discretionary 7.1% Kingdom) 2.4
Telecommunication Services 3.5% Total Net Assets $6.78 billion 6. Waste Management, Inc. 2.4
Utilities 1.7% Total Number of Holdings* 65 7. Microsoft Corp. 2.3
Money Market Funds Plus 8. Estee Lauder Cos. Inc.
Other Assets Less (The)-Class A 2.2
Liabilities 12.4% 9. Amgen Inc. 2.1
Information Technology 16.6% 10. Xerox Corp. 2.1
Consumer Staples 16.0%
Industrials 13.0%
Financials 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.
======================================== ======================================== ========================================
5
AIM Charter Fund
economic environment, the labor force Trademark--. AT&T rallied on its merger reasonable valuations. However the
has remained intact with unemployment at with BellSouth (not a Fund holding), an Fund's exposure is less than the 20%
4.4% as of October 31, 2006. Overall, it improving balance sheet and a share limit on international exposure.
appears as though economic growth repurchase program. CISCO SYSTEMS, a
remained positive albeit at a more leading enterprise technology company, We believe that the Fund is currently
subdued level than what we have seen in experienced strong momentum with service well diversified across sectors and that
the past several years. providers who in turn benefited from the our current level of assets under
routing business and improved home management allows for sufficient
At the close of the fiscal year, the networking trends. HEINEKEN, a brewing flexibility in the large cap space if we
Fund's positioning was somewhat more company, delivered stellar revenue and need to adjust to changing market
defensive than the Russell 1000 Index. profit growth and intends to continue conditions. Also, the presence of growth
Fundamental data suggested growth focusing on cost cutting initiatives stocks and value stocks has become more
catalysts and sustainable profits tied into 2008. balanced across the various sectors of
to the credit cycle have shown signs of the economy over the past year and we
diminishing. In this environment of Some detractors from performance were have sought to invest the portfolio
scarcer growth, we believe an important INTEL and XILINX, leading semiconductor equitably across these opportunities as
element of our outperformance versus our companies which are no longer held by opposed to having a bias to one over the
broad market index is that we are an the Fund. These stocks declined as other.
active fund manager who uses fundamental competitive pressures and weaker demand
analysis and high quality stock led to lower market share and margin IN CLOSING
selection. Recently, the vast majority deterioration. CA, a large
of large cap companies have reported infrastructure software vendor which the We continuously strive to provide a
in-line or better-than-expected third Fund sold during the fiscal year, Fund that can serve as the core of an
quarter earnings, which helped present declined on negative earnings results investor's portfolio by adding stability
growth and valuation opportunities in paired with significant organizational and consistency to more aggressive
the large cap universe for active changes. equity investments. Thank you for
managers like us. However, forward investing in AIM Charter Fund.
earnings guidance was lowered and the During the fiscal year, we sold
ability of the broad market to sustain select positions within the energy and The views and opinions expressed in
earnings levels may be challenged. financials sectors while redeploying management's discussion of Fund
some of these assets into consumer performance are those of A I M Advisors,
For the fiscal year, the Fund staples, industrials, telecommunications Inc. These views and opinions are
outperformed the Russell 1000 Index and utilities stocks. As economic subject to change at any time based on
primarily due to solid stock selection. uncertainty persisted and anecdotal factors such as market and economic
Energy was the largest contributing evidence suggested more modest growth, conditions. These views and opinions may
sector for the portfolio, followed by it has become increasingly important to not be relied upon as investment advice
information technology and financials. identify niche opportunities, tangible or recommendations, or as an offer for a
Select Fund holdings within the growth catalysts and discounted particular security. The information is
materials sector and consumer-related valuations. We believe the Fund's not a complete analysis of every aspect
stocks benefited from resilient consumer management team has identified such of any market, country, industry,
spending and robust commodity prices opportunities in select consumer staples security or the Fund. Statements of fact
during the fiscal year. Broad market companies with operating leverage are from sources considered reliable,
strength across all market prospects due to acquisitions or but A I M Advisors, Inc. makes no
capitilizations boosted returns in most cost-cutting efforts as opposed to representation or warranty as to their
industries other than semiconductors, top-line revenue growth dependent on completeness or accuracy. Although
which was plagued by weaker demand and consumer spending. historical performance is no guarantee
higher inventories. Additionally, even of future results, these insights may
though financials was a contributor to Investment opportunities have also help you understand our investment
overall positive performance, the Fund been identified in some technology management philosophy.
underperformed the Russell 1000 Index in companies that may be poised to benefit
this sector. from new product offerings, increased See important Fund and index
spending on software and spending by disclosures on the inside front cover.
Individual holdings that contributed telecommunications companies in
most to Fund returns included MERCK, a competition with cable providers. At the Ronald S. Sloan
pharmaceutical manufacturer that end of the fiscal year, relative to the Chartered Financial Analyst,
implemented an ambitious cost-savings Fund's broad market and style-specific [SLOAN senior portfolio manager, is
program and a regeneration of earnings indexes, overweight sectors included PHOTO] lead manager of AIM Charter
and revenue growth via a new product consumer staples, industrials and Fund. Mr. Sloan has been in
pipeline and the consolidation of select information technology with the Fund the investment industry
operating and sales divisions. relatively underweight in consumer since 1971. He joined AIM in
Valuations for the company became discretionary, financials, health care, 1998. Mr. Sloan attended the University
compelling following the release of materials and utilities stocks. The Fund of Missouri, where he earned both a B.S.
disappointing information related to management team identified several in business administration and an M.B.A.
risks of its leading drug, Vioxx non-U.S. companies that we believe
- --Registered represent compelling growth Assisted by the Mid/Large Cap Core
opportunities at Team
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE, PLEASE SEE PAGES
8 AND 9.
6
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 the
As a shareholder of the Fund, you incur over the period. Simply divide your actual ending account balance or
two types of costs: (1) transaction account value by $1,000 (for example, an expenses you paid for the period. You
costs, which may include sales charges $8,600 account value divided by $1,000 = may use this information to compare the
(loads) on purchase payments or 8.6), then multiply the result by the ongoing costs of investing in the Fund
contingent deferred sales charges on number in the table under the heading and other funds. To do so, compare this
redemptions, and redemption fees, if entitled "Actual Expenses Paid During 5% hypothetical example with the 5%
any; and (2) ongoing costs, including Period" to estimate the expenses you hypothetical examples that appear in the
management fees; distribution and/or paid on your account during this period. shareholder reports of the other funds.
service (12b-1) fees; and other Fund
expenses. This example is intended to HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown
help you understand your ongoing costs COMPARISON PURPOSES in the table are meant to highlight your
(in dollars) of investing in the Fund ongoing costs only and do not reflect
and to compare these costs with ongoing The table below also provides any transaction costs, such as sales
costs of investing in other mutual information about hypothetical account charges (loads) on purchase payments,
funds. The example is based on an values and hypothetical expenses based contingent deferred sales charges on
investment of $1,000 invested at the on the Fund's actual expense ratio and redemptions, and redemption fees, if
beginning of the period and held for the an assumed rate of return of 5% per year any. Therefore, the hypothetical
entire period May 1, 2006, through before expenses, which is not the Fund's information is useful in comparing
October 31, 2006. 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, 2006, appear in the if these transaction costs were
The table below provides information table "Cumulative Total Returns" on included, your costs would have been
about actual account values and actual page 9. 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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $1,053.50 $ 6.57 $1,018.80 $ 6.46 1.27%
B 1,000.00 1,049.90 10.44 1,015.02 10.26 2.02
C 1,000.00 1,049.80 10.44 1,015.02 10.26 2.02
R 1,000.00 1,052.40 7.86 1,017.54 7.73 1.52
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
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 9126
3/69 9292 9464
4/69 9434 9691
5/69 9548 9694
6/69 9007 9179
7/69 8465 8650
8/69 9064 9022
9/69 9064 8820
10/69 9577 9238
11/69 9264 8938
12/69 9086 8798
1/70 8168 8150
2/70 8730 8605
3/70 8375 8643
4/70 7250 7887
5/70 6629 7432
6/70 6185 7085
7/70 6629 7630
8/70 6836 7995
9/70 7250 8284
10/70 7043 8216
11/70 7116 8631
12/70 7574 9148
1/71 8154 9543
2/71 8215 9654
3/71 8673 10035
4/71 9162 10425
5/71 9070 10017
6/71 9193 10051
7/71 9040 9661
8/71 9437 10035
9/71 9559 9991
10/71 9192 9600
11/71 9302 9602
12/71 10325 10455
1/72 11472 10670
2/72 11906 10967
3/72 12371 11057
4/72 12898 11132
5/72 14014 11352
6/72 14137 11131
7/72 13238 11185
8/72 12557 11597
9/72 13021 11568
10/72 12774 11706
11/72 13517 12269
12/72 14167 12442
1/73 14167 12257
2/73 12525 11824
3/73 12491 11835
4/73 11191 11381
5/73 10609 11196
6/73 10233 11152
7/73 11635 11605
8/73 11806 11209
9/73 13517 11688
10/73 14167 11707
11/73 11494 10408
12/73 12249 10616
1/74 12009 10539
2/74 11941 10530
3/74 11323 10316
4/74 10706 9947
5/74 10328 9644
6/74 10396 9535
7/74 9676 8829
8/74 9573 8065
9/74 8270 7137
10/74 9745 8337
11/74 9499 7929
12/74 8941 7805
1/75 9465 8798
2/75 9954 9359
3/75 10443 9597
4/75 11630 10086
5/75 12153 10567
6/75 12957 11071
7/75 12258 10358
8/75 12188 10176
9/75 11700 9860
10/75 11909 10503
11/75 12120 10798
12/75 11837 10712
1/76 13357 12016
2/76 13852 11915
3/76 14346 12316
4/76 13922 12220
5/76 13745 12085
6/76 14062 12620
7/76 13850 12559
8/76 13638 12536
9/76 14486 12860
10/76 14380 12620
11/76 15701 12568
12/76 16808 13274
1/77 17236 12646
2/77 16309 12416
3/77 16237 12286
4/77 16559 12338
5/77 16274 12096
6/77 17201 12693
7/77 16524 12498
8/77 16167 12320
9/77 16560 12339
10/77 16096 11859
11/77 17020 12235
12/77 17682 12325
1/78 16630 11618
2/78 17213 11382
3/78 18148 11717
4/78 19551 12773
5/78 20720 12891
6/78 21188 12714
7/78 23642 13456
8/78 25746 13861
9/78 24616 13816
10/78 21539 12611
11/78 22170 12883
12/78 23356 13135
1/79 24181 13717
2/79 23612 13275
3/79 25055 14068
4/79 25363 14156
5/79 25363 13849
6/79 26292 14450
7/79 26497 14644
8/79 28351 15489
9/79 28867 15557
10/79 27424 14560
11/79 30537 15251
12/79 33642 15578
1/80 36337 16547
2/80 37274 16545
3/80 32410 14937
4/80 33933 15627
5/80 34697 16432
6/80 35929 16951
7/80 38508 18131
8/80 39741 18314
9/80 41676 18852
10/80 42322 19233
11/80 46004 21282
12/80 45024 20641
1/81 43061 19776
2/81 44043 20118
3/81 46567 20923
4/81 46357 20517
5/81 48601 20568
6/81 46569 20441
7/81 46150 20484
8/81 43833 19300
9/81 42851 18350
10/81 45448 19341
11/81 46130 20138
12/81 45646 19622
1/82 44514 19367
2/82 42813 18285
3/82 43220 18190
4/82 44758 19014
5/82 44029 18365
6/82 43866 18090
7/82 43625 17770
8/82 45727 19927
9/82 46294 20174
10/82 49290 22496
11/82 51754 23405
12/82 52691 23856
1/83 52949 24744
2/83 54824 25311
3/83 58919 26245
4/83 62843 28313
5/83 63270 28066
6/83 66510 29158
7/83 64548 28298
8/83 62844 28722
9/83 64892 29119
10/83 63951 28781
11/83 64891 29388
12/83 62932 29235
1/84 59382 29072
2/84 56407 28048
3/84 57846 28534
4/84 56695 28805
5/84 53718 27209
6/84 55351 27799
7/84 54294 27455
8/84 59474 30486
9/84 58421 30492
10/84 58999 30611
11/84 58232 30268
12/84 59286 31064
1/85 64634 33484
2/85 66017 33896
3/85 64928 33916
4/85 64136 33885
5/85 67394 35844
6/85 68088 36407
7/85 67890 36356
8/85 67001 36003
9/85 64234 34916
10/85 67497 36529
11/85 72046 39035
12/85 74618 40924
1/86 75357 41153
2/86 81544 44227
3/86 85776 46695
4/86 85013 46172
5/86 90113 48629
6/86 92177 49450
7/86 86969 46686
8/86 91204 50146
9/86 84583 45999
10/86 88821 48653
11/86 89362 49835
12/86 87370 48564
1/87 99095 55106
2/87 105407 57282
3/87 107125 58938
4/87 107264 58413
5/87 108273 58916
6/87 111283 61891
7/87 116591 65029
8/87 119750 67454
9/87 119175 65977
10/87 94792 51772
11/87 88621 47506
12/87 96473 51121
1/88 94061 53269
2/88 98520 55740
3/88 96293 54023
4/88 96110 54623
5/88 95735 55087
6/88 99268 57616
7/88 97412 57397
8/88 93876 55451
9/88 98898 57813
10/88 100381 59421
11/88 99448 58571
12/88 100293 59590
1/89 107996 63952
2/89 106268 62360
3/89 110699 63813
4/89 116865 67125
5/89 123024 69830
6/89 120908 69439
7/89 133422 75702
8/89 134383 77178
9/89 136116 76862
10/89 134197 75079
11/89 137283 76603
12/89 138519 78441
1/90 130014 73178
2/90 131925 74122
3/90 134907 76086
4/90 134057 74191
5/90 146819 81410
6/90 149799 80865
7/90 151926 80606
8/90 144269 73327
9/90 138527 69764
10/90 139372 69471
11/90 147038 73951
12/90 149920 76007
1/91 156067 79306
2/91 168365 84968
3/91 174965 87025
4/91 173600 87233
5/91 179520 90985
6/91 173362 86817
7/91 183382 90863
8/91 189764 93008
9/91 188853 91454
10/91 191818 92680
11/91 185891 88954
12/91 206506 99113
1/92 200765 97269
2/92 201488 98524
3/92 198144 96613
4/92 200303 99443
5/92 200784 99931
6/92 195042 98442
7/92 200542 102458
8/92 196009 100368
9/92 196009 101552
10/92 199832 101897
11/92 206286 105362
12/92 208844 106658
1/93 210055 107554
2/93 211757 109017
3/93 217369 111317
4/93 213217 108623
5/93 217140 111523
6/93 220354 111847
7/93 222315 111399
8/93 230185 115621
9/93 232418 114731
10/93 233649 117106
11/93 225004 115993
12/93 228469 117397
1/94 235529 121388
2/94 229476 118099
3/94 221605 112961
4/94 221849 114407
5/94 222869 116272
6/94 218523 113424
7/94 223353 117144
8/94 230232 121935
9/94 225627 118960
10/94 227680 121625
11/94 217958 117197
12/94 218721 118932
1/95 221149 122012
2/95 229221 126759
3/95 238917 130498
4/95 245941 134335
5/95 254574 139694
6/95 265393 142935
7/95 278398 147667
8/95 281376 148036
9/95 294404 154283
10/95 289223 153727
11/95 297928 160461
12/95 296766 163558
1/96 302731 169119
2/96 308695 170691
3/96 310486 172330
4/96 317968 174863
5/96 325154 179357
6/96 323951 180039
7/96 306231 172081
8/96 316153 175712
9/96 335091 185587
10/96 337503 190709
11/96 358935 205108
12/96 354843 201047
1/97 375353 213592
2/97 374077 215279
3/97 351557 206453
4/97 368924 218757
5/97 397220 232123
6/97 413308 242453
7/97 450092 261728
8/97 428488 247071
9/97 454026 260586
10/97 433958 251882
11/97 441379 263545
12/97 442570 268078
1/98 445447 271026
2/98 473109 290567
3/98 495061 305444
4/98 494715 308560
5/98 481358 303253
6/98 505233 315565
7/98 505940 312220
8/98 423168 267104
9/98 445173 284225
10/98 482479 307305
11/98 513985 325927
12/98 561271 344701
1/99 591019 359109
2/99 568796 347941
3/99 607361 361858
4/99 616046 375862
5/99 599474 366992
6/99 642996 387287
7/99 618884 375242
8/99 618512 373366
9/99 610595 363136
10/99 646804 386122
11/99 673970 393960
12/99 751476 417125
1/00 723822 396186
2/00 748214 388698
3/00 813683 426712
4/00 760387 413868
5/00 718490 405384
6/00 759947 415356
7/00 761542 408877
8/00 821323 434268
9/00 766459 411339
10/00 734728 409611
11/00 629809 377334
12/00 641019 379183
1/01 668583 392644
2/01 571371 356874
3/01 509434 334284
4/01 568783 360224
5/01 569637 362638
6/01 550725 353826
7/01 530954 350358
8/01 487946 328461
9/01 431149 301954
10/01 450077 307721
11/01 491799 331323
12/01 493078 334239
1/02 483611 329359
2/02 478436 323003
3/02 498243 335147
4/02 481452 314838
5/02 481019 312539
6/02 455188 290286
7/02 418637 267673
8/02 422949 269413
9/02 389832 240155
10/02 411779 261264
11/02 431586 276627
12/02 413503 260389
1/03 399733 253593
2/03 390699 249789
3/03 392418 252212
4/03 420397 272969
5/03 448816 287327
6/03 452272 291005
7/03 458740 296126
8/03 470346 301901
9/03 463008 298701
10/03 478519 315577
11/03 488425 318354
12/03 512748 335036
1/04 517927 341201
2/04 527405 345943
3/04 514483 340720
4/04 519680 335370
5/04 523110 339965
6/04 533049 346560
7/04 516204 335089
8/04 514501 336429
9/04 518823 340063
10/04 524426 345266
11/04 539529 359215
12/04 557280 371428
1/05 545076 362365
2/05 563336 369975
3/05 553308 363426
4/05 541578 356521
5/05 548077 367858
6/05 550708 368373
7/05 569872 382077
8/05 567707 378600
9/05 572078 381667
10/05 559035 375293
11/05 581229 389479
12/05 584774 389635
1/06 606294 399960
2/06 608052 401040
3/06 618146 406013
4/06 623400 411453
5/06 608501 399645
6/06 606736 400164
7/06 610680 402645
8/06 625153 412228
9/06 641407 422864
10/06 657280 436522
================================================
Past performance cannot guarantee taxes a shareholder would pay on Fund each segment representing a percent
comparable future results. distributions or sale of Fund shares. change in the value of the investment.
Performance of the indexes does not In this chart, each segment represents a
The data shown in the chart include reflect the effects of taxes. doubling, or 100% change, in the value
reinvested distributions, applicable of the investment. In other words, the
sales charges, Fund expenses and This chart, which is a logarithmic space between $5,000 and $10,000 is the
management fees. Index results include chart, presents the fluctuations in the same size as the space between $10,000
reinvested dividends, but they do not value of the Fund and its indexes. We and $20,000, and so on.
reflect sales charges. Performance of an believe that a logarithmic chart is more
index of funds reflects fund expenses effective than other types of charts in
and management fees; performance of a illustrating changes in value during the
market index does not. Performance shown early years shown in the chart. The
in the chart and table(s) does not vertical axis, the one that indicates
reflect deduction of the dollar value of an investment, is
constructed with
8
AIM Charter Fund
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 5.35%
Inception (11/26/68) 11.67% CLASS A SHARES Class B Shares 4.99
10 Years 6.28 Inception (11/26/68) 11.62% Class C Shares 4.98
5 Years 6.63 10 Years 6.10 Class R Shares 5.24
1 Year 11.01 5 Years 7.05 ========================================
1 Year 5.92
CLASS B SHARES
Inception (6/26/95) 7.73% CLASS B SHARES
10 Years 6.25 Inception (6/26/95) 7.56%
5 Years 6.76 10 Years 6.08
1 Year 11.63 5 Years 7.20
1 Year 6.39
CLASS C SHARES
Inception (8/4/97) 3.48% CLASS C SHARES
5 Years 7.08 Inception (8/4/97) 3.26%
1 Year 15.67 5 Years 7.50
1 Year 10.35
CLASS R SHARES
10 Years 6.64% CLASS R SHARES
5 Years 7.57 10 Years 6.47%
1 Year 17.21 5 Years 8.00
1 Year 11.82
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE RESULTS; CURRENT PERFORMANCE MAY BE 5% BEGINNING AT THE TIME OF PURCHASE TO
3, 2002. RETURNS SINCE THAT DATE ARE LOWER OR HIGHER. PLEASE VISIT 0% AT THE BEGINNING OF THE SEVENTH YEAR.
HISTORICAL RETURNS. ALL OTHER RETURNS AIMinvestments.com FOR THE MOST RECENT THE CDSC ON CLASS C SHARES IS 1% FOR THE
ARE BLENDED RETURNS OF HISTORICAL CLASS MONTH-END PERFORMANCE. PERFORMANCE FIRST YEAR AFTER PURCHASE. CLASS R
R SHARE PERFORMANCE AND RESTATED CLASS A FIGURES REFLECT REINVESTED SHARES DO NOT HAVE A FRONT-END SALES
SHARE PERFORMANCE (FOR PERIODS PRIOR TO DISTRIBUTIONS, CHANGES IN NET ASSET CHARGE; RETURNS SHOWN ARE AT NET ASSET
THE INCEPTION DATE OF CLASS R SHARES) AT VALUE AND THE EFFECT OF THE MAXIMUM VALUE AND DO NOT REFLECT A 0.75% CDSC
NET ASSET VALUE, ADJUSTED TO REFLECT THE SALES CHARGE UNLESS OTHERWISE STATED. THAT MAY BE IMPOSED ON A TOTAL
HIGHER RULE 12b-1 FEES APPLICABLE TO REDEMPTION OF RETIREMENT PLAN ASSETS
CLASS R SHARES. CLASS A SHARES' CLASS A SHARE PERFORMANCE REFLECTS WITHIN THE FIRST YEAR.
INCEPTION DATE IS NOVEMBER 26, 1968. THE MAXIMUM 5.50% SALES CHARGE, AND
CLASS B AND CLASS C SHARE PERFORMANCE THE PERFORMANCE OF THE FUND'S SHARE
THE PERFORMANCE DATA QUOTED REFLECTS THE APPLICABLE CONTINGENT CLASSES WILL DIFFER PRIMARILY DUE TO
REPRESENT PAST PERFORMANCE AND CANNOT DEFERRED SALES CHARGE (CDSC) FOR THE DIFFERENT SALES CHARGE STRUCTURES AND
GUARANTEE COMPARABLE FUTURE PERIOD INVOLVED. THE CDSC ON CLASS B CLASS EXPENSES.
SHARES DECLINES FROM
9
AIM Charter Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Equity Agreement was appropriate and that AIM portfolio managers and/or other investment
Funds (the "Board") oversees the currently is providing services in personnel and believes that such
management of AIM Charter Fund (the accordance with the terms of the individuals are competent and able to
"Fund") and, as required by law, Advisory Agreement. continue to carry out their
determines annually whether to approve responsibilities under the Advisory
the continuance of the Fund's advisory o The quality of services to be provided Agreement.
agreement with A I M Advisors, Inc. by AIM. The Board reviewed the
("AIM"). Based upon the recommendation credentials and experience of the o Overall performance of AIM. The Board
of the Investments Committee of the officers and employees of AIM who will considered the overall performance of
Board, at a meeting held on June 27, provide investment advisory services to AIM in providing investment advisory and
2006, the Board, including all of the the Fund. In reviewing the portfolio administrative services to the
independent trustees, approved the qualifications of AIM to provide Fund and concluded that such performance
continuance of the advisory agreement investment advisory services, the Board was satisfactory.
(the "Advisory Agreement") between the considered such issues as AIM's
Fund and AIM for another year, effective portfolio and product review process, o Fees relative to those of clients of
July 1, 2006. various back office support functions AIM with comparable investment
provided by AIM and AIM's equity and strategies. The Board reviewed the
The Board considered the factors fixed income trading operations. Based effective advisory fee rate (before
discussed below in evaluating the on the review of these and other waivers) for the Fund under the Advisory
fairness and reasonableness of the factors, the Board concluded that the Agreement. The Board noted that this
Advisory Agreement at the meeting on quality of services to be provided by rate was (i) above the effective
June 27, 2006 and as part of the Board's AIM was appropriate and that AIM advisory fee rate (before waivers) for a
ongoing oversight of the Fund. In their currently is providing satisfactory mutual fund advised by AIM with
deliberations, the Board and the services in accordance with the terms of investment strategies comparable to
independent trustees did not identify the Advisory Agreement. those of the Fund, below the effective
any particular factor that was advisory fee rate (before waivers) for a
controlling, and each trustee attributed o The performance of the Fund relative second mutual fund advised by AIM with
different weights to the various to comparable funds. The Board reviewed investment strategies comparable to
factors. the performance of the Fund during the those of the Fund, and comparable to the
past one, three and five calendar years effective advisory fee rate (before
One responsibility of the against the performance of funds advised waivers) for a third mutual fund advised
independent Senior Officer of the Fund by other advisors with investment by AIM with investment strategies
is to manage the process by which the strategies comparable to those of the comparable to those of the Fund; (ii)
Fund's proposed management fees are Fund. The Board noted that the Fund's comparable to the effective advisory fee
negotiated to ensure that they are performance was below the median rate (before waivers) for a variable
negotiated in a manner which is at arms' performance of such comparable funds for insurance fund advised by AIM and
length and reasonable. To that end, the such periods. Based on this review and offered to insurance company separate
Senior Officer must either supervise a after taking account of all of the other accounts with investment strategies
competitive bidding process or prepare factors that the Board considered in comparable to those of the Fund; (iii)
an independent written evaluation. The determining whether to continue the above the effective sub-advisory fee
Senior Officer has recommended an Advisory Agreement for the Fund, the rate for one variable insurance fund
independent written evaluation in lieu Board concluded that no changes should sub-advised by an AIM affiliate and
of a competitive bidding process and, be made to the Fund and that it was not offered to insurance company separate
upon the direction of the Board, has necessary to change the Fund's portfolio accounts with investment strategies
prepared such an independent written management team at this time. Although comparable to those of the Fund,
evaluation. Such written evaluation also the independent written evaluation of although the advisory fees for such
considered certain of the factors the Fund's Senior Officer (discussed variable insurance fund were above those
discussed below. In addition, as below) only considered Fund performance for the Fund; and (iv) above the total
discussed below, the Senior Officer made through the most recent calendar year, advisory fee rates for 78 separately
a recommendation to the Board in the Board also reviewed more recent Fund managed accounts/wrap accounts managed
connection with such written evaluation. performance, which did not change their by an AIM affiliate with investment
conclusions. strategies comparable to those of the
The discussion below serves as a Fund and comparable to or below the
summary of the Senior Officer's o The performance of the Fund relative total advisory fee rates for 10
independent written evaluation and to indices. The Board reviewed the separately managed accounts/wrap
recommendation to the Board in performance of the Fund during the past accounts managed by an AIM affiliate
connection therewith, as well as a one, three and five calendar years with investment strategies comparable to
discussion of the material factors and against the performance of the Lipper those of the Fund. The Board noted that
the conclusions with respect thereto Large-Cap Core Index. The Board noted AIM has agreed to waive advisory fees of
that formed the basis for the Board's that the Fund's performance was below the Fund, as discussed below. Based on
approval of the Advisory Agreement. the performance of such Index for the this review, the Board concluded that
After consideration of all of the one and five year periods and comparable the advisory fee rate for the Fund under
factors below and based on its informed to such Index for the three year period. the Advisory Agreement was fair and
business judgment, the Board determined Based on this review and after taking reasonable.
that the Advisory Agreement is in the account of all of the other factors that
best interests of the Fund and its the Board considered in determining o Fees relative to those of comparable
shareholders and that the compensation whether to continue the Advisory funds with other advisors. The Board
to AIM under the Advisory Agreement is Agreement for the Fund, the Board reviewed the advisory fee rate for the
fair and reasonable and would have been concluded that no changes should be made Fund under the Advisory Agreement. The
obtained through arm's length to the Fund and that it was not Board compared effective contractual
negotiations. necessary to change the Fund's portfolio advisory fee rates at a common asset
management team at this time. Although level at the end of the past calendar
Unless otherwise stated, information the independent written evaluation of year and noted that the Fund's rate was
presented below is as of June 27, 2006 the Fund's Senior Officer (discussed above the median rate of the funds
and does not reflect any changes that below) only considered Fund performance advised by other advisors with
may have occurred since June 27, 2006, through the most recent calendar year, investment strategies comparable to
including but not limited to changes to the Board also reviewed more recent Fund those of the Fund that the Board
the Fund's performance, advisory fees, performance, which did not change their reviewed. The Board noted that AIM has
expense limitations and/or fee waivers. conclusions. agreed to waive advisory fees of the
Fund, as discussed below. Based on this
o The nature and extent of the advisory o Meetings with the Fund's portfolio review, the Board concluded that the
services to be provided by AIM. The managers and investment personnel. With advisory fee rate for the Fund under the
Board reviewed the services to be respect to the Fund, the Board is Advisory Agreement was fair and
provided by AIM under the Advisory meeting periodically with such Fund's reasonable.
Agreement. Based on such review, the
Board concluded that the range of (continued)
services to be provided by AIM under the
Advisory
10
AIM Charter Fund
o Expense limitations and fee waivers. o Independent written evaluation and The Board also reviewed the general
The Board noted that AIM has recommendations of the Fund's Senior nature of the non-investment advisory
contractually agreed to waive advisory Officer. The Board noted that, upon services currently performed by AIM and
fees of the Fund through December 31, their direction, the Senior Officer of its affiliates, such as administrative,
2009 to the extent necessary so that the the Fund, who is independent of AIM and transfer agency and distribution
advisory fees payable by the Fund do not AIM's affiliates, had prepared an services, and the fees received by AIM
exceed a specified maximum advisory fee independent written evaluation in order and its affiliates for performing such
rate, which maximum rate includes to assist the Board in determining the services. In addition to reviewing such
breakpoints and is based on net asset reasonableness of the proposed services, the trustees also considered
levels. The Board considered the management fees of the AIM Funds, the organizational structure employed by
contractual nature of this fee waiver including the Fund. The Board noted that AIM and its affiliates to provide those
and noted that it remains in effect the Senior Officer's written evaluation services. Based on the review of these
until December 31, 2009. The Board had been relied upon by the Board in and other factors, the Board concluded
considered the effect this fee waiver this regard in lieu of a competitive that AIM and its affiliates were
would have on the Fund's estimated bidding process. In determining whether qualified to continue to provide
expenses and concluded that the levels to continue the Advisory Agreement for non-investment advisory services to the
of fee waivers/expense limitations for the Fund, the Board considered the Fund, including administrative, transfer
the Fund were fair and reasonable. Senior Officer's written evaluation and agency and distribution services, and
the recommendation made by the Senior that AIM and its affiliates currently
o Breakpoints and economies of scale. Officer to the Board that the Board are providing satisfactory
The Board reviewed the structure of the consider whether the advisory fee non-investment advisory services.
Fund's advisory fee under the Advisory waivers for certain equity AIM Funds,
Agreement, noting that it includes one including the Fund, should be o Other factors and current trends. The
breakpoint. The Board reviewed the level simplified. The Board concluded that it Board considered the steps that AIM and
of the Fund's advisory fees, and noted would be advisable to consider this its affiliates have taken over the last
that such fees, as a percentage of the issue and reach a decision prior to the several years, and continue to take, in
Fund's net assets, have decreased as net expiration date of such advisory fee order to improve the quality and
assets increased because the Advisory waivers. efficiency of the services they provide
Agreement includes a breakpoint. The to the Funds in the areas of investment
Board noted that AIM has contractually o Profitability of AIM and its performance, product line
agreed to waive advisory fees of the affiliates. The Board reviewed diversification, distribution, fund
Fund through December 31, 2009 to the information concerning the profitability operations, shareholder services and
extent necessary so that the advisory of AIM's (and its affiliates') compliance. The Board concluded that
fees payable by the Fund do not exceed a investment advisory and other activities these steps taken by AIM have improved,
specified maximum advisory fee rate, and its financial condition. The Board and are likely to continue to improve,
which maximum rate includes breakpoints considered the overall profitability of the quality and efficiency of the
and is based on net asset levels. The AIM, as well as the profitability of AIM services AIM and its affiliates provide
Board concluded that the Fund's fee in connection with managing the Fund. to the Fund in each of these areas, and
levels under the Advisory Agreement The Board noted that AIM's operations support the Board's approval of the
therefore reflect economies of scale and remain profitable, although increased continuance of the Advisory Agreement
that it was not necessary to change the expenses in recent years have reduced for the Fund.
advisory fee breakpoints in the Fund's AIM's profitability. Based on the review
advisory fee schedule. of the profitability of AIM's and its
affiliates' investment advisory and
o Investments in affiliated money market other activities and its financial
funds. The Board also took into account condition, the Board concluded that the
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, if any (collectively, excessive.
"cash balances") of the Fund may be
invested in money market funds advised o Benefits of soft dollars to AIM. The
by AIM 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 may be
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 uninvested cash in affiliated
money market funds, AIM has voluntarily o AIM's financial soundness in light of
agreed to waive a portion of the the Fund's needs. The Board considered
advisory fees it receives from the Fund whether AIM is financially sound and has
attributable to such investment. The the resources necessary to perform its
Board further determined that the obligations under the Advisory
proposed securities lending program and Agreement, and concluded that AIM has
related procedures with respect to the the financial resources necessary to
lending Fund is in the best interests of fulfill its obligations under the
the lending Fund and its respective Advisory Agreement.
shareholders. The Board therefore
concluded that the investment of cash o Historical relationship between the
collateral received in connection with Fund and AIM. In determining whether to
the securities lending program in the continue the Advisory Agreement for the
money market funds according to the Fund, the Board also considered the
procedures is in the best interests of prior relationship between AIM and the
the lending Fund and its respective Fund, as well as the Board's knowledge
shareholders. of AIM's operations, and concluded that
it was beneficial to maintain the
current relationship, in part, because
of such knowledge.
11
Supplement to Annual Report dated 10/31/06
AIM Charter Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/06 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been prepared to RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
provide Institutional Class shareholders with Inception (7/30/91) 9.22% ALL RETURNS ASSUME REINVESTMENT OF
a performance overview specific to their 10 Years 7.35 DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
holdings. Institutional Class shares are 5 Years 8.35 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
offered exclusively to institutional 1 Year 18.03 SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
investors, including defined contribution 6 Months* 5.56 LESS THAN THEIR ORIGINAL COST. SEE FULL
plans that meet certain criteria. REPORT FOR INFORMATION ON COMPARATIVE
=================================== BENCHMARKS. PLEASE CONSULT YOUR FUND
PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
AVERAGE ANNUAL TOTAL RETURNS CURRENT MONTH-END PERFORMANCE, PLEASE CALL
For periods ended 9/30/06, most 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
recent calendar quarter-end
Inception (7/30/91) 9.10%
10 Years 7.19
5 Years 8.77
1 Year 12.62
6 Months* 4.02
*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
PRIMARILY DUE TO DIFFERING SALES
CHARGES AND CLASS EXPENSES.
==============================================
NASDAQ SYMBOL CHTVX
==============================================
Over for information on your Fund's expenses.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM CHT-INS-1 A I M Distributors, Inc. --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example divide your account value by $1,000 The hypothetical account values and expenses
(for example, an $8,600 account may not be used to estimate the actual ending
As a shareholder of the Fund, you incur value divided by $1,000 = 8.6), account balance or expenses you paid for the
ongoing costs, including management fees and then multiply the result by the period. You may use this information to
other Fund expenses. This example is intended number in the table under the compare the ongoing costs of investing in the
to help you understand your ongoing costs (in heading entitled "Actual Expenses Fund and other funds. To do so, compare this
dollars) of investing in the Fund and to Paid During Period" to estimate the 5% hypothetical example with the 5%
compare these costs with ongoing costs of expenses you paid on your account hypothetical examples that appear in the
investing in other mutual funds. The example during this period. shareholder reports of the other funds.
is based on an investment of $1,000 invested Please note that the expenses shown in the
at the beginning of the period and held for Hypothetical example for comparison table are meant to highlight your ongoing
the entire period May 1, 2006, through October purposes costs only. Therefore, the hypothetical
31, 2006. information is useful in comparing ongoing
The table below also provides costs only, and will not help you determine
Actual expenses information about hypothetical the relative total costs of owning different
account values and hypothetical funds.
The table below provides information about expenses based on the Fund's actual
actual account values and actual expenses. You expense ratio and an assumed rate
may use the information in this table, of return of 5% per year before
together with the amount you invested, to expenses, which is not the Fund's
estimate the expenses that you paid over the actual return. The Fund's actual
period. Simply cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
Institutional $1,000.00 $1,055.60 $4.09 $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, 2006, through October 31,
2006, 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, 2006, 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 CHT-INS-1 A I M Distributors, Inc.
AIM Charter Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-68.78%
AEROSPACE & DEFENSE-2.15%
Northrop Grumman Corp. 1,081,774 $ 71,818,976
- ----------------------------------------------------------------------------
Raytheon Co.-Wts expiring 06/16/11(a) 467 7,341
- ----------------------------------------------------------------------------
United Technologies Corp. 1,125,000 73,935,000
============================================================================
145,761,317
============================================================================
AIR FREIGHT & LOGISTICS-0.46%
United Parcel Service, Inc.-Class B 413,100 31,127,085
============================================================================
APPAREL RETAIL-1.12%
Gap, Inc. (The) 3,620,042 76,093,283
============================================================================
BIOTECHNOLOGY-2.12%
Amgen Inc.(a) 1,889,390 143,423,595
============================================================================
BROADCASTING & CABLE TV-0.59%
Clear Channel Communications, Inc. 1,142,737 39,824,384
============================================================================
COMMUNICATIONS EQUIPMENT-2.88%
Cisco Systems, Inc.(a) 5,626,505 135,767,566
- ----------------------------------------------------------------------------
Corning Inc.(a) 2,902,505 59,298,177
============================================================================
195,065,743
============================================================================
COMPUTER HARDWARE-1.41%
International Business Machines Corp. 1,038,280 95,864,392
============================================================================
COMPUTER STORAGE & PERIPHERALS-1.94%
EMC Corp.(a) 6,274,800 76,866,300
- ----------------------------------------------------------------------------
Seagate Technology 2,410,334 54,425,342
============================================================================
131,291,642
============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.15%
Automatic Data Processing, Inc. 1,570,000 77,620,800
============================================================================
ELECTRIC UTILITIES-1.70%
FPL Group, Inc. 2,262,321 115,378,371
============================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.37%
Waste Management, Inc. 4,277,265 160,311,892
============================================================================
FOOD DISTRIBUTORS-1.19%
Sysco Corp. 2,297,921 80,381,277
============================================================================
FOOD RETAIL-1.34%
Kroger Co. (The) 4,040,905 90,879,954
============================================================================
HYPERMARKETS & SUPER CENTERS-1.73%
Wal-Mart Stores, Inc. 2,377,367 117,156,646
============================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-5.95%
3M Co. 920,481 $ 72,570,722
- ----------------------------------------------------------------------------
General Electric Co. 3,284,809 115,329,644
- ----------------------------------------------------------------------------
Tyco International Ltd. 7,322,354 215,496,878
============================================================================
403,397,244
============================================================================
INDUSTRIAL MACHINERY-0.92%
Dover Corp. 1,312,919 62,363,653
============================================================================
INSURANCE BROKERS-0.89%
Marsh & McLennan Cos., Inc. 2,043,844 60,170,767
============================================================================
INTEGRATED OIL & GAS-2.77%
Exxon Mobil Corp. 2,631,071 187,911,091
============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.46%
AT&T Inc. 4,869,508 166,780,649
============================================================================
INVESTMENT BANKING & BROKERAGE-1.10%
Morgan Stanley 975,494 74,557,006
============================================================================
MOVIES & ENTERTAINMENT-1.51%
News Corp.-Class A 4,916,773 102,514,717
============================================================================
MULTI-LINE INSURANCE-1.05%
Genworth Financial Inc.-Class A 2,131,272 71,269,736
============================================================================
OFFICE ELECTRONICS-2.08%
Xerox Corp.(a) 8,297,797 141,062,549
============================================================================
OIL & GAS EQUIPMENT & SERVICES-1.71%
Schlumberger Ltd. 1,060,080 66,869,846
- ----------------------------------------------------------------------------
Smith International, Inc. 1,248,820 49,303,414
============================================================================
116,173,260
============================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.12%
XTO Energy, Inc. 1,625,656 75,853,109
============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.13%
Citigroup Inc. 1,520,690 76,277,810
============================================================================
PACKAGED FOODS & MEATS-0.83%
General Mills, Inc. 986,194 56,035,543
============================================================================
PERSONAL PRODUCTS-3.78%
Avon Products, Inc. 3,504,699 106,577,897
- ----------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 3,699,739 149,432,458
============================================================================
256,010,355
============================================================================
</Table>
F-1
AIM Charter Fund
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------
PHARMACEUTICALS-4.55%
Bristol-Myers Squibb Co. 3,663,604 $ 90,674,199
- ----------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 1,331,264 65,152,060
- ----------------------------------------------------------------------------
Merck & Co. Inc. 1,640,692 74,520,231
- ----------------------------------------------------------------------------
Pfizer Inc. 2,917,546 77,752,601
============================================================================
308,099,091
============================================================================
PROPERTY & CASUALTY INSURANCE-4.86%
Berkshire Hathaway Inc.-Class A(a) 1,673 176,459,675
- ----------------------------------------------------------------------------
Chubb Corp. (The) 1,118,790 59,463,689
- ----------------------------------------------------------------------------
XL Capital Ltd.-Class A 1,324,697 93,457,373
============================================================================
329,380,737
============================================================================
PUBLISHING-1.61%
Gannett Co., Inc. 861,267 50,935,330
- ----------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 909,000 58,330,530
============================================================================
109,265,860
============================================================================
RAILROADS-1.19%
Union Pacific Corp. 889,580 80,622,635
============================================================================
SEMICONDUCTORS-0.96%
Analog Devices, Inc. 2,046,520 65,120,266
============================================================================
SOFT DRINKS-1.66%
Coca-Cola Co. (The) 2,402,274 112,234,241
============================================================================
SPECIALIZED FINANCE-0.41%
Moody's Corp. 420,375 27,870,863
============================================================================
SYSTEMS SOFTWARE-4.09%
Microsoft Corp. 5,502,039 157,963,540
- ----------------------------------------------------------------------------
Symantec Corp.(a) 6,018,713 119,411,266
============================================================================
277,374,806
============================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $3,805,076,628) 4,660,526,369
============================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-18.82%
ARGENTINA-0.95%
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 1,673,665 64,586,732
============================================================================
FINLAND-1.35%
Nokia Oyj-ADR (Communications Equipment) 4,615,666 91,759,440
============================================================================
FRANCE-2.55%
Renault S.A. (Automobile Manufacturers)(b) 698,712 81,571,980
============================================================================
Total S.A. (Integrated Oil & Gas)(b) 1,340,688 91,238,906
============================================================================
172,810,886
============================================================================
ISRAEL-1.36%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals)(c) 2,787,330 $ 91,898,270
============================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------
JAPAN-0.71%
Nintendo Co., Ltd. (Home Entertainment
Software)(b) 236,400 48,232,570
============================================================================
NETHERLANDS-4.04%
Heineken N.V. (Brewers)(b) 1,919,452 86,971,152
- ----------------------------------------------------------------------------
Koninklijke (Royal) Phillips Electronics N.V.
(Consumer Electronics)(b) 1,965,340 68,623,230
- ----------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(b) 4,781,118 117,851,647
============================================================================
273,446,029
============================================================================
SOUTH KOREA-1.08%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services)(c) 3,030,572 72,976,174
============================================================================
SWITZERLAND-1.17%
UBS A.G. (Diversified Capital Markets)(b) 1,327,170 79,151,479
============================================================================
UNITED KINGDOM-5.61%
Barclays PLC (Diversified Banks)(b) 6,454,425 86,966,131
- ----------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged Foods &
Meats)(b) 16,479,189 165,720,645
- ----------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 2,399,526 127,774,760
============================================================================
380,461,536
============================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $1,060,351,258) 1,275,323,116
============================================================================
MONEY MARKET FUNDS-12.76%
Liquid Assets Portfolio-Institutional
Class(d) 432,291,298 432,291,298
- ----------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 432,291,298 432,291,298
============================================================================
Total Money Market Funds (Cost
$864,582,596) 864,582,596
============================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.36%
(Cost $5,730,010,482) 6,800,432,081
============================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.30%
Liquid Assets Portfolio-Institutional
Class(d)(e) 20,602,720 20,602,720
============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $20,602,720) 20,602,720
============================================================================
TOTAL INVESTMENTS-100.66%
(Cost $5,750,613,202) 6,821,034,801
============================================================================
OTHER ASSETS LESS LIABILITIES-(0.66)% (45,004,879)
============================================================================
NET ASSETS-100.00% $6,776,029,922
____________________________________________________________________________
============================================================================
</Table>
F-2
AIM Charter Fund
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Wts. - Warrants
</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, 2006 was $826,327,740,
which represented 12.19% of the Fund's Net Assets. See Note 1A.
(c) All or a portion of this security was out on loan at October 31, 2006.
(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 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
AIM Charter Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost $4,865,427,886)* $5,935,849,485
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $885,185,316) 885,185,316
============================================================
Total investments (cost $5,750,613,202) 6,821,034,801
============================================================
Receivables for:
Fund shares sold 5,846,151
- ------------------------------------------------------------
Dividends 9,447,210
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 723,088
- ------------------------------------------------------------
Other assets 377,190
============================================================
Total assets 6,837,428,440
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 16,449,641
- ------------------------------------------------------------
Investments purchased from affiliates 605,299
- ------------------------------------------------------------
Fund shares reacquired 13,568,009
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,796,639
- ------------------------------------------------------------
Collateral upon return of securities
loaned 20,602,720
- ------------------------------------------------------------
Accrued distribution fees 2,595,877
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 8,621
- ------------------------------------------------------------
Accrued transfer agent fees 3,748,430
- ------------------------------------------------------------
Accrued operating expenses 2,023,282
============================================================
Total liabilities 61,398,518
============================================================
Net assets applicable to shares outstanding $6,776,029,922
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $9,108,243,077
- ------------------------------------------------------------
Undistributed net investment income 31,258,855
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,434,236,743)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 1,070,764,733
============================================================
$6,776,029,922
____________________________________________________________
============================================================
NET ASSETS:
Class A $4,812,618,545
____________________________________________________________
============================================================
Class B $1,547,422,196
____________________________________________________________
============================================================
Class C $ 287,359,476
____________________________________________________________
============================================================
Class R $ 5,153,250
____________________________________________________________
============================================================
Institutional Class $ 123,476,455
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 321,721,021
____________________________________________________________
============================================================
Class B 108,213,928
____________________________________________________________
============================================================
Class C 20,040,348
____________________________________________________________
============================================================
Class R 346,494
____________________________________________________________
============================================================
Institutional Class 8,026,068
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 14.96
- ------------------------------------------------------------
Offering price per share
(Net asset value of $14.96 divided by
94.50%) $ 15.83
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 14.30
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 14.34
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 14.87
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 15.38
____________________________________________________________
============================================================
</Table>
* At October 31, 2006, securities with an aggregate value of $20,011,321 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Charter Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,999,029) $ 77,483,897
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $417,414) 28,978,708
- --------------------------------------------------------------------------
Interest 14,600
==========================================================================
Total investment income 106,477,205
==========================================================================
EXPENSES:
Advisory fees 30,867,669
- --------------------------------------------------------------------------
Administrative services fees 636,905
- --------------------------------------------------------------------------
Custodian fees 715,445
- --------------------------------------------------------------------------
Distribution fees:
Class A 8,473,275
- --------------------------------------------------------------------------
Class B 11,979,176
- --------------------------------------------------------------------------
Class C 2,110,972
- --------------------------------------------------------------------------
Class R 20,021
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 15,515,143
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 94,210
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 160,061
- --------------------------------------------------------------------------
Other 1,717,396
==========================================================================
Total expenses 72,290,273
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (959,031)
==========================================================================
Net expenses 71,331,242
==========================================================================
Net investment income 35,145,963
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains from securities
sold to affiliates of $7,180,898) 351,005,582
- --------------------------------------------------------------------------
Foreign currencies 158,311
==========================================================================
351,163,893
==========================================================================
Change in net unrealized appreciation of:
Investment securities 267,060,992
- --------------------------------------------------------------------------
Foreign currencies 60,902
- --------------------------------------------------------------------------
Option contracts written 1,867,564
==========================================================================
268,989,458
==========================================================================
Net gain from investment securities, foreign currencies and
option contracts 620,153,351
==========================================================================
Net increase in net assets resulting from operations $655,299,314
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Charter Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 35,145,963 $ 25,036,899
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 351,163,893 269,418,339
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 268,989,458 (117,943,363)
==============================================================================================
Net increase in net assets resulting from operations 655,299,314 176,511,875
==============================================================================================
Distributions to shareholders from net investment income:
Class A (15,150,648) (16,183,715)
- ----------------------------------------------------------------------------------------------
Class B (455,351) (655,402)
- ----------------------------------------------------------------------------------------------
Class C (80,530) (102,493)
- ----------------------------------------------------------------------------------------------
Class R (18,305) (17,158)
- ----------------------------------------------------------------------------------------------
Institutional Class (1,111,807) (51,616)
==============================================================================================
Decrease in net assets resulting from distributions (16,816,641) (17,010,384)
==============================================================================================
Share transactions-net:
Class A 2,725,225,819 (307,307,777)
- ----------------------------------------------------------------------------------------------
Class B 782,194,196 (316,588,625)
- ----------------------------------------------------------------------------------------------
Class C 152,734,056 (38,230,511)
- ----------------------------------------------------------------------------------------------
Class R 1,933,967 (44,217)
- ----------------------------------------------------------------------------------------------
Institutional Class 54,782,183 50,100,241
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 3,716,870,221 (612,070,889)
==============================================================================================
Net increase (decrease) in net assets 4,355,352,894 (452,569,398)
==============================================================================================
NET ASSETS:
Beginning of year 2,420,677,028 2,873,246,426
==============================================================================================
End of year (including undistributed net investment income
of $31,258,855 and $13,898,908, respectively) $6,776,029,922 $2,420,677,028
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Charter Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Charter Fund (the "Fund") is a series portfolio of AIM Equity Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The 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 growth of capital.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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
F-7
AIM Charter Fund
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights,
nor are they limited by any expense limitation arrangements between the
Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a written
option is exercised, the Fund realizes a gain or a loss from the sale of
the underlying security and the proceeds of the sale are increased by the
premium originally received.
F-8
AIM Charter Fund
Realized gains and losses on these contracts are included in the Statement
of Operations. A risk in writing a call option is that the Fund gives up
the opportunity for profit if the market price of the security increases
and the option is exercised. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. Realized and unrealized gains and losses on these contracts are
included in the Statement of Operations. A risk in buying an option is that
the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
M. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $150 million 0.80%
- --------------------------------------------------------------------
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Prior to April 10, 2006, the Fund paid an advisory fee to AIM based on the
annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $30 million 1.00%
- --------------------------------------------------------------------
Next $120 million 0.75%
- --------------------------------------------------------------------
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund
(based on the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $150 million 0.75%
- --------------------------------------------------------------------
Next $4.85 billion 0.615%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Over $10 billion 0.52%
___________________________________________________________________
====================================================================
</Table>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the year ended October 31, 2006, AIM waived advisory fees of $682,083.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the
amount of $8,813.
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, 2006, AIM was paid $636,905.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the
F-9
AIM Charter Fund
Trust's Board of Trustees. For the year ended October 31, 2006, the Fund paid
AIS $15,515,143 for Class A, Class B, Class C and Class R share classes and
$94,210 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 the Rule 12b-1 payments, 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 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, 2006,
the Class A, Class B, Class C and Class R shares paid $8,473,275, $11,979,176,
$2,110,972 and $20,021, 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, 2006, ADI advised the Fund that it retained $242,014 in
front-end sales commissions from the sale of Class A shares and $1,514,
$511,271, $9,913 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in affiliated money market funds. The Fund and the money
market funds below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $45,347,942 $1,148,349,482 $ (761,406,126) $ -- $432,291,298 $14,262,610 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 734,028,816 (301,737,518) -- 432,291,298 9,012,831 --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 45,347,942 932,955,597 (978,303,539) -- -- 5,285,853 --
====================================================================================================================================
Subtotal $90,695,884 $2,815,333,895 $(2,041,447,183) $ -- $864,582,596 $28,561,294 $ --
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 12,733,065 $ 587,245,950 $ (579,376,295) $ -- $ 20,602,720 $ 417,414 $ --
====================================================================================================================================
Total
Investments
in
Affiliates $103,428,949 $3,402,579,845 $(2,620,823,478) $ -- $885,185,316 $28,978,708 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Net of compensation to counterparties.
F-10
AIM Charter Fund
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the year ended October 31, 2006, the Fund
engaged in securities sales of $20,570,008, which resulted in net realized gains
of $7,180,898, and securities purchases of $61,732,597.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $268,135.
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, 2006, the Fund paid legal fees of $14,630
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At October 31, 2006, securities with an aggregate value of $20,011,321 were
on loan to brokers. The loans were secured by cash collateral of $20,602,720
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2006, the Fund received dividends on cash
collateral investments of $417,414 for securities lending transactions, which
are net of compensation to counterparties.
F-11
AIM Charter Fund
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
-----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------------
Beginning of period 12,500 $1,334,936
- -------------------------------------------------------------------------------------
Exercised 12,500 1,334,936
=====================================================================================
End of period -- $ --
_____________________________________________________________________________________
=====================================================================================
</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, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $16,816,641 $17,010,384
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- -------------------------------------------------------------------------------
Undistributed ordinary income $ 35,370,217
- -------------------------------------------------------------------------------
Unrealized appreciation -- investments 1,007,136,889
- -------------------------------------------------------------------------------
Temporary book/tax differences (1,610,048)
- -------------------------------------------------------------------------------
Capital loss carryforward (3,373,110,213)
- -------------------------------------------------------------------------------
Shares of beneficial interest 9,108,243,077
===============================================================================
Total net assets $ 6,776,029,922
_______________________________________________________________________________
===============================================================================
</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 defaulted bonds. The tax-basis unrealized appreciation
(depreciation) on investments amount includes remaining proceeds to be received
on Candescent Technologies Corp. of $325,179 and appreciation on foreign
currencies of $17,955.
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, 2006 to utilizing $3,360,718,931 of capital loss carryforward in the fiscal
year ended October 31, 2007.
The Fund utilized $340,232,748 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, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2008 $ 158,234,215
- ------------------------------------------------------------------------------
October 31, 2009 2,349,750,597
- ------------------------------------------------------------------------------
October 31, 2010 733,056,501
- ------------------------------------------------------------------------------
October 31, 2011 132,068,900
==============================================================================
Total capital loss carryforward $3,373,110,213
______________________________________________________________________________
==============================================================================
</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 April 10, 2006, the date of the
reorganization of AIM Premier Equity Fund, into the Fund are realized on
securities held in each Fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
F-12
AIM Charter Fund
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $1,678,983,657 and
$1,308,834,086, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,029,838,002
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (23,044,247)
==============================================================================
Net unrealized appreciation of investment securities $1,006,793,755
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $5,814,241,046.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of capital loss
carryforward limitations, foreign currency transactions and expenses related to
the plan of reorganization, on October 31, 2006, undistributed net investment
income was increased by $167,929, undistributed net realized gain (loss) was
increased by $3,602,159 and shares of beneficial interest decreased by
$3,770,088. Further, as a result of tax deferrals acquired in the reorganization
of AIM Premier Equity Fund into the Fund on April 10, 2006, undistributed net
investment income was decreased by $1,137,304, undistributed net realized gain
(loss) was decreased by $3,390,709,342 and shares of beneficial interest
increased by $3,391,846,646. These reclassifications had no effect on the net
assets of the Fund.
F-13
AIM Charter Fund
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A, Class B,
Class C, Class R and Institutional Class. Class A shares are sold with a
front-end sales charge unless certain waiver criteria are met. 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 on or about the month-end which is at
least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
2006(A) 2005
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,299,019 $ 101,382,420 6,762,147 $ 86,715,004
- ---------------------------------------------------------------------------------------------------------------------------
Class B 2,784,612 38,548,988 2,540,263 30,896,876
- ---------------------------------------------------------------------------------------------------------------------------
Class C 842,618 11,507,094 765,158 9,348,763
- ---------------------------------------------------------------------------------------------------------------------------
Class R 112,149 1,565,266 85,759 1,085,831
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 3,929,863 55,527,482 4,029,817 52,111,203
===========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,048,246 14,130,351 1,116,894 14,139,876
- ---------------------------------------------------------------------------------------------------------------------------
Class B 33,301 431,909 48,619 591,693
- ---------------------------------------------------------------------------------------------------------------------------
Class C 5,845 75,990 7,041 85,898
- ---------------------------------------------------------------------------------------------------------------------------
Class R 1,363 18,305 1,361 17,157
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 22,002 303,845 3,821 49,553
===========================================================================================================================
Issued in connection with acquisitions:(b)
Class A 235,088,752 3,296,672,564 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Class B 99,258,686 1,336,175,673 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Class C 15,423,711 208,206,795 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Class R 116,222 1,622,302 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class 2,026,753 29,143,324 -- --
===========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 16,750,976 235,169,663 9,451,300 120,154,386
- ---------------------------------------------------------------------------------------------------------------------------
Class B (17,480,784) (235,169,663) (9,870,165) (120,154,386)
===========================================================================================================================
Reacquired:
Class A (65,980,940) (922,129,179) (41,404,183) (528,317,043)
- ---------------------------------------------------------------------------------------------------------------------------
Class B (26,722,825) (357,792,711) (18,676,632) (227,922,808)
- ---------------------------------------------------------------------------------------------------------------------------
Class C (4,993,400) (67,055,823) (3,894,312) (47,665,172)
- ---------------------------------------------------------------------------------------------------------------------------
Class R (89,641) (1,271,906) (90,205) (1,147,205)
- ---------------------------------------------------------------------------------------------------------------------------
Institutional Class (2,091,677) (30,192,468) (156,744) (2,060,515)
===========================================================================================================================
267,384,851 $3,716,870,221 (49,280,061) $(612,070,889)
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 21% of the
outstanding shares of the Fund. ADI has an agreement with these entities to
sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
these entities, which are considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but not
limited to services such as securities brokerage, distribution, third party
record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these entities
are also owned beneficially.
(b) As of the opening of business on April 10, 2006, the Fund acquired all the
net assets of AIM Premier Equity Fund pursuant to a plan of reorganization
approved by the Trustees of the Fund on November 14, 2005 and by the
shareholders of AIM Premier Equity Fund on March 16, 2006. The acquisition
was accomplished by a tax free exchange of 351,914,124 shares of the Fund
for 462,894,462 shares of AIM Premier Equity Fund shares outstanding as of
the close of business on April 7, 2006. Each class of shares of AIM Premier
Equity Fund was exchanged for the like class of shares of the Fund based on
the relative net asset value of AIM Premier Equity Fund to the net asset
value of the Fund on the close of business, April 7, 2006. AIM Premier
Equity Fund's net assets as of the close of business on April 7, 2006 of
$4,871,820,658 including $605,309,092 of unrealized appreciation, were
combined with the net assets of the Fund immediately before the acquisition
of $2,376,117,328. The combined aggregate net assets of the Fund subsequent
to the reorganization were $7,247,937,986.
F-14
AIM Charter Fund
NOTE 14--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
NOTE 15--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,
------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.85 $ 12.16 $ 11.12 $ 9.57 $ 10.46
- --------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.13(a) 0.15(a)(b) 0.06(a) 0.04(a) 0.01(c)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 2.10 0.65 1.00 1.51 (0.90)
==============================================================================================================
Total from investment
operations 2.23 0.80 1.06 1.55 (0.89)
==============================================================================================================
Less dividends from net
investment income (0.12) (0.11) (0.02) -- --
==============================================================================================================
Net asset value, end of period $ 14.96 $ 12.85 $ 12.16 $ 11.12 $ 9.57
______________________________________________________________________________________________________________
==============================================================================================================
Total return(d) 17.49% 6.59% 9.58% 16.20% (8.51)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $4,812,619 $1,638,002 $1,843,623 $2,008,702 $2,096,866
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
expense reimbursements 1.26%(e) 1.23% 1.26% 1.30% 1.22%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 1.27%(e) 1.25% 1.27% 1.30% 1.22%
==============================================================================================================
Ratio of net investment income
to average net assets 0.93%(e) 1.16% 0.54% 0.39% 0.09%(c)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate 51% 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 $0.10 and 0.80%, respectively.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investments 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 the net investment income to average net assets would have
remained the same.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $3,389,309,980.
F-15
AIM Charter Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.27 $ 11.61 $ 10.67 $ 9.24 $ 10.18
- ----------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.02(a) 0.05(a)(b) (0.02)(a) (0.03)(a) (0.08)(c)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized and
unrealized) 2.02 0.62 0.96 1.46 (0.86)
================================================================================================================
Total from investment
operations 2.04 0.67 0.94 1.43 (0.94)
================================================================================================================
Less dividends from net
investment income (0.01) (0.01) -- -- --
================================================================================================================
Net asset value, end of period $ 14.30 $ 12.27 $ 11.61 $ 10.67 $ 9.24
________________________________________________________________________________________________________________
================================================================================================================
Total return(d) 16.63% 5.76% 8.81% 15.48% (9.23)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $1,547,422 $617,534 $885,500 $1,149,943 $1,204,617
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.01%(e) 1.95% 1.96% 2.00% 1.92%
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.02%(e) 1.97% 1.97% 2.00% 1.92%
================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.18%(e) 0.44% (0.16)% (0.31)% (0.61)%(c)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate 51% 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 $0.00 and 0.08%, respectively.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investments 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.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $1,197,917,561.
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 12.30 $ 11.64 $ 10.70 $ 9.27 $ 10.21
- ----------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.02(a) 0.05(a)(b) (0.02)(a) (0.03)(a) (0.08)(c)
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized and
unrealized) 2.03 0.62 0.96 1.46 (0.86)
==========================================================================================================
Total from investment
operations 2.05 0.67 0.94 1.43 (0.94)
==========================================================================================================
Less dividends from net
investment income (0.01) (0.01) -- -- --
==========================================================================================================
Net asset value, end of period $ 14.34 $ 12.30 $ 11.64 $ 10.70 $ 9.27
__________________________________________________________________________________________________________
==========================================================================================================
Total return(d) 16.67% 5.75% 8.79% 15.43% (9.21)%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $287,359 $107,776 $138,305 $163,859 $170,444
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.01%(e) 1.95% 1.96% 2.00% 1.92%
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or
expense reimbursements 2.02%(e) 1.97% 1.97% 2.00% 1.92%
==========================================================================================================
Ratio of net investment income
(loss) to average net assets 0.18%(e) 0.44% (0.16)% (0.31)% (0.61)%(c)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate 51% 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 $0.00 and 0.08%, respectively.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investments 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.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $211,097,256.
F-16
AIM Charter Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------------ OCTOBER 31,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.77 $12.10 $11.08 $ 9.56 $ 10.94
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.09(a) 0.12(a)(b) 0.04(a) 0.02(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.10 0.63 1.00 1.50 (1.38)
=================================================================================================================================
Total from investment operations 2.19 0.75 1.04 1.52 (1.38)
=================================================================================================================================
Less dividends from net investment income (0.09) (0.08) (0.02) -- --
=================================================================================================================================
Net asset value, end of period $14.87 $12.77 $12.10 $11.08 $ 9.56
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 17.21% 6.22% 9.35% 15.90% (12.61)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,153 $2,637 $2,534 $1,714 $ 16
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%(d) 1.45% 1.46% 1.50% 1.42%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.52%(d) 1.47% 1.47% 1.50% 1.42%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.68%(d) 0.94% 0.34% 0.19% (0.11)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 51% 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 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 $4,004,149.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.22 $ 12.53 $11.45 $ 9.80 $ 10.67
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20(a) 0.22(a)(b) 0.13(a) 0.09(a) 0.06(c)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.16 0.65 1.03 1.56 (0.93)
===============================================================================================================================
Total from investment operations 2.36 0.87 1.16 1.65 (0.87)
===============================================================================================================================
Less dividends from net investment income (0.20) (0.18) (0.08) -- --
===============================================================================================================================
Net asset value, end of period $ 15.38 $ 13.22 $12.53 $11.45 $ 9.80
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(d) 18.03% 6.98% 10.21% 16.84% (8.15)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,476 $54,728 $3,285 $2,061 $ 1,457
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.79%(e) 0.71% 0.74% 0.79% 0.79%
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.80%(e) 0.73% 0.75% 0.79% 0.83%
===============================================================================================================================
Ratio of net investment income to average net assets 1.40%(e) 1.68% 1.06% 0.90% 0.52%(c)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 51% 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 $0.17 and 1.32%, respectively.
(c) As required, effective November 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investments 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.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(e) Ratios are based on average daily net assets of $94,498,037.
F-17
AIM Charter Fund
NOTE 16--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs and an
"administrative assessment," to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
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; and
- 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 (all the claims in this category of
lawsuits were dismissed with prejudice by the court on September 29, 2006,
except for the Section 36(b) claim which was dismissed with leave to amend
to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are
F-18
AIM Charter Fund
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
providing full cooperation with respect to these inquiries. Regulatory actions
and/or additional civil lawsuits related to these or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-19
AIM Charter Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Charter Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Charter Fund (one of the funds
constituting AIM Equity Funds, hereafter referred to as the "Fund") at October
31, 2006, the results of its operations for the year then ended, and the changes
in its net assets and the financial highlights for each of the two years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before October 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated December 15, 2004, expressed an unqualified opinion on those financial
highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-20
AIM Charter Fund
TAX DISCLOSURES
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2006, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2006, 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 in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006, are 29.28%, 25.22%, 35.91% and 31.42%, respectively.
F-21
AIM Charter Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-22
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Charter Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-23
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DOMESTIC EQUITY AIM Constellation Fund
Annual Report to Shareholders o October 31, 2006
Large-Cap Growth
Table of Contents
Supplemental Information .................. 2
Letters to Shareholders ................... 3
Performance Summary ....................... 5
Management Discussion ..................... 5
Fund Expenses ............................. 7
Long-term Fund Performance ................ 8
Approval of Advisory Agreement ............ 10
Schedule of Investments ................... F-1
Financial Statements ...................... F-4
Notes to Financial Statements ............. F-7
Financial Highlights ...................... F-14
Auditor's Report .......................... F-20 [COVER GLOBE IMAGE]
Tax Disclosures ........................... F-21
Trustees and Officers ..................... F-22
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
AIM Constellation Fund
AIM CONSTELLATION FUND SEEKS TO PROVIDE GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of October 31, 2006, and is based on total net assets.
ABOUT SHARE CLASSES o The unmanaged RUSSELL 1000--Registered o Industry classifications used in this
Trademark-- GROWTH INDEX is a subset of report are generally according to the
o Class B shares are not available as an the unmanaged RUSSELL 1000--Registered Global Industry Classification Standard,
investment for retirement plans Trademark-- INDEX, which represents the which was developed by and is the
maintained pursuant to Section 401 of performance of the stocks of large- exclusive property and a service mark of
the Internal Revenue Code, including capitalization companies; the Growth Morgan Stanley Capital International
401(k) plans, money purchase pension subset measures the performance of Inc. and Standard & Poor's.
plans and profit sharing plans. Plans Russell 1000 companies with higher
that had existing accounts invested in price/book ratios and higher forecasted The Fund provides a complete list of its
Class B shares prior to September 30, growth values. holdings four times in each fiscal year,
2003, will continue to be allowed to at the quarter-ends. For the second and
make additional purchases. o The unmanaged STANDARD & POOR'S fourth quarters, the lists appear in the
COMPOSITE INDEX OF 500 STOCKS (the S&P Fund's semiannual and annual reports to
o Class R shares are available only to 500--Registered Trademark-- Index) is an shareholders. For the first and third
certain retirement plans. Please see the index of common stocks frequently used quarters, the Fund files the lists with
prospectus for more information. as a general measure of U.S. stock the Securities and Exchange Commission
market performance. (SEC) on Form N-Q. The most recent list
PRINCIPAL RISKS OF INVESTING IN THE FUND of portfolio holdings is available at
o The Fund is not managed to track the AIMinvestments.com. From our home page,
o Foreign securities have additional performance of any particular index, click on Products & Performance, then
risks, including exchange rate changes, including the indexes defined here, and Mutual Funds, then Fund Overview. Select
political and economic upheaval, the consequently, the performance of the your Fund from the drop-down menu and
relative lack of information about these Fund may deviate significantly from the click on Complete Quarterly Holdings.
companies, relatively low market performance of the index. Shareholders can also look up the Fund's
liquidity and the potential lack of Forms N-Q on the SEC Web site at
strict financial and accounting controls o A direct investment cannot be made in sec.gov. Copies of the Fund's Forms N-Q
and standards. an index. Unless otherwise indicated, may be reviewed and copied at the SEC
index results include reinvested Public Reference Room in Washington,
o Investing in a fund that invests in dividends, and they do not reflect sales D.C. You can obtain information on the
smaller companies involves risks not charges. Performance of an index of operation of the Public Reference Room,
associated with investing in more funds reflects fund expenses; including information about duplicating
established companies, such as business performance of a market index does not. fee charges, by calling 202-942-8090 or
risk, stock price fluctuations and 800-732-0330, or by electronic request
illiquidity. OTHER INFORMATION at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers
o Prices of equity securities change in o The returns shown in the management's for the Fund are 811-01424 and
response to many factors including the discussion of Fund performance are based 002-25469.
historical and prospective earnings of on net asset values calculated for
the issuer, the value of its assets, shareholder transactions. Generally A description of the policies and
general economic conditions, interest accepted accounting principles require procedures that the Fund uses to
rates, investor perceptions and market adjustments to be made to the net assets determine how to vote proxies relating
liquidity. of the Fund at period end for financial to portfolio securities is available
reporting purposes, and as such, the net without charge, upon request, from our
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder Client Services department at
transactions and the returns based on 800-959-4246 or on the AIM Web site,
o The unmanaged LIPPER MULTI-CAP GROWTH those net asset values may differ from AIMinvestments.com. On the home page,
FUNDS INDEX represents an average of the the net asset values and returns scroll down and click on AIM Funds Proxy
performance of the 30 largest multi- reported in the Financial Highlights. Policy. The information is also
capitalization growth funds tracked by available on the SEC Web site, sec.gov.
Lipper Inc., an independent mutual fund
performance monitor. Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2006, 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 SEC Web site, sec.gov.
========================================
================================================================================ FUND NASDAQ SYMBOLS
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES Class A Shares CSTGX
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class B Shares CSTBX
================================================================================ Class C Shares CSTCX
Class R Shares CSTRX
========================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIMinvestments.com
2
AIM Constellation Fund
Dear Shareholders of The AIM Family of Funds
--Registered Trademark-- :
We're pleased to provide you with this report, which
[TAYLOR includes a discussion of how your Fund was managed during
PHOTO] the review period ended October 31, 2006, and what factors
affected its performance.
As we approach the end of 2006, it seems likely that
many investors may see the value of their investments
Philip Taylor increase this year. Global equity markets, collectively,
recorded double-digit gains for the year ended October 31,
2006, as did the U.S. stock market. Also, the investment
grade bond market in the United States rose for the same
period.
While stock and bond markets generally enjoyed positive
year-to-date returns, their performance was affected by
short-term economic and geopolitical events. For example,
the U.S. stock market was weak in the second quarter of
2006 when it appeared that inflation might be rising. Only
after the U.S. Federal Reserve Board decided in August that
inflation was contained and that short-term interest rates
need not be increased--the first time it kept rates
unchanged in more than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for
all investors. At AIM Investments--Registered Trademark--:,
we believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio.
AIM Investments can help by offering a broad product line
that gives your financial advisor the necessary tools to
build a portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each
asset class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed
income. A legend in the left column illustrates the
methodology. Your report cover now shows your Fund's asset
class color, plus the asset class and sub-asset class name
are shown in the upper-left corner. The reason for these
changes is to help you better understand where your Fund
fits into your overall portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial
advisor can help allocate your portfolio appropriately and
review your investments regularly to help ensure they
remain suitable as your financial situation changes. While
there are no guarantees with any investment program, a
long-term plan that's based on your financial goals, risk
tolerance and time horizon is more likely to keep you and
your investments on track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is
their unpredictability. While past performance cannot
guarantee comparable future results, we believe that
staying invested for the long term with a thoughtful plan
offers the best opportunity for weathering that
unpredictability. We at AIM Investments remain committed to
building enduring solutions to help you achieve your
investment goals, and we're pleased you've placed your
trust in us.
Information about investing, the markets and your Fund
is always available on our Web site, AIMinvestments.com.
If you have questions about your individual account, we
invite you to contact one of our highly trained client
services representatives at 800-959-4246.
Sincerely,
/S/ PHILIP TAYLOR
Philip Taylor
President - AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Constellation Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed
[CROCKETT its comprehensive review* of each fund's advisory agreement
PHOTO] with A I M Advisors, Inc. (AIM) to make certain your
interests are being served in terms of fees, performance
and operations.
Looking ahead, your Board finds many reasons to be
positive about AIM's management and strategic direction.
Bruce L. Crockett Most importantly, AIM's investment management discipline
has paid off in terms of improved overall performance. We
are also pleased with AIM's efforts to seek more
cost-effective ways of delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few
years, your Board will be meeting at these various centers
of excellence to learn about their progress and how they
may serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond
funds--are an early example of the kind of opportunities
the AMVESCAP organization can provide AIM clients. More
information on these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction
and progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this
momentum. As always, your Board is eager to hear your views
on how we might better serve you. Please send your comments
in a letter addressed to me at AIM Investments, AIM
Investments Tower, 11 Greenway Plaza, Suite 100, Houston TX
77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
*To learn more about all the factors we considered
before approving each fund's advisory agreement, go to the
"Products & Performance" tab at the AIM Web site
(AIMinvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of advisory agreement
information for your Fund is also included in this annual
report on pages 10-11.
4
AIM Constellation Fund
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
with management teams that profitably
reinvest shareholder cash flow.
===================================================================================== o Valuation--focus on companies that are
PERFORMANCE SUMMARY attractively valued given their growth
potential.
For the fiscal year ended October 31, 2006, Class A shares of AIM Constellation
Fund, excluding applicable sales charges, produced positive returns--but o Risk assessment--avoid "high risk"
underperformed the S&P 500 Index and the Russell 1000 Growth Index. companies as defined below.
The Fund underperformed its broad market index and its style-specific Stocks that are ranked highest by our
index largely due to weak stock selection in the health care and information quantitative model are the focus of our
technology sectors. In each of these sectors, the Fund's holdings generally fundamental research. Our fundamental
underperformed those of the indexes. Overweight positions in these two sectors analysis seeks to determine the
also detracted from the Fund's performance relative to the S&P 500 Index. company's drivers of earnings.
Your Fund's long-term performance appears on pages 8 and 9. Our team meets with company management
to evaluate proprietary products and the
FUND VS. INDEXES quality of management. We also analyze
trends and the competitive landscape. We
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales believe stocks that pass our
charges were included, returns would be lower. quantitative and fundamental screens are
more likely to outperform.
Class A Shares 8.17%
Class B Shares 7.36 We construct the portfolio using a
Class C Shares 7.37 bottom-up strategy, focusing on stocks
Class R Shares 7.90 rather than industries or sectors. While
S&P 500 Index (Broad Market Index) 16.33 there are no formal sector guidelines or
Russell 1000 Growth Index (Style-Specific Index) 10.84 constraints, internal controls and
Lipper Multi-Cap Growth Funds Index (Peer Group Index) 12.11 proprietary software help us monitor
risk levels and sector concentration.
SOURCE: LIPPER INC.
===================================================================================== Our sell process is designed to avoid
"high risk" situations we believe lead
HOW WE INVEST Our quantitative model ranks to underperformance. Examples of "high
companies based on factors we have found risk" situations include:
We believe a growth investment strategy to be highly correlated with
is an essential component of a outperformance in the growth universe, o Deteriorating business prospects.
diversified portfolio. including:
o Extended valuation.
Our investment process combines o Earnings--focus on companies
quantitative and fundamental analysis to exhibiting strong growth in earnings, o Slowing earnings growth.
uncover companies exhibiting long-term, revenue and cash flows.
sustainable earnings and cash flow o Weakened balance sheet.
growth that is not yet reflected in o Quality--focus on companies with
investor expectations or equity sustainable earnings growth; focus on MARKET CONDITIONS AND YOUR FUND
valuations. companies
Domestic equities posted solid returns
during the fiscal year, leaving several
major market indexes near multi-year
highs. Positive
(continued)
======================================== ======================================== =========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
1. Pharmaceuticals 8.8% 1. Cisco Systems, Inc. 2.6%
By sector 2. Communications Equipment 6.2 2. Apple Computer, Inc. 2.3
3. Investment Banking & 6.0 3. Amdocs Ltd. 2.3
[PIE CHART] Brokerage 4. Goldman Sachs Group, Inc. (The) 2.1
Information Technology 26.1% 4. Aerospace & Defense 4.7 5. JPMorgan Chase & Co. 2.0
Health Care 17.8% 5. Application Software 4.5 6. Roche Holding A.G. (Switzerland) 1.9
Consumer Discretionary 15.0% 7. Microsoft Corp. 1.9
Industrials 13.5% 8. Merrill Lynch & Co., Inc. 1.7
Financials 13.1% Total Net Assets $7.78 billion 9. Hewlett-Packard Co. 1.6
Energy 5.8% 10. United Technologies Corp. 1.6
Consumer Staples 3.2% Total Number of Holdings* 100
Materials 3.2%
Telecommunication Services 2.1% The Fund's holdings are subject to change, and there is no assurance that the
Money Market Funds Plus Fund will continue to hold any particular security.
Other Assets Less Liabilities 0.2%
*Excluding money market fund holdings.
======================================== ======================================== =========================================
5
AIM Constellation Fund
economic growth, favorable corporate This outperformance was driven largely THE VIEWS AND OPINIONS EXPRESSED IN
earnings and continued benign inflation by an overweight position in metals and MANAGEMENT'S DISCUSSION OF FUND
supported equities despite historically mining stocks and solid stock selection PERFORMANCE ARE THOSE OF A I M ADVISORS,
high energy prices and the U.S. Federal in the chemicals industry. Many metals INC. THESE VIEWS AND OPINIONS ARE
Reserve Board's (the Fed) and mining stocks, including copper SUBJECT TO CHANGE AT ANY TIME BASED ON
interest-rate-tightening campaign. Also producer PHELPS DODGE, performed well FACTORS SUCH AS MARKET AND ECONOMIC
helping stocks, the price of crude oil due to rising commodity prices. Other CONDITIONS. THESE VIEWS AND OPINIONS MAY
declined markedly, and prices of other holdings that performed well were NOT BE RELIED UPON AS INVESTMENT ADVICE
commodities fell as well, fostering MONSANTO and UNITED STATES STEEL. We OR RECOMMENDATIONS, OR AS AN OFFER FOR A
optimism that a hard landing for the sold these holdings before the close of PARTICULAR SECURITY. THE INFORMATION IS
U.S. economy could be avoided. the fiscal year. NOT A COMPLETE ANALYSIS OF EVERY ASPECT
OF ANY MARKET, COUNTRY, INDUSTRY,
The Fund benefited from positive The industrials sector benefited from SECURITY OR THE FUND. STATEMENTS OF FACT
absolute performance in eight of 10 a broad-based rally during the first ARE FROM SOURCES CONSIDERED RELIABLE,
market sectors, with the highest part of 2006. The Fund outperformed the BUT A I M ADVISORS, INC. MAKES NO
positive impact on performance coming Russell 1000 Growth Index in this sector REPRESENTATION OR WARRANTY AS TO THEIR
from holdings in the industrials, due mostly to strong stock selection in COMPLETENESS OR ACCURACY. ALTHOUGH
financials and consumer discretionary several industries that benefited from HISTORICAL PERFORMANCE IS NO GUARANTEE
sectors. Overall, the Fund strong global economic expansion. Many OF FUTURE RESULTS, THESE INSIGHTS MAY
underperformed the Russell 1000 Growth of the better-performing stocks in the HELP YOU UNDERSTAND OUR INVESTMENT
Index. This underperformance was largely sector were from the electrical MANAGEMENT PHILOSOPHY.
driven by stock selection in two equipment industry, including Fund
sectors--health care and information holdings ROCKWELL AUTOMATION and EMERSON See important Fund and index
Technology (IT). ELECTRIC. We sold our holding in disclosures on the inside front cover.
Rockwell Automation before the close of
In the health care sector, much of the fiscal year.
the Fund's underperformance was due to
weak performance by several health care Despite facing a number of headwinds Lanny H. Sachnowitz
provider and services holdings, during the fiscal year such as rising [SACHNOWITZ Senior portfolio manager,
including insurers AETNA and CIGNA. We interest rates, record-high gasoline PHOTO] lead manager of AIM
sold both stocks following disappointing prices and fears of a housing bubble, Constellation Fund. He
earnings results and a reduced consumer spending remained relatively joined AIM in 1987. Mr.
confidence in their management teams. strong. The Fund benefited from strong Sachnowitz earned a B.S. in finance from
Additionally, eyecare company ALCON was performance from a variety of consumer the University of Southern California
a significant detractor to Fund discretionary stocks, including and an M.B.A. from the University of
performance. This holding was also sold multi-line retailers J.C. PENNEY and Houston.
before the close of the fiscal year. FEDERATED DEPARTMENT STORES and
specialty retailers OFFICE DEPOT and
Despite posting positive returns in BEST BUY. Kirk L. Anderson
the IT sector, the Fund underperformed [ANDERSON Portfolio manager, manager
the Russell 1000 Growth Index in this In the financials sector, Fund PHOTO] of AIM Constellation Fund.
sector. Underperformance was driven holdings that contributed to performance He joined AIM in 1994.
largely by weakness in three software included GOLDMAN SACHS, MERRILL LYNCH Mr. Anderson earned a B.A.
holdings: RED HAT, CITRIX SYSTEMS and and MORGAN STANLEY. Favorable capital in political science from
MCAFEE. We sold Red Hat and McAfee markets and solid merger and acquisition Texas A&M University and an M.S. in
before the close of the reporting period activity continued to drive these stocks finance from the University of Houston.
due to deteriorating fundamentals, but during the fiscal year.
we continued to own Citrix Systems. Some
of this weak performance by software Our investment process led us to
stocks was offset by positive reduce our exposure to the energy,
performance by semiconductor materials and health care sectors due to
manufacturer FREESCALE, one of the key less upside to earnings estimates.
contributors to overall Fund Proceeds from these sales were invested
performance. Freescale's stock price primarily in a number of attractive James G. Birdsall
appreciated dramatically following the opportunities in the consumer [BIRDSALL Portfolio manager, manager
announcement that a consortium of discretionary, financials and PHOTO] of AIM Constellation Fund.
private equity firms was acquiring the telecommunication services sectors. He has been associated
company. We subsequently sold the stock with AIM Investments since
to lock in our gains. IN CLOSING 1995. Mr. Birdsall earned
his B.B.A. with a concentration in
Some of this underperformance in the We thank you for your commitment to AIM finance from Stephen F. Austin State
IT sector was offset by outperformance Constellation Fund. University before earning his M.B.A.
in other sectors, including materials, with a concentration in finance and
industrials, consumer discretionary and FOR A PRESENTATION OF YOUR FUND'S LONG-TERM international business from the
financials. The Fund outperformed the PERFORMANCE, PLEASE SEE PAGES 8 AND 9. University of St. Thomas.
Russell 1000 Growth Index by the widest
margin in the materials sector.
Robert J. Lloyd
[LLOYD Chartered Financial
PHOTO] Analyst, portfolio manager,
manager of AIM
Constellation Fund. He
joined AIM in 2000. Mr.
Lloyd earned a B.B.A. from the University
of Notre Dame and an M.B.A. from the
University of Chicago.
Assisted by the Large/Multi-Cap Growth
Team
6
AIM Constellation 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 THE
As a shareholder of the Fund, you incur over the period. Simply divide your ACTUAL ENDING ACCOUNT BALANCE OR
two types of costs: (1) transaction account value by $1,000 (for example, an EXPENSES YOU PAID FOR THE PERIOD. YOU
costs, which may include sales charges $8,600 account value divided by $1,000 = MAY USE THIS INFORMATION TO COMPARE THE
(loads) on purchase payments or 8.6), then multiply the result by the ONGOING COSTS OF INVESTING IN THE FUND
contingent deferred sales charges on number in the table under the heading AND OTHER FUNDS. TO DO SO, COMPARE THIS
redemptions, and redemption fees, if entitled "Actual Expenses Paid During 5% HYPOTHETICAL EXAMPLE WITH THE 5%
any; and (2) ongoing costs, including Period" to estimate the expenses you HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
management fees; distribution and/or paid on your account during this period. SHAREHOLDER REPORTS OF THE OTHER FUNDS.
service (12b-1) fees; and other Fund
expenses. This example is intended to HYPOTHETICAL EXAMPLE FOR Please note that the expenses shown
help you understand your ongoing costs COMPARISON PURPOSES in the table are meant to highlight your
(in dollars) of investing in the Fund ongoing costs only and do not reflect
and to compare these costs with ongoing The table below also provides any transaction costs, such as sales
costs of investing in other mutual information about hypothetical account charges (loads) on purchase payments,
funds. The example is based on an values and hypothetical expenses based contingent deferred sales charges on
investment of $1,000 invested at the on the Fund's actual expense ratio and redemptions, and redemption fees, if
beginning of the period and held for the an assumed rate of return of 5% per year any. Therefore, the hypothetical
entire period May 1, 2006, through before expenses, which is not the Fund's information is useful in comparing
October 31, 2006. 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, 2006, appear in the if these transaction costs were
The table below provides information table "Cumulative Total Returns" on included, your costs would have been
about actual account values and actual page 9. 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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $971.50 $5.96 $1,019.16 $6.11 1.20%
B 1,000.00 968.00 9.67 1,015.38 9.91 1.95
C 1,000.00 968.00 9.67 1,015.38 9.91 1.95
R 1,000.00 970.20 7.20 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, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
AIM Constellation Fund
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 4/30/76
================================================================================
[MOUNTAIN CHART]
<Table>
<Caption>
DATE AIM CONSTELLATION FUND S&P 500 LIPPER MULTI-CAP
-CLASS A SHARES INDEX GROWTH FUNDS INDEX
4/30/76 $9450 $ 10000 $ 10000
5/76 9171 9889 9865
6/76 9512 10327 10369
7/76 9327 10278 10147
8/76 9265 10258 9966
9/76 9514 10524 10117
10/76 9111 10327 9768
11/76 9173 10285 9956
12/76 9886 10863 10498
1/77 9080 10349 10151
2/77 8668 10160 9836
3/77 8637 10054 9809
4/77 8826 10096 9915
5/77 8731 9898 9841
6/77 9456 10387 10475
7/77 9204 10227 10312
8/77 9046 10082 10189
9/77 9046 10097 10325
10/77 8573 9704 9921
11/77 9299 10012 10605
12/77 9551 10086 10808
1/78 8605 9507 10154
2/78 6966 9314 10132
3/78 9550 9588 10578
4/78 10968 10453 11508
5/78 12134 10549 12022
6/78 11724 10404 12079
7/78 13426 11011 13045
8/78 14404 11342 13722
9/78 13648 11306 13403
10/78 10338 10320 11365
11/78 11095 10542 11986
12/78 11567 10749 12427
1/79 12293 11225 12942
2/79 11505 10863 12407
3/79 12891 11512 13356
4/79 13269 11584 13565
5/79 13143 11333 13303
6/79 14277 11825 14122
7/79 14812 11983 14561
8/79 16987 12675 15751
9/79 17333 12730 15817
10/79 15631 11914 14727
11/79 18184 12480 16101
12/79 20420 12747 16916
1/80 22846 13540 18161
2/80 23982 13539 17989
3/80 18876 12223 15702
4/80 20294 12788 16376
5/80 21398 13446 17311
6/80 22846 13871 18026
7/80 25997 14837 20018
8/80 27918 14987 20715
9/80 29587 15427 21649
10/80 31383 15739 22272
11/80 36740 17415 24865
12/80 35638 16891 24104
1/81 32613 16183 22701
2/81 32808 16463 23030
3/81 35193 17121 24306
4/81 35024 16789 24384
5/81 37784 16831 25386
6/81 33934 16727 24231
7/81 33968 16762 23960
8/81 29573 15793 22486
9/81 26021 15016 21391
10/81 30655 15827 23308
11/81 30551 16479 23907
12/81 29427 16057 23285
1/82 27811 15849 22754
2/82 25183 14963 21901
3/82 23189 14885 21662
4/82 25262 15559 22823
5/82 23501 15029 22022
6/82 21898 14803 21908
7/82 21116 14541 21743
8/82 23150 16306 23674
9/82 24011 16509 24233
10/82 29017 18409 27289
11/82 33828 19152 29242
12/82 33751 19522 29494
1/83 36488 20248 30334
2/83 38874 20712 32200
3/83 40320 21476 32789
4/83 45013 23169 34826
5/83 48335 22967 35856
6/83 52560 23860 37577
7/83 47945 23157 35917
8/83 45519 23504 35223
9/83 47121 23828 36093
10/83 40590 23552 34365
11/83 44382 24049 35492
12/83 42034 23924 35115
1/84 38360 23790 33356
2/84 34896 22952 31538
3/84 34896 23349 31939
4/84 34687 23571 31865
5/84 32123 22265 30307
6/84 34224 22749 31247
7/84 32712 22466 30453
8/84 38344 24947 33982
9/84 36328 24952 33204
10/84 35906 25049 33151
11/84 33676 24768 32359
12/84 35653 25420 33275
1/85 40951 27400 36552
2/85 42127 27737 37068
3/85 39814 27754 36541
4/85 38257 27729 36033
5/85 41199 29332 38033
6/85 42208 29792 38931
7/85 42124 29750 38915
8/85 40949 29462 38351
9/85 37923 28572 36621
10/85 39690 29892 38101
11/85 43139 31943 40726
12/85 45831 33489 42392
1/86 48351 33676 43337
2/86 53017 36192 47086
3/86 55790 38211 49666
4/86 57302 37783 49338
5/86 62471 39793 52135
6/86 63145 40466 52949
7/86 56837 38204 49025
8/86 59781 41035 51530
9/86 53349 37641 47052
10/86 58182 39813 49692
11/86 59497 40781 50343
12/86 58884 39741 49281
1/87 70738 45094 55387
2/87 78724 46875 59402
3/87 80165 48230 59955
4/87 79355 47800 58935
5/87 79411 48211 59478
6/87 80618 50646 61631
7/87 83673 53214 64700
8/87 88225 55199 66822
9/87 82870 53990 65633
10/87 56766 42366 50176
11/87 51521 38875 46659
12/87 60557 41833 51553
1/88 59413 43590 52182
2/88 65039 45613 55548
3/88 65423 44208 54926
4/88 67713 44699 55321
5/88 66284 45079 54619
6/88 74390 47148 57994
7/88 71623 46969 56713
8/88 67426 45376 54620
9/88 70480 47309 57029
10/88 70001 48625 57051
11/88 67901 47929 55785
12/88 70447 48763 57810
1/89 75773 52333 61862
2/89 74970 51030 60953
3/89 76979 52219 62739
4/89 82807 54929 66685
5/89 87328 57142 70573
6/89 83512 56822 69331
7/89 92322 61948 74725
8/89 98683 63156 77348
9/89 100301 62897 78222
10/89 94855 61438 75093
11/89 96970 62685 76174
12/89 97242 64189 76707
1/90 88792 59882 69934
2/90 93737 60655 71270
3/90 100130 62262 73971
4/90 98318 60712 72063
5/90 112072 66619 79752
6/90 111714 66173 80047
7/90 105435 65961 78206
8/90 90843 60005 70440
9/90 82395 57088 66242
10/90 79503 56849 64784
11/90 90244 60515 69675
12/90 93258 62198 72170
1/91 103516 64897 78052
2/91 111114 69531 83648
3/91 119081 71213 86643
4/91 117628 71384 86088
5/91 126192 74454 90238
6/91 117989 71044 84886
7/91 128124 74354 90396
8/91 135120 76109 93641
9/91 136931 74838 93304
10/91 141394 75841 95524
11/91 137054 72792 92085
12/91 158927 81105 103918
1/92 162233 79596 103898
2/92 164813 80623 105487
3/92 158929 79059 101194
4/92 150601 81376 99605
5/92 151700 81774 100452
6/92 144100 80556 97127
7/92 152804 83843 100701
8/92 147410 82132 98375
9/92 152923 83101 100303
10/92 162358 83384 103342
11/92 175720 86219 109429
12/92 182819 87279 112099
1/93 188085 88013 113848
2/93 176687 89210 110820
3/93 184408 91092 114565
4/93 177788 88887 110659
5/93 191140 91261 116678
6/93 194198 91525 117799
7/93 192605 91159 117834
8/93 201542 94614 123761
9/93 208516 93886 126385
10/93 208766 95829 127863
11/93 204966 94919 124002
12/93 214395 96067 128181
1/94 225672 99334 132436
2/94 226281 96642 130304
3/94 211098 92438 123307
4/94 212449 93621 123418
5/94 209262 95147 123035
6/94 197125 92816 117929
7/94 201895 95860 121314
8/94 216714 99781 128035
9/94 217213 97346 126063
10/94 224316 99527 128534
11/94 213773 95904 123521
12/94 217172 97323 124571
1/95 213002 99844 124533
2/95 224760 103728 129565
3/95 235121 106788 133788
4/95 240553 109928 136518
5/95 247889 114314 140081
6/95 268365 116966 148612
7/95 294638 120837 158108
8/95 296671 121139 159420
9/95 307292 126251 163804
10/95 299333 125797 161724
11/95 302985 131307 167109
12/95 294198 133841 166591
1/96 296552 138392 169124
2/96 311320 139679 174096
3/96 310947 141020 175123
4/96 329883 143093 182898
5/96 340341 146770 187928
6/96 327272 147328 183888
7/96 297981 140816 170556
8/96 316009 143787 178026
9/96 339140 151868 189580
10/96 333002 156060 189144
11/96 349585 167842 199925
12/96 342034 164519 196307
1/97 357050 174785 205729
2/97 341340 176166 200051
3/97 319664 168943 189729
4/97 324939 179012 195743
5/97 357693 189949 212342
6/97 369461 198402 220305
7/97 408993 214175 240595
8/97 403022 202181 234003
9/97 422770 213241 248815
10/97 395670 206118 237817
11/97 391081 215662 239316
12/97 386114 219371 241350
1/98 378816 221784 242412
2/98 415410 237775 262580
3/98 429617 249949 275394
4/98 439885 252498 278589
5/98 418814 248155 268002
6/98 435944 258230 281778
7/98 419858 255493 274902
8/98 338909 218574 224018
9/98 367886 232585 240170
10/98 386648 251471 253667
11/98 410117 266710 271322
12/98 459126 282073 301222
1/99 466794 293863 319747
2/99 433418 284724 303089
3/99 453139 296113 320334
4/99 468500 307573 328118
5/99 466392 300314 321786
6/99 499179 316921 344279
7/99 484154 307065 336532
8/99 481588 305530 333167
9/99 485344 297158 331268
10/99 521308 315968 354622
11/99 567183 322382 383063
12/99 662924 341338 440905
1/00 651124 324203 436452
2/00 737528 318076 506241
3/00 757810 349184 504267
4/00 697109 338673 462009
5/00 657026 331730 430870
6/00 721348 339891 473612
7/00 714640 334589 458741
8/00 809044 355367 508422
9/00 762928 336603 477510
10/00 711888 335190 449767
11/00 576060 308777 376095
12/00 594206 310290 387792
1/01 621718 321305 395664
2/01 525600 292034 337739
3/01 467469 273548 301533
4/01 514730 294776 338350
5/01 509171 296751 336523
6/01 499955 289540 330533
7/01 480457 286702 312684
8/01 438945 268783 285700
9/01 383287 247092 243245
10/01 405058 251812 260661
11/01 446333 271126 285763
12/01 453921 273512 290220
1/02 445705 269518 282007
2/02 426406 264317 264495
3/02 452288 274255 280258
4/02 426011 257635 263247
5/02 417789 255754 255613
6/02 388418 237545 231789
7/02 352878 219040 210024
8/02 351643 220464 208428
9/02 324320 196521 192254
10/02 353087 213796 206942
11/02 367458 226367 219897
12/02 341589 213079 203669
1/03 332332 207518 200308
2/03 330903 204405 198946
3/03 335204 206388 202109
4/03 357596 223373 216883
5/03 375476 235123 232824
6/03 380207 238132 235525
7/03 393970 242324 242826
8/03 409178 247049 252539
9/03 395429 244430 247665
10/03 423347 258240 265200
11/03 432576 260513 270053
12/03 441833 274164 275751
1/04 450051 279208 282618
2/04 453561 283089 286348
3/04 445760 278815 285489
4/04 431585 274437 275925
5/04 440001 278197 282437
6/04 450253 283594 288481
7/04 422112 274207 268115
8/04 414725 275304 264334
9/04 426420 278277 274537
10/04 436910 282535 280440
11/04 456833 293949 295528
12/04 469168 303944 306787
1/05 455796 296527 295712
2/05 464639 302755 299054
3/05 453162 297396 292744
4/05 436305 291745 282000
5/05 456636 301023 299343
6/05 457458 301444 300959
7/05 481292 312658 318746
8/05 480859 309813 317216
9/05 494227 312322 322323
10/05 485380 307106 316457
11/05 505281 318715 333388
12/05 508767 318843 334788
1/06 534002 327292 352063
2/06 526846 328176 346219
3/06 539174 332245 354078
4/06 540415 336697 356875
5/06 508800 327034 335998
6/06 505493 327459 335259
7/06 488256 329489 325067
8/06 498753 337331 333128
9/06 514165 346034 340790
10/06 524911 357322 354699
</Table>
================================================================================
SOURCE: LIPPER INC.
Past performance cannot guarantee taxes a shareholder would pay on Fund with each segment representing a percent
comparable future results. distributions or sale of Fund shares. change in the value of the investment.
Performance of the indexes does not In this chart, each segment represents a
The data shown in the chart include reflect the effects of taxes. doubling, or 100% change, in the value
reinvested distributions, applicable of the investment. In other words, the
sales charges, Fund expenses and This chart, which is a logarithmic space between $5,000 and $10,000 is the
management fees. Index results include chart, presents the fluctuations in the same size as the space between $10,000
reinvested dividends, but they do not value of the Fund and its indexes. We and $20,000, and so on.
reflect sales charges. Performance of an believe that a logarithmic chart is more
index of funds reflects fund expenses effective than other types of charts in
and management fees; performance of a illustrating changes in value during the
market index does not. Performance shown early years shown in the chart. The
in the chart and table(s) does not vertical axis, the one that indicates
reflect deduction of the dollar value of an investment, is
constructed
8
AIM Constellation Fund
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares -2.85%
Inception (4/30/76) 13.86% CLASS A SHARES Class B Shares -3.20
10 Years 4.07 Inception (4/30/76) 13.83% Class C Shares -3.20
5 Years 4.14 10 Years 3.66 Class R Shares -2.98
1 Year 2.20 5 Years 4.85
1 Year -1.69 ========================================
CLASS B SHARES
Inception (11/3/97) 2.17% CLASS B SHARES
5 Years 4.23 Inception (11/3/97) 1.95%
1 Year 2.36 5 Years 4.97
1 Year -1.70
CLASS C SHARES
Inception (8/4/97) 1.93% CLASS C SHARES
5 Years 4.57 Inception (8/4/97) 1.72%
1 Year 6.37 5 Years 5.29
1 Year 2.26
CLASS R SHARES
10 Years 4.48% CLASS R SHARES
5 Years 5.17 10 Years 4.07%
1 Year 7.90 5 Years 5.90
1 Year 3.79
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE AIMINVESTMENTS.COM FOR THE MOST FROM 5% BEGINNING AT THE TIME OF PURCHASE
3, 2002. RETURNS SINCE THAT DATE ARE INCEPTION RECENT MONTH-END PERFORMANCE. TO 0% AT THE BEGINNING OF THE SEVENTH
HISTORICAL RETURNS. ALL OTHER RETURNS PERFORMANCE FIGURES REFLECT REINVESTED YEAR. THE CDSC ON CLASS C SHARES IS 1%
ARE BLENDED RETURNS OF HISTORICAL CLASS DISTRIBUTIONS, CHANGES IN NET ASSET FOR THE FIRST YEAR AFTER PURCHASE.
R SHARE PERFORMANCE AND RESTATED CLASS A VALUE AND THE EFFECT OF THE MAXIMUM CLASS R SHARES DO NOT HAVE A FRONT-END
SHARE PERFORMANCE (FOR PERIODS PRIOR TO SALES CHARGE UNLESS OTHERWISE STATED. SALES CHARGE; RETURNS SHOWN ARE AT NET
THE INCEPTION DATE OF CLASS R SHARES) AT INVESTMENT RETURN AND PRINCIPAL VALUE ASSET VALUE AND DO NOT REFLECT A 0.75%
NET ASSET VALUE, ADJUSTED TO REFLECT THE WILL FLUCTUATE SO THAT YOU MAY HAVE A CDSC THAT MAY BE IMPOSED ON A TOTAL
HIGHER RULE 12B-1 FEES APPLICABLE TO GAIN OR LOSS WHEN YOU SELL SHARES. REDEMPTION OF RETIREMENT PLAN ASSETS
CLASS R SHARES. CLASS A SHARES' INCEPTION WITHIN THE FIRST YEAR.
DATE IS APRIL 30, 1976. CLASS A SHARE PERFORMANCE REFLECTS
THE MAXIMUM 5.50% SALES CHARGE, AND THE PERFORMANCE OF THE FUND'S SHARE
THE PERFORMANCE DATA QUOTED CLASS B AND CLASS C SHARE PERFORMANCE CLASSES WILL DIFFER PRIMARILY DUE TO
REPRESENT PAST PERFORMANCE AND CANNOT REFLECTS THE APPLICABLE CONTINGENT DIFFERENT SALES CHARGE STRUCTURES AND
GUARANTEE COMPARABLE FUTURE RESULTS; DEFERRED SALES CHARGE (CDSC) FOR THE CLASS EXPENSES.
CURRENT PERFORMANCE MAY BE LOWER OR PERIOD INVOLVED. THE CDSC ON CLASS B
HIGHER. PLEASE VISIT SHARES DECLINES
9
AIM Constellation Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Equity services to be provided by AIM under the o Meetings with the Fund's portfolio
Funds (the "Board") oversees the Advisory Agreement was appropriate and managers and investment personnel. With
management of AIM Constellation Fund that AIM currently is providing services respect to the Fund, the Board is
(the "Fund") and, as required by law, in accordance with the terms of the meeting periodically with such Fund's
determines annually whether to approve Advisory Agreement. portfolio managers and/or other
the continuance of the Fund's advisory investment personnel and believes that
agreement with A I M Advisors, Inc. o The quality of services to be provided such individuals are competent and able
("AIM"). Based upon the recommendation by AIM. The Board reviewed the to continue to carry out their
of the Investments Committee of the credentials and experience of the responsibilities under the Advisory
Board, at a meeting held on June 27, officers and employees of AIM who will Agreement.
2006, the Board, including all of the provide investment advisory services to
independent trustees, approved the the Fund. In reviewing the o Overall performance of AIM. The Board
continuance of the advisory agreement qualifications of AIM to provide considered the overall performance of
(the "Advisory Agreement") between the investment advisory services, the Board AIM in providing investment advisory and
Fund and AIM for another year, effective considered such issues as AIM's portfolio administrative services to the
July 1, 2006. portfolio and product review process, Fund and concluded that such performance
various back office support functions was satisfactory.
The Board considered the factors provided by AIM and AIM's equity and
discussed below in evaluating the fixed income trading operations. Based o Fees relative to those of clients of
fairness and reasonableness of the on the review of these and other AIM with comparable investment
Advisory Agreement at the meeting on factors, the Board concluded that the strategies. The Board reviewed the
June 27, 2006 and as part of the Board's quality of services to be provided by effective advisory fee rate (before
ongoing oversight of the Fund. In their AIM was appropriate and that AIM waivers) for the Fund under the Advisory
deliberations, the Board and the currently is providing satisfactory Agreement. The Board noted that this
independent trustees did not identify services in accordance with the terms of rate was (i) the same as the effective
any particular factor that was the Advisory Agreement. advisory fee rate (before waivers) for a
controlling, and each trustee attributed mutual fund advised by AIM with
different weights to the various o The performance of the Fund relative investment strategies comparable to
factors. to comparable funds. The Board reviewed those of the Fund; (ii) comparable to
the performance of the Fund during the the effective advisory fee rate (before
One responsibility of the past one, three and five calendar years waivers) for a variable insurance fund
independent Senior Officer of the Fund against the performance of funds advised advised by AIM and offered to insurance
is to manage the process by which the by other advisors with investment company separate accounts with
Fund's proposed management fees are strategies comparable to those of the investment strategies comparable to
negotiated to ensure that they are Fund. The Board noted that the Fund's those of the Fund and below the
negotiated in a manner which is at arms' performance was below the median effective advisory fee rate (before
length and reasonable. To that end, the performance of such comparable funds for waivers) for a second variable insurance
Senior Officer must either supervise a such periods. Based on this review and fund advised by AIM and offered to
competitive bidding process or prepare after taking account of all of the other insurance company separate accounts with
an independent written evaluation. The factors that the Board considered in investment strategies comparable to
Senior Officer has recommended an determining whether to continue the those of the Fund; (iii) above the
independent written evaluation in lieu Advisory Agreement for the Fund, the effective sub-advisory fee rate for one
of a competitive bidding process and, Board concluded that no changes should offshore fund advised and sub-advised by
upon the direction of the Board, has be made to the Fund and that it was not AIM affiliates with investment
prepared such an independent written necessary to change the Fund's portfolio strategies comparable to those of the
evaluation. Such written evaluation also management team at this time. Although Fund, although the total advisory fees
considered certain of the factors the independent written evaluation of for such offshore fund were above those
discussed below. In addition, as the Fund's Senior Officer (discussed for the Fund; (iv) above the effective
discussed below, the Senior Officer made below) only considered Fund performance sub-advisory fee rates for five variable
a recommendation to the Board in through the most recent calendar year, insurance funds sub-advised by an AIM
connection with such written evaluation. the Board also reviewed more recent Fund affiliate and offered to insurance
performance, which did not change their company separate accounts with
The discussion below serves as a conclusions. investment strategies comparable to
summary of the Senior Officer's those of the Fund, although the advisory
independent written evaluation and o The performance of the Fund relative fees for such variable insurance funds
recommendation to the Board in to indices. The Board reviewed the were above those for the Fund; and (v)
connection therewith, as well as a performance of the Fund during the past above the total advisory fee rate for a
discussion of the material factors and one, three and five calendar years separately managed account/wrap account
the conclusions with respect thereto against the performance of the Lipper managed by an AIM affiliate with
that formed the basis for the Board's Multi-Cap Growth Index. The Board noted investment strategies comparable to
approval of the Advisory Agreement. that the Fund's performance was those of the Fund. The Board noted that
After consideration of all of the comparable to the performance of such AIM has agreed to waive advisory fees of
factors below and based on its informed Index for the one and five year periods the Fund, as discussed below. Based on
business judgment, the Board determined and below such Index for the three year this review, the Board concluded that
that the Advisory Agreement is in the period. Based on this review and after the advisory fee rate for the Fund under
best interests of the Fund and its taking account of all of the other the Advisory Agreement was fair and
shareholders and that the compensation factors that the Board considered in reasonable.
to AIM under the Advisory Agreement is determining whether to continue the
fair and reasonable and would have been Advisory Agreement for the Fund, the o Fees relative to those of comparable
obtained through arm's length Board concluded that no changes should funds with other advisors. The Board
negotiations. be made to the Fund and that it was not reviewed the advisory fee rate for the
necessary to change the Fund's portfolio Fund under the Advisory Agreement. The
Unless otherwise stated, information management team at this time. Although Board compared effective contractual
presented below is as of June 27, 2006 the independent written evaluation of advisory fee rates at a common asset
and does not reflect any changes that the Fund's Senior Officer (discussed level at the end of the past calendar
may have occurred since June 27, 2006, below) only considered Fund performance year and noted that the Fund's rate was
including but not limited to changes to through the most recent calendar year, comparable to the median rate of the
the Fund's performance, advisory fees, the Board also reviewed more recent Fund funds advised by other advisors with
expense limitations and/or fee waivers. performance, which did not change their investment strategies comparable to
conclusions. those of the Fund that the Board
o The nature and extent of the advisory reviewed. The Board noted that AIM has
services to be provided by AIM. The agreed to waive advisory fees of the
Board reviewed the services to be Fund, as discussed below. Based on this
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
10
AIM Constellation Fund
review, the Board concluded that the concluded that the investment of cash o Historical relationship between the
advisory fee rate for the Fund under the collateral received in connection with Fund and AIM. In determining whether to
Advisory Agreement was fair and the securities lending program in the continue the Advisory Agreement for the
reasonable. money market funds according to the Fund, the Board also considered the
procedures is in the best interests of prior relationship between AIM and the
o Expense limitations and fee waivers. the lending Fund and its respective Fund, as well as the Board's knowledge
The Board noted that AIM has shareholders. of AIM's operations, and concluded that
contractually agreed to waive advisory it was beneficial to maintain the cur-
fees of the Fund through December 31, o Independent written evaluation and rent relationship, in part, because of
2009 to the extent necessary so that the recommendations of the Fund's Senior such knowledge. The Board also reviewed
advisory fees payable by the Fund do not Officer. The Board noted that, upon the general nature of the non-investment
exceed a specified maximum advisory fee their direction, the Senior Officer of advisory services currently performed by
rate, which maximum rate includes break- the Fund, who is independent of AIM and AIM and its affiliates, such as
points and is based on net asset levels. AIM's affiliates, had prepared an administrative, transfer agency and
The Board considered the contractual independent written evaluation in order distribution services, and the fees
nature of this fee waiver and noted that to assist the Board in determining the received by AIM and its affiliates for
it remains in effect until December 31, reasonableness of the proposed performing such services. In addition to
2009. The Board considered the effect management fees of the AIM Funds, reviewing such services, the trustees
this fee waiver would have on the Fund's including the Fund. The Board noted that also considered the organizational
estimated expenses and concluded that the Senior Officer's written evaluation structure employed by AIM and its
the levels of fee waivers/expense had been relied upon by the Board in affiliates to provide those services.
limitations for the Fund were fair and this regard in lieu of a competitive Based on the review of these and other
reasonable. bidding process. In determining whether factors, the Board concluded that AIM
to continue the Advisory Agreement for and its affiliates were qualified to
o Breakpoints and economies of scale. the Fund, the Board considered the continue to provide non-investment
The Board reviewed the structure of the Senior Officer's written evaluation and advisory services to the Fund, including
Fund's advisory fee under the Advisory the recommendation made by the Senior administrative, transfer agency and
Agreement, noting that it includes one Officer to the Board that the Board distribution services, and that AIM and
breakpoint. The Board reviewed the level consider whether the advisory fee its affiliates currently are providing
of the Fund's advisory fees, and noted waivers for certain equity AIM Funds, satisfactory non-investment advisory
that such fees, as a percentage of the including the Fund, should be services.
Fund's net assets, have decreased as net simplified. The Board concluded that it
assets increased because the Advisory would be advisable to consider this o Other factors and current trends. The
Agreement includes a breakpoint. The issue and reach a decision prior to the Board considered the steps that AIM and
Board noted that AIM has contractually expiration date of such advisory fee its affiliates have taken over the last
agreed to waive advisory fees of the waivers. several years, and continue to take, in
Fund through December 31, 2009 to the order to improve the quality and
extent necessary so that the advisory o Profitability of AIM and its efficiency of the services they provide
fees payable by the Fund do not exceed a affiliates. The Board reviewed to the Funds in the areas of investment
specified maximum advisory fee rate, information concerning the profitability performance, product line
which maximum rate includes breakpoints of AIM's (and its affiliates') diversification, distribution, fund
and is based on net asset levels. The investment advisory and other activities operations, shareholder services and
Board concluded that the Fund's fee and its financial condition. The Board compliance. The Board concluded that
levels under the Advisory Agreement considered the overall profitability of these steps taken by AIM have improved,
therefore reflect economies of scale and AIM, as well as the profitability of AIM and are likely to continue to improve,
that it was not necessary to change the in connection with managing the Fund. the quality and efficiency of the
advisory fee breakpoints in the Fund's The Board noted that AIM's operations services AIM and its affiliates provide
advisory fee schedule. remain profitable, although increased to the Fund in each of these areas, and
expenses in recent years have reduced support the Board's approval of the
o Investments in affiliated money market AIM's profitability. Based on the review continuance of the Advisory Agreement
funds. The Board also took into account of the profitability of AIM's and its for the Fund.
the fact that uninvested cash and cash affiliates' investment advisory and
collateral from securities lending other activities and its financial
arrangements, if any (collectively, condition, the Board concluded that the
"cash balances") of the Fund may be compensation to be paid by the Fund to
invested in money market funds advised AIM under its Advisory Agreement was not
by AIM pursuant to the terms of an SEC excessive.
exemptive order. The Board found that
the Fund may realize certain benefits o Benefits of soft dollars to AIM. The
upon investing cash balances in AIM Board considered the benefits realized
advised money market funds, including a by AIM as a result of brokerage
higher net return, increased liquidity, transactions executed through "soft
increased diversification or decreased dollar" arrangements. Under these
transaction costs. The Board also found arrangements, brokerage commissions paid
that the Fund will not receive reduced by the Fund and/or other funds advised
services if it invests its cash balances by AIM are used to pay for research and
in such money market funds. The Board execution services. This research may be
noted that, to the extent the Fund used by AIM in making investment
invests uninvested cash in affiliated decisions for the Fund. The Board
money market funds, AIM has voluntarily concluded that such arrangements were
agreed to waive a portion of the appropriate.
advisory fees it receives from the Fund
attributable to such investment. The o AIM's financial soundness in light of
Board further determined that the the Fund's needs. The Board considered
proposed securities lending program and whether AIM is financially sound and has
related procedures with respect to the the resources necessary to perform its
lending Fund is in the best interests of obligations under the Advisory
the lending Fund and its respective Agreement, and concluded that AIM has
shareholders. The Board therefore the financial resources necessary to
fulfill its obligations under the
Advisory Agreement.
11
Supplement to Annual Report dated 10/31/06
AIM Constellation Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been prepared to For periods ended 10/31/06 RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
provide Institutional Class shareholders with ALL RETURNS ASSUME REINVESTMENT OF
a performance overview specific to their Inception (4/8/92) 9.47% DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
holdings. Institutional Class shares are 10 Years 5.17 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
offered exclusively to institutional 5 Years 5.86 SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
investors, including defined contribution 1 Year 8.68 LESS THAN THEIR ORIGINAL COST. SEE FULL
plans that meet certain criteria. 6 Months* -2.62 REPORT FOR INFORMATION ON COMPARATIVE
BENCHMARKS. PLEASE CONSULT YOUR FUND
=================================== PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
CURRENT MONTH-END PERFORMANCE, PLEASE CALL
AVERAGE ANNUAL TOTAL RETURNS 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
For periods ended 9/30/06, most
recent calendar quarter-end
Inception (4/8/92) 9.37%
10 Years 4.76
5 Years 6.60
1 Year 4.55
6 Months* -4.41
* 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
PRIMARILY DUE TO DIFFERING SALES
CHARGES AND CLASS EXPENSES.
==============================================
NASDAQ SYMBOL CSITX
==============================================
Over for information on your Fund's expenses.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM CST-INS-1 A I M Distributors, Inc. --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example divide your account value by $1,000 The hypothetical account values and
(for example, an $8,600 account expenses may not be used to estimate the
As a shareholder of the Fund, you incur value divided by $1,000 = 8.6), actual ending account balance or expenses you
ongoing costs, including management fees and then multiply the result by the paid for the period. You may use this
other Fund expenses. This example is intended number in the table under the information to compare the ongoing costs of
to help you understand your ongoing costs (in heading entitled "Actual Expenses investing in the Fund and other funds. To do
dollars) of investing in the Fund and to Paid During Period" to estimate the so, compare this 5% hypothetical example with
compare these costs with ongoing costs of expenses you paid on your account the 5% hypothetical examples that appear in
investing in other mutual funds. The example during this period. the shareholder reports of the other funds.
is based on an investment of $1,000 invested
at the beginning of the period and held for Hypothetical example for comparison Please note that the expenses shown in
the entire period May 1, 2006, through purposes the table are meant to highlight your ongoing
October 31, 2006. costs only. Therefore, the hypothetical
The table below also provides information is useful in comparing ongoing
Actual expenses information about hypothetical costs only, and will not help you determine
account values and hypothetical the relative total costs of owning different
The table below provides information about expenses based on the Fund's actual funds.
actual account values and actual expenses. expense ratio and an assumed rate
You may use the information in this table, of return of 5% per year before
together with the amount you invested, to expenses, which is not the Fund's
estimate the expenses that you paid over the actual return. The Fund's actual
period. Simply cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional $1,000.00 $973.80 $3.68 $1,021.48 $3.77 0.74%
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, 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 A I M Distributors, Inc.
AIM Constellation Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.23%
AEROSPACE & DEFENSE-4.69%
Boeing Co. (The) 722,914 $ 57,731,912
- --------------------------------------------------------------------------
General Dynamics Corp. 1,511,497 107,467,437
- --------------------------------------------------------------------------
Precision Castparts Corp. 1,131,774 77,028,538
- --------------------------------------------------------------------------
United Technologies Corp. 1,866,991 122,698,649
==========================================================================
364,926,536
==========================================================================
APPAREL RETAIL-1.94%
Aeropostale, Inc.(a) 1,644,373 48,196,572
- --------------------------------------------------------------------------
DSW Inc.-Class A(a)(b)(c) 1,083,900 37,502,940
- --------------------------------------------------------------------------
Limited Brands, Inc. 2,199,112 64,807,831
==========================================================================
150,507,343
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.70%
Carter's, Inc.(a) 1,924,258 54,321,803
==========================================================================
APPLICATION SOFTWARE-4.49%
Adobe Systems Inc.(a) 837,319 32,027,452
- --------------------------------------------------------------------------
Amdocs Ltd.(a) 4,601,946 178,371,427
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 4,900,000 79,723,000
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 1,992,572 58,840,651
==========================================================================
348,962,530
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.48%
Janus Capital Group Inc. 1,850,000 37,148,000
==========================================================================
BIOTECHNOLOGY-2.65%
Amgen Inc.(a) 1,216,539 92,347,475
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 1,653,802 113,946,958
==========================================================================
206,294,433
==========================================================================
COMMUNICATIONS EQUIPMENT-4.56%
Cisco Systems, Inc.(a) 8,525,000 205,708,250
- --------------------------------------------------------------------------
Motorola, Inc. 3,465,520 79,914,891
- --------------------------------------------------------------------------
QUALCOMM Inc. 1,886,258 68,640,929
==========================================================================
354,264,070
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.48%
Best Buy Co., Inc. 2,075,308 114,660,767
==========================================================================
COMPUTER HARDWARE-3.92%
Apple Computer, Inc.(a) 2,200,000 178,376,000
- --------------------------------------------------------------------------
Hewlett-Packard Co. 3,255,000 126,098,700
==========================================================================
304,474,700
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.36%
Seagate Technology 4,695,136 106,016,171
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.55%
Oshkosh Truck Corp. 1,200,000 $ 54,252,000
- --------------------------------------------------------------------------
Terex Corp.(a) 1,272,724 65,876,194
==========================================================================
120,128,194
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-0.55%
VeriFone Holdings, Inc.(a) 1,464,642 42,782,193
==========================================================================
DEPARTMENT STORES-3.17%
Federated Department Stores, Inc. 1,573,013 69,071,001
- --------------------------------------------------------------------------
J.C. Penney Co., Inc. 1,575,762 118,544,575
- --------------------------------------------------------------------------
Nordstrom, Inc. 1,248,978 59,139,108
==========================================================================
246,754,684
==========================================================================
DRUG RETAIL-0.34%
Longs Drug Stores Corp. 621,737 26,759,561
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.63%
Acuity Brands, Inc. 539,487 26,726,186
- --------------------------------------------------------------------------
Cooper Industries, Ltd.-Class A 949,418 84,925,440
- --------------------------------------------------------------------------
Emerson Electric Co. 1,101,052 92,928,789
==========================================================================
204,580,415
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.15%
Amphenol Corp.-Class A 1,053,440 71,528,576
- --------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 258,889 17,772,730
==========================================================================
89,301,306
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.91%
Waste Management, Inc. 1,889,083 70,802,831
==========================================================================
GENERAL MERCHANDISE STORES-1.37%
Family Dollar Stores, Inc. 3,608,425 106,268,116
==========================================================================
HEALTH CARE DISTRIBUTORS-1.31%
Cardinal Health, Inc. 1,556,164 101,850,934
==========================================================================
HEALTH CARE EQUIPMENT-0.74%
Becton, Dickinson and Co. 815,706 57,123,891
==========================================================================
HEALTH CARE FACILITIES-1.35%
Manor Care, Inc.(b) 1,175,000 56,388,250
- --------------------------------------------------------------------------
VCA Antech, Inc.(a) 1,511,735 48,934,862
==========================================================================
105,323,112
==========================================================================
</Table>
F-1
AIM Constellation Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE SERVICES-1.64%
Caremark Rx, Inc. 1,381,811 $ 68,026,555
- --------------------------------------------------------------------------
Quest Diagnostics Inc. 1,194,651 59,421,941
==========================================================================
127,448,496
==========================================================================
HOME ENTERTAINMENT SOFTWARE-1.29%
Electronic Arts Inc.(a) 1,900,475 100,516,123
==========================================================================
HOUSEHOLD PRODUCTS-1.03%
Colgate-Palmolive Co. 1,251,889 80,083,339
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.10%
Costco Wholesale Corp. 1,600,000 85,408,000
==========================================================================
INDUSTRIAL CONGLOMERATES-0.94%
McDermott International, Inc.(a) 1,636,520 73,152,444
==========================================================================
INTEGRATED OIL & GAS-1.49%
Occidental Petroleum Corp. 2,472,087 116,039,764
==========================================================================
INTERNET SOFTWARE & SERVICES-1.16%
Google Inc.-Class A(a) 190,000 90,514,100
==========================================================================
INVESTMENT BANKING & BROKERAGE-6.05%
Goldman Sachs Group, Inc. (The) 850,000 161,321,500
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 1,515,602 132,493,927
- --------------------------------------------------------------------------
Morgan Stanley 1,232,302 94,184,842
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 4,500,000 81,990,000
==========================================================================
469,990,269
==========================================================================
IT CONSULTING & OTHER SERVICES-0.64%
Accenture Ltd.-Class A 1,513,351 49,804,381
==========================================================================
MANAGED HEALTH CARE-1.39%
Health Net Inc.(a) 2,608,110 108,262,646
==========================================================================
MOVIES & ENTERTAINMENT-1.35%
News Corp.-Class A 5,025,001 104,771,271
==========================================================================
MULTI-LINE INSURANCE-2.01%
Assurant, Inc. 1,857,138 97,796,887
- --------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 1,730,332 58,242,975
==========================================================================
156,039,862
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.40%
Baker Hughes Inc. 1,300,000 89,765,000
- --------------------------------------------------------------------------
BJ Services Co. 2,064,895 62,277,233
- --------------------------------------------------------------------------
Cameron International Corp.(a) 860,099 43,090,960
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 1,150,000 69,460,000
==========================================================================
264,593,193
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS REFINING & MARKETING-0.93%
Valero Energy Corp. 1,379,334 $ 72,180,548
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.04%
JPMorgan Chase & Co. 3,344,954 158,684,618
==========================================================================
PHARMACEUTICALS-4.33%
Abbott Laboratories 815,329 38,736,281
- --------------------------------------------------------------------------
Allergan, Inc. 521,177 60,195,944
- --------------------------------------------------------------------------
Johnson & Johnson 912,675 61,514,295
- --------------------------------------------------------------------------
Merck & Co. Inc. 1,732,025 78,668,575
- --------------------------------------------------------------------------
Wyeth 1,916,738 97,811,140
==========================================================================
336,926,235
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.78%
Chubb Corp. (The) 1,140,120 60,597,378
==========================================================================
RAILROADS-0.70%
Burlington Northern Santa Fe Corp. 703,858 54,570,111
==========================================================================
REGIONAL BANKS-0.47%
Cullen/Frost Bankers, Inc. 677,587 36,698,112
==========================================================================
RESTAURANTS-2.12%
Burger King Holdings Inc.(a) 3,607,720 60,537,541
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 1,815,183 76,056,168
- --------------------------------------------------------------------------
Ruby Tuesday, Inc.(b) 1,006,037 27,917,527
==========================================================================
164,511,236
==========================================================================
SEMICONDUCTORS-1.91%
Microchip Technology Inc. 2,375,000 78,208,750
- --------------------------------------------------------------------------
Texas Instruments Inc. 2,337,877 70,557,128
==========================================================================
148,765,878
==========================================================================
SOFT DRINKS-0.76%
PepsiCo, Inc. 926,187 58,757,303
==========================================================================
SPECIALTY STORES-2.86%
Office Depot, Inc.(a) 1,944,546 81,651,487
- --------------------------------------------------------------------------
OfficeMax Inc. 1,297,611 61,740,331
- --------------------------------------------------------------------------
PetSmart, Inc. 2,735,000 78,713,300
==========================================================================
222,105,118
==========================================================================
SYSTEMS SOFTWARE-3.50%
Microsoft Corp. 5,162,929 148,227,692
- --------------------------------------------------------------------------
Sybase, Inc.(a) 955,690 23,271,051
- --------------------------------------------------------------------------
Symantec Corp.(a) 5,086,333 100,912,847
==========================================================================
272,411,590
==========================================================================
Total Domestic Common Stocks (Cost
$5,840,145,933) 6,626,083,605
==========================================================================
</Table>
F-2
AIM Constellation Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-14.53%
AUSTRALIA-0.79%
BHP Billiton Ltd. (Diversified Metals &
Mining)(d) 2,900,000 $ 61,695,870
==========================================================================
BRAZIL-0.77%
Companhia Vale do Rio Doce-ADR (Steel) 2,352,337 59,843,453
==========================================================================
CANADA-0.90%
Research In Motion Ltd. (Communications
Equipment)(a) 598,247 70,282,058
==========================================================================
FINLAND-0.70%
Nokia Oyj-ADR (Communications Equipment) 2,746,598 54,602,368
==========================================================================
HONG KONG-0.67%
China Mobile Ltd. (Wireless Telecommunication
Services)(d) 6,366,500 51,899,327
==========================================================================
JAPAN-2.25%
FANUC Ltd. (Industrial Machinery)(d) 764,600 66,305,473
- --------------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(d) 9,970 61,899,354
- --------------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(d) 2,600,000 46,491,266
==========================================================================
174,696,093
==========================================================================
MEXICO-0.62%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 1,126,343 48,286,324
==========================================================================
SOUTH KOREA-0.60%
Kookmin Bank (Diversified Banks)(d) 585,850 46,429,844
==========================================================================
SWITZERLAND-5.22%
ABB Ltd. (Heavy Electrical Equipment)(d) 3,121,984 46,317,664
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 1,619,127 98,329,583
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SWITZERLAND-(CONTINUED)
Roche Holding A.G. (Pharmaceuticals)(d) 864,666 $ 151,108,448
- --------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(d) 381,562 61,567,410
- --------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets)(d) 810,205 48,320,052
==========================================================================
405,643,157
==========================================================================
UNITED KINGDOM-2.01%
AstraZeneca PLC-ADR (Pharmaceuticals) 1,611,222 94,578,731
- --------------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals & Mining) 1,119,376 61,751,884
==========================================================================
156,330,615
==========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $1,016,096,793) 1,129,709,109
==========================================================================
MONEY MARKET FUNDS-0.31%
Liquid Assets Portfolio-Institutional
Class(e) 12,100,535 12,100,535
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(e) 12,100,535 12,100,535
==========================================================================
Total Money Market Funds (Cost
$24,201,070) 24,201,070
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.07% (Cost
$6,880,443,796) 7,779,993,784
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.46%
STIC Prime Portfolio-Institutional
Class(e)(f) 35,906,051 35,906,051
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $35,906,051) 35,906,051
==========================================================================
TOTAL INVESTMENTS-100.53% (Cost
$6,916,349,847) 7,815,899,835
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.53)% (40,874,982)
==========================================================================
NET ASSETS-100.00% $7,775,024,853
__________________________________________________________________________
==========================================================================
</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 was out on loan at October 31, 2006.
(c) Affiliated company. The Investment Company Act of 1940 defines affiliates as
those issuances in which a fund holds 5% or more of the outstanding voting
securities. The Fund has not owned enough of the outstanding voting
securities of the issuer to have control (as defined in the Investment
Company Act of 1940) of that issuer. The value of this security as of
October 31, 2006 represented 0.48% of the Fund's Net Assets. See Note 3.
(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, 2006 was $642,034,708,
which represented 8.26% of the Fund's Net Assets. See Note 1A.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the commitment to return the
cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Constellation Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost $6,826,783,805)* $7,718,289,774
- ------------------------------------------------------------
Investments in affiliates (cost $89,566,042) 97,610,061
============================================================
Total investments (cost $6,916,349,847) 7,815,899,835
============================================================
Foreign currencies, at value (cost $530) 541
- ------------------------------------------------------------
Receivables for:
Investments sold 59,719,012
- ------------------------------------------------------------
Fund shares sold 2,429,914
- ------------------------------------------------------------
Dividends 4,767,897
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 850,556
- ------------------------------------------------------------
Other assets 132,281
============================================================
Total assets 7,883,800,036
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 41,855,832
- ------------------------------------------------------------
Fund shares reacquired 18,913,506
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 2,073,339
- ------------------------------------------------------------
Collateral upon return of securities
loaned 35,906,051
- ------------------------------------------------------------
Accrued distribution fees 2,476,774
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 9,269
- ------------------------------------------------------------
Accrued transfer agent fees 5,549,765
- ------------------------------------------------------------
Accrued operating expenses 1,990,647
============================================================
Total liabilities 108,775,183
============================================================
Net assets applicable to shares outstanding $7,775,024,853
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $7,885,345,487
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,890,316)
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies (1,007,954,481)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 899,524,163
============================================================
$7,775,024,853
____________________________________________________________
============================================================
NET ASSETS:
Class A $6,374,640,802
____________________________________________________________
============================================================
Class B $1,008,799,076
____________________________________________________________
============================================================
Class C $ 274,186,521
____________________________________________________________
============================================================
Class R $ 12,982,352
____________________________________________________________
============================================================
Institutional Class $ 104,416,102
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 249,364,250
____________________________________________________________
============================================================
Class B 42,709,133
____________________________________________________________
============================================================
Class C 11,612,554
____________________________________________________________
============================================================
Class R 510,966
____________________________________________________________
============================================================
Institutional Class 3,739,782
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 25.56
- ------------------------------------------------------------
Offering price per share
(Net asset value of $25.56 divided by
94.50%) $ 27.05
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 23.62
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 23.61
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 25.41
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 27.92
____________________________________________________________
============================================================
</Table>
* At October 31, 2006, securities with an aggregate value of $34,901,886 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Constellation Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,428,485) $ 65,521,143
- -----------------------------------------------------------------------------
Dividends from affiliates (includes securities lending
income of $880,733) 3,788,730
=============================================================================
Total investment income 69,309,873
=============================================================================
EXPENSES:
Advisory fees 44,917,233
- -----------------------------------------------------------------------------
Administrative services fees 704,343
- -----------------------------------------------------------------------------
Custodian fees 936,615
- -----------------------------------------------------------------------------
Distribution fees:
Class A 14,562,362
- -----------------------------------------------------------------------------
Class B 8,749,162
- -----------------------------------------------------------------------------
Class C 2,286,876
- -----------------------------------------------------------------------------
Class R 54,338
- -----------------------------------------------------------------------------
Transfer agent fees -- A, B, C and R 21,770,234
- -----------------------------------------------------------------------------
Transfer agent fees -- Institutional 204,642
- -----------------------------------------------------------------------------
Trustees' and officer's fees and benefits 199,546
- -----------------------------------------------------------------------------
Other 1,767,570
=============================================================================
Total expenses 96,152,921
=============================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (2,419,483)
=============================================================================
Net expenses 93,733,438
=============================================================================
Net investment income (loss) (24,423,565)
=============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains from securities
sold to affiliates of $17,003,108) 1,426,625,193
- -----------------------------------------------------------------------------
Foreign currencies (615,098)
=============================================================================
1,426,010,095
=============================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (1,083,592,697)
- -----------------------------------------------------------------------------
Foreign currencies (269,646)
=============================================================================
(1,083,862,343)
=============================================================================
Net gain from investment securities and foreign currencies 342,147,752
=============================================================================
Net increase in net assets resulting from operations $ 317,724,187
_____________________________________________________________________________
=============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Constellation Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (24,423,565) $ (7,706,347)
- ------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 1,426,010,095 804,970,445
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (1,083,862,343) (158,853,881)
================================================================================================
Net increase in net assets resulting from operations 317,724,187 638,410,217
================================================================================================
Share transactions-net:
Class A 1,634,677,819 (1,701,461,900)
- ------------------------------------------------------------------------------------------------
Class B 462,923,549 (142,656,379)
- ------------------------------------------------------------------------------------------------
Class C 138,003,037 (45,234,121)
- ------------------------------------------------------------------------------------------------
Class R 5,023,286 538,613
- ------------------------------------------------------------------------------------------------
Institutional Class (107,912,538) 8,339,497
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions 2,132,715,153 (1,880,474,290)
================================================================================================
Net increase (decrease) in net assets 2,450,439,340 (1,242,064,073)
================================================================================================
NET ASSETS:
Beginning of year 5,324,585,513 6,566,649,586
================================================================================================
End of year (including undistributed net investment income
(loss) of $(1,890,316) and $(942,675), respectively) $ 7,775,024,853 $ 5,324,585,513
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Constellation Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Constellation Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is growth of capital.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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
F-7
AIM Constellation Fund
ratios of expenses and net investment income reported in the Financial
Highlights, nor are they limited by any expense limitation arrangements
between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
F-8
AIM Constellation Fund
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $150 million 0.80%
- --------------------------------------------------------------------
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Prior to March 27, 2006, the Fund paid an advisory fee to AIM based on the
annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $30 million 1.00%
- --------------------------------------------------------------------
Next $120 million 0.75%
- --------------------------------------------------------------------
Over $150 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund
(based on the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.695%
- --------------------------------------------------------------------
Next $4 billion 0.615%
- --------------------------------------------------------------------
Next $750 million 0.595%
- --------------------------------------------------------------------
Next $2.5 billion 0.57%
- --------------------------------------------------------------------
Next $2.5 billion 0.545%
- --------------------------------------------------------------------
Over $10 billion 0.52%
___________________________________________________________________
====================================================================
</Table>
Prior to March 27, 2006, AIM had 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>
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount
of 25% of the advisory fee AIM receives from the affiliated money market funds
on investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the year ended October 31, 2006, AIM waived advisory fees of $1,960,226.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the
amount of $17,476.
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, 2006, AIM was paid $704,343.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the Trust's Board of Trustees. For
the year ended October 31, 2006, the Fund paid AIS $21,770,234 for Class A,
Class B, Class C and Class R share classes and $204,642 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
F-9
AIM Constellation Fund
Fund's Class A, Class B, Class C and Class R shares (collectively the "Plans").
The Fund, pursuant to the Plans, pays ADI compensation at the annual rate of
0.25% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of the Rule 12b-1 payments, 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 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, 2006,
the Class A, Class B, Class C and Class R shares paid $14,562,362, $8,749,162,
$2,286,876 and $54,338, 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, 2006, ADI advised the Fund that it retained $577,096 in
front-end sales commissions from the sale of Class A shares and $5,697,
$555,261, $16,310 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in affiliated money market funds. The Fund and the money
market funds below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 3,677,810 $1,283,352,999 $(1,274,930,274) $ -- $12,100,535 $1,451,054 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 421,178,420 (409,077,885) -- 12,100,535 445,040 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 3,677,810 891,271,635 (894,949,445) -- -- 1,011,903 --
===================================================================================================================================
Subtotal $ 7,355,620 $2,595,803,054 $(2,578,957,604) $ -- $24,201,070 $2,907,997 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 475,000,000 $ (475,000,000) $ -- $ -- $ 457,010 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 16,220,215 1,611,255,973 (1,591,570,137) -- 35,906,051 423,723 --
===================================================================================================================================
Subtotal $16,220,215 $2,086,255,973 $(2,066,570,137) $ -- $35,906,051 $ 880,733 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Net of compensation to counterparties.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those issuances in
which a fund holds 5% or more of the outstanding voting securities. The Fund has
not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
October 31, 2006
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
DSW Inc.-Class
A $ -- $ 29,458,921 $ -- $8,044,019 $37,502,940 $ -- $ --
===================================================================================================================================
Total
Investments
in
Affiliates $23,575,835 $4,711,517,948 $(4,645,527,741) $8,044,019 $97,610,061 $3,788,730 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
F-10
AIM Constellation Fund
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures, each transaction is effected at the current market price.
Pursuant to these procedures, for the year ended October 31, 2006, the Fund
engaged in securities sales of $88,804,718, which resulted in net realized gains
of $17,003,108, and securities purchases of $497,241,904.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fee. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $441,781.
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, 2006, the Fund paid legal fees of $26,195
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
F-11
AIM Constellation Fund
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At October 31, 2006, securities with an aggregate value of $34,901,886 were
on loan to brokers. The loans were secured by cash collateral of $35,906,051
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2006, the Fund received dividends on cash
collateral investments of $880,733 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, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments $ 890,256,357
- ------------------------------------------------------------------------------
Temporary book/tax differences (1,890,316)
- ------------------------------------------------------------------------------
Capital loss carryforward (998,686,675)
- ------------------------------------------------------------------------------
Shares of beneficial interest 7,885,345,487
==============================================================================
Total net assets $7,775,024,853
______________________________________________________________________________
==============================================================================
</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 losses on certain straddle transactions. The tax-basis net
unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on foreign currencies of $(25,825).
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, 2006 to utilizing $528,174,639 of capital loss carryforward in the fiscal
year ended October 31, 2007.
The Fund utilized $1,428,967,476 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, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2008 $ 10,119,116
- -----------------------------------------------------------------------------
October 31, 2009 370,867,306
- -----------------------------------------------------------------------------
October 31, 2010 196,611,268
- -----------------------------------------------------------------------------
October 31, 2011 421,088,985
=============================================================================
Total capital loss carryforward $998,686,675
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations in effect as of that date, if any, to the extent required by the
internal Revenue Code. To the extent that unrealized gains as of March 27,
2006, the date of the reorganization of AIM Aggressive Growth Fund and AIM
Weingarten 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.
F-12
AIM Constellation Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $8,018,223,469 and
$7,161,661,839, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 999,512,209
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (109,230,027)
===============================================================================
Net unrealized appreciation of investment securities $ 890,282,182
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $6,925,617,653.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of capital loss
carryforward, foreign currency transactions, net operating losses and
reorganization expenses, on October 31, 2006, undistributed net investment
income (loss) was increased by $24,330,229, undistributed net realized gain was
increased by $1,998,444,391 and shares of beneficial interest decreased by
$2,022,774,620. Further, as a result of capital loss carryforward and tax
deferrals acquired in the reorganization of AIM Aggressive Growth Fund into the
Fund, undistributed net investment income (loss) was decreased by $308,444,
undistributed net realized gain was decreased by $217,319,803 and shares of
beneficial interest increased by $217,628,247. In addition, as a result of
capital loss carryforward and tax deferrals acquired in the reorganization of
AIM Weingarten Fund into the Fund, undistributed net investment income (loss)
was decreased by $545,861, undistributed net realized gain was decreased by
$2,849,874,432 and shares of beneficial interest increased by $2,850,420,293.
These reclassifications had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A, Class B,
Class C, Class R and Institutional Class. Class A shares are sold with a
front-end sales charge unless certain waiver criteria are met. 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 on or about the month-end which is at
least eight years after the date of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2006(A) 2005
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 10,303,138 $ 260,075,016 12,203,227 $ 273,455,970
- ------------------------------------------------------------------------------------------------------------------------------
Class B 1,994,611 46,595,386 1,541,805 32,330,100
- ------------------------------------------------------------------------------------------------------------------------------
Class C 926,613 21,559,725 656,788 13,770,982
- ------------------------------------------------------------------------------------------------------------------------------
Class R 166,736 4,168,585 144,888 3,262,864
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class 2,402,958 63,841,915 3,534,960 87,641,249
==============================================================================================================================
Issued in connection with acquisitions:(b)
Class A 112,122,045 2,925,122,484 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Class B 31,668,322 766,819,518 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Class C 7,898,763 191,179,574 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Class R 196,854 5,111,819 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class 51,553 1,464,061 -- --
==============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 4,231,695 106,243,160 364,102 8,195,899
- ------------------------------------------------------------------------------------------------------------------------------
Class B (4,564,120) (106,243,160) (389,686) (8,195,899)
==============================================================================================================================
Reacquired:
Class A (66,125,745) (1,656,762,841) (87,735,272) (1,983,113,769)
- ------------------------------------------------------------------------------------------------------------------------------
Class B (10,546,392) (244,248,195) (7,925,936) (166,790,580)
- ------------------------------------------------------------------------------------------------------------------------------
Class C (3,218,419) (74,736,262) (2,810,025) (59,005,103)
- ------------------------------------------------------------------------------------------------------------------------------
Class R (169,808) (4,257,118) (119,678) (2,724,251)
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class (6,208,854) (173,218,514) (3,197,909) (79,301,752)
==============================================================================================================================
81,129,950 $ 2,132,715,153 (83,732,736) $(1,880,474,290)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) There are two entities that are each a record owner of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 13% of
the outstanding shares of the Fund. ADI has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as, securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record are also owned beneficially.
(b) As of the opening of business on March 27, 2006, the Fund acquired all
the net assets of AIM Aggressive Growth Fund and AIM Weingarten Fund
pursuant to plans of reorganization approved by the Trustees of the Fund
on November 14, 2005 and by the shareholders of AIM Aggressive Growth
Fund and AIM Weingarten Fund, respectively on February 28, 2006. The
acquisition was accomplished by a tax free exchange of 151,937,537
shares of the Fund for 131,671,019 shares of AIM Aggressive Growth Fund
and 162,206,916 shares of AIM Weingarten Fund shares outstanding as of
the close of business on March 24, 2006. Each class of shares of AIM
Aggressive Growth Fund and AIM Weingarten Fund was exchanged for the
like class of shares of the Fund based on the relative net asset value
of AIM Aggressive Growth Fund and AIM Weingarten Fund to the net asset
value of the Fund on the close of business, March 24, 2006. AIM
Aggressive Growth Fund's net assets as of the close of business on March
24, 2006 of $1,549,649,387 including $245,207,078 of unrealized
appreciation and AIM Weingarten Fund's net assets as of the close of
business on March 24, 2006 of $2,340,048,069 including $447,822,497 of
unrealized appreciation, were combined with the net assets of the Fund
immediately before the acquisition of $5,418,246,908. The combined
aggregate net assets of the Fund subsequent to the reorganization were
$9,307,944,364.
F-13
AIM Constellation Fund
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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,
--------------------------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.63 $ 21.27 $ 20.61 $ 17.20 $ 19.72
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.02)(b) (0.13)(a) (0.12)(a) (0.15)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.99 2.38 0.79 3.53 (2.37)
==============================================================================================================================
Total from investment operations 1.93 2.36 0.66 3.41 (2.52)
==============================================================================================================================
Net asset value, end of period $ 25.56 $ 23.63 $ 21.27 $ 20.61 $ 17.20
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) 8.17% 11.10% 3.20% 19.83% (12.78)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,374,641 $4,461,224 $5,616,072 $6,825,023 $6,780,055
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.21%(d) 1.29% 1.27% 1.29% 1.26%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.24%(d) 1.31% 1.29% 1.30% 1.27%
==============================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.24)%(d) (0.06)%(b) (0.59)% (0.67)% (0.74)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 123% 59% 50% 47% 57%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend were $(0.09) and (0.36)%, respectively for the year ended
October 31, 2005.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $5,824,944,759.
F-14
AIM Constellation Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.00 $ 19.95 $ 19.46 $ 16.36 $ 18.89
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23)(a) (0.19)(b) (0.26)(a) (0.23)(a) (0.27)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.85 2.24 0.75 3.33 (2.26)
======================================================================================================================
Total from investment operations 1.62 2.05 0.49 3.10 (2.53)
======================================================================================================================
Net asset value, end of period $ 23.62 $ 22.00 $ 19.95 $ 19.46 $ 16.36
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) 7.36% 10.28% 2.52% 18.95% (13.39)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,008,799 $531,341 $617,005 $688,587 $625,294
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.01% 1.97% 1.99% 1.96%
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.99%(d) 2.03% 1.99% 2.00% 1.97%
======================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.99)%(d) (0.78)%(b) (1.29)% (1.37)% (1.44)%
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate 123% 59% 50% 47% 57%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend were $(0.26) and (1.08)%, respectively for the year ended
October 31, 2005.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $874,916,174.
F-15
AIM Constellation Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.99 $ 19.94 $ 19.46 $ 16.36 $ 18.88
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.23)(a) (0.19)(b) (0.26)(a) (0.23)(a) (0.27)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.85 2.24 0.74 3.33 (2.25)
=====================================================================================================================
Total from investment operations 1.62 2.05 0.48 3.10 (2.52)
=====================================================================================================================
Net asset value, end of period $ 23.61 $ 21.99 $ 19.94 $ 19.46 $ 16.36
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 7.37% 10.28% 2.47% 18.95% (13.35)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $274,187 $132,056 $162,707 $193,585 $184,393
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.96%(d) 2.01% 1.97% 1.99% 1.96%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.99%(d) 2.03% 1.99% 2.00% 1.97%
=====================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.99)%(d) (0.78)%(b) (1.29)% (1.37)% (1.44)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 123% 59% 50% 47% 57%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend were $(0.26) and (1.08)%, respectively for the year ended
October 31, 2005.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $228,687,629.
F-16
AIM Constellation Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.54 $21.24 $20.63 $17.26 $ 19.82
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.06)(b) (0.17)(a) (0.16)(a) (0.07)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.99 2.36 0.78 3.53 (2.49)
======================================================================================================================
Total from investment operations 1.87 2.30 0.61 3.37 (2.56)
======================================================================================================================
Net asset value, end of period $ 25.41 $23.54 $21.24 $20.63 $ 17.26
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(c) 7.94% 10.83% 2.96% 19.52% (12.92)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,982 $7,467 $6,202 $2,857 $ 226
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.46%(d) 1.51% 1.47% 1.49% 1.53%(e)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.49%(d) 1.53% 1.49% 1.50% 1.54%(e)
======================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.49)%(d) (0.28)%(b) (0.79)% (0.87)% (1.01)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 123% 59% 50% 47% 57%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend were $(0.13) and (0.58)%, respectively for the year ended
October 31, 2005.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $10,867,568.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and not annualized
for periods less than one year.
F-17
AIM Constellation Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.69 $ 23.01 $ 22.17 $ 18.40 $ 21.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.06(a) 0.10(b) (0.01)(a) (0.03)(a) (0.06)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.17 2.58 0.85 3.80 (2.54)
================================================================================================================================
Total from investment operations 2.23 2.68 0.84 3.77 (2.60)
================================================================================================================================
Net asset value, end of period $ 27.92 $ 25.69 $ 23.01 $ 22.17 $ 18.40
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 8.68% 11.65% 3.79% 20.49% (12.38)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $104,416 $192,498 $164,664 $154,150 $122,746
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.75%(d) 0.76% 0.72% 0.75% 0.80%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.78%(d) 0.78% 0.74% 0.76% 0.81%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.22%(d) 0.47%(b) (0.04)% (0.13)% (0.28)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 123% 59% 50% 47% 57%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment income (loss) to average net assets excluding the special
dividend were $0.03 and 0.17%, respectively for the year ended October
31, 2005.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions.
(d) Ratios are based on average daily net assets of $205,341,151.
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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor - Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds and failed to disclose these arrangements in the prospectuses
for such Funds, and conclusions of law to the effect that AIM and ADI violated
the West Virginia securities laws. The WVASC orders AIM and ADI to cease any
further violations and seeks to impose monetary sanctions, including restitution
to affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
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; and
F-18
AIM Constellation Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
- 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 (all the claims in this category of
lawsuits were dismissed with prejudice by the court on September 29, 2006,
except for the Section 36(b) claim which was dismissed with leave to amend
to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators in the form of subpoenas or other oral or written
requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-19
AIM Constellation Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Constellation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Constellation Fund (one of the
funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2006, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for each of the two years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before October 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated December 15, 2004, expressed an unqualified opinion on those financial
highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-20
AIM Constellation Fund
TAX DISCLOSURES
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 12.07%, 12.05%, 13.26% and 14.73%, respectively.
F-21
AIM Constellation Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-22
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Constellation Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-23
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eDelivery is the process of receiving your fund and account If used after January 20, 2007, this report must be
information via e-mail. Once your quarterly statements, tax accompanied by a Fund Performance & Commentary or by an AIM
forms, fund reports, and prospectuses are available, we will Quarterly Performance Review for the most recent
send you an e-mail notification containing links to these quarter-end. Mutual funds distributed by A I M Distributors, Inc.
documents. For security purposes, you will need to log in to
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WHY SIGN UP? Services, Inc. is the transfer agent for the products and
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Register for eDelivery to: of AMVESCAP PLC, one of the world's largest independent
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o reduce the amount of paper you receive. under management as of October 31, 2006.
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[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
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Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management [AIM INVESTMENTS LOGO APPEARS HERE]
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DOMESTIC EQUITY AIM DIVERSIFIED
DIVIDEND FUND
Large-Cap Blend
Annual Report to Shareholders o October 31, 2006
Table of Contents
Supplemental Information ......... 2
Letters to Shareholders .......... 3
Performance Summary .............. 5
Management Discussion ............ 5
Fund Expenses .................... 7
Long-term Fund Performance ....... 8
Approval of Advisory Agreement ... 10
Schedule of Investments .......... F-1
Financial Statements ............. F-4
Notes to Financial Statements .... F-7
Financial Highlights ............. F-14
Auditor's Report ................. F-21
Tax Disclosures .................. F-22 [COVER GLOBE IMAGE]
Trustees and Officers ............ F-23
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
AIM Diversified Dividend Fund
AIM DIVERSIFIED DIVIDEND FUND SEEKS TO PROVIDE GROWTH OF CAPITAL AND,SECONDARILY,CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of October 31, 2006, and is based on total net assets.
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT financial reporting purposes, and as
such, the net asset values for
o Class B shares are not available as an o The unmanaged STANDARD & POOR'S shareholder transactions and the returns
investment for retirement plans COMPOSITE INDEX of 500 Stocks (the S&P based on those net asset values may
maintained pursuant to Section 401 of 500--Registered Trademark-- Index) is differ from the net asset values and
the Internal Revenue Code, including an index of common stocks frequently returns reported in the Financial
401(k) plans, money purchase pension used as a general measure of U.S. stock Highlights.
plans and profit sharing plans. Plans market performance.
that had existing accounts invested in The Fund provides a complete list of its
Class B shares prior to September 30, o The unmanaged RUSSELL 1000 holdings four times in each fiscal
2003, will continue to be allowed to --Registered Trademark-- Index year,at the quarter-ends. For the
make additional purchases. represents the performance of the second and fourth quarters, the lists
stocks of large-capitalization appear in the Fund's semiannual and
o Class R shares are available only to companies. annual reports to shareholders. For the
certain retirement plans. Please see the first and third quarters, the Fund files
prospectus for more information. o The unmanaged LIPPER LARGE-CAP CORE the lists with the Securities and
FUNDS INDEX represents an average of the Exchange Commission (SEC) on Form N-Q.
o Investor Class shares are closed to performance of the 30 largest The most recent list of portfolio
most investors. For more information on large-capitalization core equity funds holdings is available at
who may continue to invest in Investor tracked by Lipper Inc., an independent AIMinvestments.com. From our home
Class shares, please see the prospectus. mutual fund performance monitor. page, click on Products &
Performance, then Mutual Funds, then Fund
PRINCIPAL RISKS OF INVESTING IN THE FUND o The Fund is not managed to track the Overview. Select your Fund from the
performance of any particular index, drop-down menu and click on Complete
o Foreign securities have additional including the indexes defined here, and Quarterly Holdings. Shareholders can
risks, including exchange rate changes, consequently, the performance of the also look up the Fund's Forms N-Q on the
political and economic upheaval, the Fund may deviate significantly from SEC Web site at sec.gov. Copies of the
relative lack of information about these the performance of the indexes. Fund's Forms N-Q may be reviewed and
companies, relatively low market copied at the SEC Public Reference Room
liquidity and the potential lack of o A direct investment cannot be made in in Washington, D.C. You can obtain
strict financial and accounting controls an index. Unless otherwise indicated, information on the operation of the
and standards. index results include reinvested Public Reference Room, including
dividends, and they do not reflect sales information about duplicating fee
o Prices of equity securities change in charges. Performance of an index of charges, by calling 202-942-8090 or
response to many factors including the funds reflects fund expenses; 800-732-0330, or by electronic request
historical and prospective earnings of performance of a market index does not. at the following e-mail address:
the issuer, the value of its assets, publicinfo@sec.gov. The SEC file numbers
general economic conditions, interest OTHER INFORMATION for the Fund are 811-01424 and
rates, investor perceptions and market 002-25469.
liquidity. o Industry classifications used in this
report are generally according to the A description of the policies and
o The value of convertible securities in Global Industry Classification Standard, procedures that the Fund uses to
which the Fund invests may be affected which was developed by and is the determine how to vote proxies relating
by market interest rates, the risk that exclusive property and a service mark of to portfolio securities is available
the issuer may default on interest or Morgan Stanley Capital International without charge, upon request,from our
principal payments and the value of the Inc. and Standard & Poor's. Client Services department at
underlying common stock into which these 800-959-4246 or on the AIM Web
securities may be converted. o The returns shown in management's site, AIMinvestments.com. On the home
discussion of Fund performance are based page, scroll down and click on AIM Funds
on net asset values calculated for Proxy Policy. The information is also
shareholder transactions. Generally available on the SEC Web site, sec.gov.
accepted accounting principles require
adjustments to be made to the net assets Information regarding how the Fund voted
of the Fund at period end for proxies related to its portfolio
securities during the 12 months ended
June 30,2006, 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 SEC 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 LCEAX
====================================================================================== Class B Shares LCEDX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class C Shares LCEVX
AIMinvestments.com Class R Shares DDFRX
Investor Class Shares LCEIX
=====================================
2
AIM Diversified Dividend Fund
Dear Shareholders of The AIM Family of Funds
--Registered Trademark--:
We're pleased to provide you with this report, which
includes a discussion of how your Fund was managed during
the review period ended October 31, 2006, and what factors
affected its performance.
As we approach the end of 2006, it seems likely that
[TAYLOR many investors may see the value of their investments
PHOTO] increase this year. Global equity markets, collectively,
recorded double-digit gains for the year ended October 31,
2006, as did the U.S. stock market. Also, the investment
grade bond market in the United States rose for the same
period.
While stock and bond markets generally enjoyed positive
year-to-date returns, their performance was affected by
short-term economic and geopolitical events. For example,
PHILIP TAYLOR the U.S. stock market was weak in the second quarter of 2006
when it appeared that inflation might be rising. Only after
the U.S. Federal Reserve Board decided in August that
inflation was contained and that short-term interest rates
need not be increased--the first time it kept rates
unchanged in more than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for
all investors. At AIM Investments--Registered Trademark--,
we believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio. AIM
Investments can help by offering a broad product line that
gives your financial advisor the necessary tools to build a
portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of compre-
hensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each asset
class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed
income. A legend in the left column illustrates the
methodology. Your report cover now shows your Fund's asset
class color, plus the asset class and sub-asset class name
are shown in the upper-left corner. The reason for these
changes is to help you better understand where your Fund
fits into your overall portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial advisor
can help allocate your portfolio appropriately and review
your investments regularly to help ensure they remain
suitable as your financial situation changes. While there
are no guarantees with any investment program, a long-term
plan that's based on your financial goals, risk tolerance
and time horizon is more likely to keep you and your
investments on track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is
their unpredictability. While past performance cannot
guarantee comparable future results, we believe that staying
invested for the long term with a thoughtful plan offers the
best opportunity for weathering that unpredictability. We at
AIM Investments remain committed to building enduring
solutions to help you achieve your investment goals, and
we're pleased you've placed your trust in us.
Information about investing, the markets and your Fund
is always available on our Web site, AIMinvestments.com. If
you have questions about your individual account, we invite
you to contact one of our highly trained client services
representatives at 800-959-4246.
Sincerely,
/s/ PHILIP TAYLOR
Philip Taylor
President -- AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Diversified Dividend Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed its
comprehensive review* of each fund's advisory agreement with
A I M Advisors, Inc. (AIM) to make certain your interests
are being served in terms of fees, performance and
operations.
Looking ahead, your Board finds many reasons to be
[CROCKETT positive about AIM's management and strategic direction.
PHOTO] Most importantly, AIM's investment management discipline has
paid off in terms of improved overall performance. We are
also pleased with AIM's efforts to seek more cost-effective
ways of delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
BRUCE L. CROCKETT organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few
years, your Board will be meeting at these various centers
of excellence to learn about their progress and how they may
serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction
and progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a
letter addressed to me at AIM Investments, AIM Investments
Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
* To learn more about all the factors we considered
before approving each fund's advisory agreement, go to
the "Products & Performance" tab at the AIM Web site
(AIMinvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of advisory agreement
information for your Fund is also included in this
annual report on pages 10-11.
4
AIM Diversified Dividend Fund
MANAGEMENT'S DISCUSSION research, including financial statement
OF FUND PERFORMANCE analysis and meetings with companies'
management, to determine a fair
====================================================================================== valuation with an estimated two-year
PERFORMANCE SUMMARY price target for each stock. Finally, we
select companies we believe will provide
For the fiscal year ended October 31, 2006, AIM Diversified Dividend Fund, the best combination of dividend income,
excluding applicable sales charges, delivered positive returns to sharehold- price appreciation and the potential for
ers, outperforming the broad market S&P 500 Index as well as the Fund's lower risk.
style-specific benchmark, the Russell 1000 Index. Performance for the Fund was
led by holdings in the diversified telecommunications, specialty retail and We consider selling or trimming a
aerospace and defense industries, while more modest returns were seen in the stock when it no longer meets our
hotels, restaurants and leisure and health care equipment and supplies investment criteria, including when:
industries.
o A stock reaches its target price.
Your Fund's long-term performance appears on pages 8 and 9.
o The company's fundamental business
FUND VS. INDEXES prospects deteriorate.
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales
charges were included, returns would be lower. o A more attractive opportunity presents
itself.
Class A Shares 17.66% MARKET CONDITIONS AND YOUR FUND
Class B Shares 16.87
Class C Shares 16.90 It has been over a year since AIM
Class R Shares 17.38 Diversified Dividend Fund acquired AIM
Investor Class Shares 17.78 Core Stock Fund and we would like to
S&P 500 Index (Broad Market Index) 16.33 take the opportunity to thank those
Russell 1000 Index (Style-Specific Index) 16.02 shareholders who have entrusted us with
Lipper Large-Cap Core Funds Index (Peer Group Index) 14.65 their investment. We appreciate your
commitment, hope that you are pleased
SOURCE: LIPPER INC. with the results of the Fund and look
====================================================================================== forward to our continued partnership.
HOW WE INVEST repurchases. Most stocks in the The economy has enjoyed several years
portfolio pay a dividend and the Fund of economic growth fueled by low
We focus on balancing long-term capital pays a quarterly dividend to interest rates, a strong real estate
appreciation, dividend income and shareholders. We manage risk through a market and resilient consumer spending.
capital preservation. As part of an valuation framework, careful stock However, in the past year we have begun
overall well-diversified asset selection and a rigorous buy-and-sell to see a moderation of economic growth
allocation strategy, the Fund can serve discipline. as the U.S. Federal Reserve Board (the
as a cornerstone of large cap core Fed) raised short-term interest rates 17
investments to complement more We look for dividend-paying companies times since June 2004 before pausing at
aggressive value and growth investments. with strong profitability, solid balance 5.25% in August 2006. Although the
sheets and capital allocation policies current level of interest rates is low
We seek undervalued companies that that support sustained or increasing by historical standards, a five-fold
return capital to shareholders via dividends and share repurchases. We then
dividends and share apply fundamental
(continued)
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Pharmaceuticals 10.0% 1. General Electric Co. 2.5%
2. Aerospace & Defense 4.6 2. United Technologies Corp. 2.5
[PIE CHART] 3. Regional Banks 4.2 3. Johnson & Johnson 2.4
4. Integrated Oil & Gas 4.1 4. Emerson Electric Co. 2.3
Information Technology 10.3% 5. Apparel Retail 3.6 5. Limited Brands,Inc. 2.3
Consumer Staples 9.2% 6. International Business
Utilities 4.8% Machines Corp. 2.0
Energy 4.5% Total Net Assets $1.97 billion 7. Pfizer Inc. 2.0
Materials 4.5% 8. BellSouth Corp. 2.0
Telecommunication Services 3.0% Total Number of Holdings* 81 9. Microsoft Corp. 1.9
U.S. Treasury Securities 0.3% 10. Fifth Third Bancorp 1.8
Money Market Funds Plus
Other Assets Less Liabilities 5.7%
Financials 18.2%
Consumer Discretionary 14.0%
Health Care 13.4%
Industrials 12.1%
The Fund's holdings are subject to change, and there is no assurance that the Fund will
continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
5
AIM Diversified Dividend Fund
increase over a two-year period can significant premium on the stock price. stocks. At the close of the fiscal year,
affect the economy. Gross domestic The agreement recognizes the strategic the Fund was overweight in consumer
product, a measure of economic growth, importance of Cingular, which is 100% discretionary, health care, industrials,
slowed to 2.2% in the third quarter of owned by AT&T, and offers the two firms materials and utilities stocks.
2006, compared to the average from the a higher combined revenue contribution Underweight positions were in energy,
fourth quarter 2002 to the first quarter from the rapidly growing wireless financials and information technology
2006 of 3.6%. Additionally, inflation, business. Other synergies include stocks.
as measured by the consumer price index, simplified financial reporting and
was at an annualized rate of 3.4% for branding, as well as the enhanced AIM Diversified Dividend Fund uses a
September 2006--in line with the ability to expand service offerings and large cap core total return strategy
inflation rate for 2005. Despite a reduce costs. As of the close of the striving to produce better long-term
moderating economic environment, the fiscal year, the companies had received risk-adjusted returns through
labor force has remained intact with most regulatory approvals and were diversified sector exposure. The
unemployment at 4.4% as of October 31, awaiting FCC approval to finalize the investment discipline is an intensive
2006. Overall economic growth remained merger. fundamental process driven by three key
positive albeit at a more subdued level factors: capital appreciation, income
than what we have seen in the past LIMITED BRANDS, a specialty retailer, and capital preservation.
several years. also contributed to performance. The
firm owns and operates Victoria's IN CLOSING
The Fund outperformed its benchmark, Secret, Bath & Body Works, The Limited
the Russell 1000 Index, for the fiscal and Express apparel stores. The company We continue to seek to deliver a large
year primarily due to better stock has implemented a strategic focus to cap core equity fund that complements
selection across a variety of better understand the customer, which the style-specific growth and value
industries. Industries that contributed has led to improvements in marketing allocations within your overall
to overall performance as well as the efforts, new product introductions and a portfolio. Thank you for investing in
Fund's outperformance versus the strengthened operational capability. AIM Diversified Dividend Fund.
benchmark included diversified Overall same-store sales were strong and
telecommunication services, specialty largely driven by Victoria's Secret and THE VIEWS AND OPINIONS EXPRESSED IN
retail and aerospace and defense. Bath & Body Works. These factors, MANAGEMENT'S DISCUSSION OF FUND
Semiconductor stocks and an underweight combined with management's increased PERFORMANCE ARE THOSE OF A I M ADVISORS,
in media stocks were sources of earnings guidance and a $100 million INC. THESE VIEWS AND OPINIONS ARE
underperformance during a period of share repurchase program, drove the SUBJECT TO CHANGE AT ANY TIME BASED ON
broad market strength, while specific stock's price appreciation. FACTORS SUCH AS MARKET AND ECONOMIC
holdings within the hotel, restaurants CONDITIONS. THESE VIEWS AND OPINIONS MAY
and leisure and health care equipment Even though the Fund delivered NOT BE RELIED UPON AS INVESTMENT ADVICE
and supplies industries detracted from attractive returns and beat its OR RECOMMENDATIONS, OR AS AN OFFER FOR A
performance versus the benchmark. benchmark during the reporting period, PARTICULAR SECURITY. THE INFORMATION IS
not all of the portfolio's holdings NOT A COMPLETE ANALYSIS OF EVERY ASPECT
During the fiscal year, the Fund performed well. Specific detractors from OF ANY MARKET, COUNTRY, INDUSTRY,
incorporated more non-cyclical performance included OSI RESTAURANT SECURITY OR THE FUND. STATEMENTS OF FACT
exposure--greater exposure to less PARTNERS, which declined primarily due ARE FROM SOURCES CONSIDERED RELIABLE,
economically sensitive companies. In an to weak same-store sales at its core BUT A I M ADVISORS, INC. MAKES NO
environment of slowing growth, we Outback Steakhouse brand. We believe REPRESENTATION OR WARRANTY AS TO THEIR
believe an important element of our this weakness was partially driven by COMPLETENESS OR ACCURACY. ALTHOUGH
outperformance versus our broad market factors including record gas prices and HISTORICAL PERFORMANCE IS NO GUARANTEE
index during the fiscal year was that we a declining real estate market, which in OF FUTURE RESULTS, THESE INSIGHTS MAY
are active fund managers who use turn decreased consumers' frequency and HELP YOU UNDERSTAND OUR INVESTMENT
fundamental analysis and high quality expenditures at Outback. This decline in MANAGEMENT PHILOSOPHY.
stock selection. Recently, the vast sales against the company's largely
majority of large cap companies have fixed cost structure resulted in See important Fund and index
reported in-line or better-than- pressure on the firm's margins disclosures on the inside front cover.
expected third quarter earnings, which throughout the year. After the
helped present growth and valuation conclusion of the Fund's fiscal year,
opportunities in the large cap universe. the company entered into an agreement to Meggan M. Walsh
The Fund's more non-cyclical exposure be acquired by Bain Capital, Catterton [WALSH Chartered Financial
is a result of bottom-up stock selection Partners and three company founders for PHOTO] Analyst, senior portfolio
focused on identifying attractively $40 per share. However, this had not manager, is manager of
priced, well-managed companies with been completed as of the close of the AIM Diversified Dividend
niche growth opportunities, operating fiscal year. Fund. Ms. Walsh has
leverage prospects or differentiated been in the investment industry since
business models. The overall sector exposure of the 1987, and joined AIM in 1991. She
Fund did not change significantly during earned a B.S. in finance from the
These characteristics defined many of the fiscal year, with only slight University of Maryland and an M.B.A.
the Fund's top contributors to returns increases in consumer discretionary from Loyola College.
during the fiscal year. BELLSOUTH, a and health care stocks and reductions in
diversified telecommunication services energy, financials, industrials and Assisted by the Diversified Dividend
company, rallied on news of a definitive materials Team
agreement to merge with AT&T at a
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE,PLEASE SEE PAGES 8
AND 9.
6
AIM Diversified Dividend Fund
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE to estimate the expenses that you paid The hypothetical account values and
over the period. Simply divide your expenses may not be used to estimate the
As a shareholder of the Fund, you incur account value by $1,000 (for example, an actual ending account balance or
two types of costs: (1) transaction $8,600 account value divided by $1,000 = expenses you paid for the period. You
costs, which may include sales charges 8.6), then multiply the result by the may use this information to compare the
(loads) on purchase payments or number in the table under the heading ongoing costs of investing in the Fund
contingent deferred sales charges on entitled "Actual Expenses Paid During and other funds. To do so, compare this
redemptions; and redemption fees, if Period" to estimate the expenses you 5% hypothetical example with the 5%
any; and (2) ongoing costs, including paid on your account during this period. hypothetical examples that appear in the
management fees; distribution and/or shareholder reports of the other funds.
service (12b-1) fees; and other Fund HYPOTHETICAL EXAMPLE FOR COMPARISON
expenses. This example is intended to PURPOSES Please note that the expenses shown
help you understand your ongoing costs in the table are meant to highlight your
(in dollars) of investing in the Fund The table below also provides ongoing costs only and do not reflect
and to compare these costs with information about hypothetical account any transaction costs, such as sales
ongoing costs of investing in other values and hypothetical expenses based charges (loads) on purchase payments,
mutual funds. The example is based on an on the Fund's actual expense ratio and contingent deferred sales charges on
investment of $1,000 invested at the an assumed rate of return of 5% per year redemptions, and redemption fees, if
beginning of the period and held for the before expenses, which is not the Fund's any. Therefore, the hypothetical
entire period May 1, 2006, through actual return. The Fund's actual information is useful in comparing
October 31, 2006. cumulative total returns at net asset ongoing costs only, and will not help
value after expenses for the six months you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2006, appear in the of owning different funds. In addition,
table "Cumulative Total Returns" on if these transaction costs were
The table below provides information page 9. included, your costs would have been
about actual account values and actual higher.
expenses. You may use the information in
this table, together with the amount you
invested,
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $1,069.70 $5.27 $1,020.11 $5.14 1.01%
B 1,000.00 1,066.80 8.65 1,016.84 8.44 1.66
C 1,000.00 1,066.10 8.64 1,016.84 8.44 1.66
R 1,000.00 1,068.40 6.57 1,018.85 6.41 1.26
Investor 1,000.00 1,071.10 4.23 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, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
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]
AIM DIVERSIFIED AIM DIVERSIFIED AIM DIVERSIFIED S&P 500 RUSSELL 1000 LIPPER LARGE-CAP
DIVIDEND FUND DIVIDEND FUND DIVIDEND FUND INDEX INDEX CORE FUNDS
DATE -CLASS A SHARES -CLASS B SHARES -CLASS C SHARES INDEX
12/31/01 $9450 $10000 $10000 $10000 $10000 $10000
1/02 9545 10100 10100 9854 9873 9842
2/02 9479 10020 10020 9664 9676 9677
3/02 9857 10420 10410 10028 10074 10007
4/02 9583 10120 10120 9420 9497 9483
5/02 9573 10110 10109 9351 9413 9414
6/02 9082 9580 9580 8685 8718 8764
7/02 8355 8820 8809 8008 8073 8113
8/02 8440 8890 8890 8061 8115 8180
9/02 7798 8220 8210 7185 7244 7385
10/02 8223 8650 8650 7817 7846 7959
11/02 8601 9049 9040 8277 8305 8314
12/02 8232 8659 8650 7791 7835 7877
1/03 7920 8319 8321 7587 7645 7670
2/03 7769 8159 8151 7473 7527 7568
3/03 7854 8239 8240 7545 7604 7632
4/03 8393 8809 8801 8167 8218 8194
5/03 8903 9340 9331 8597 8687 8591
6/03 8968 9403 9395 8706 8801 8676
7/03 9082 9513 9505 8860 8977 8813
8/03 9272 9703 9695 9032 9159 8983
9/03 9233 9658 9649 8937 9065 8867
10/03 9736 10178 10169 9442 9597 9301
11/03 9878 10319 10309 9525 9712 9379
12/03 10447 10910 10901 10024 10177 9830
1/04 10552 11010 11001 10208 10370 9969
2/04 10781 11242 11232 10350 10514 10087
3/04 10691 11148 11139 10194 10370 9929
4/04 10768 11219 11209 10034 10183 9775
5/04 10806 11249 11239 10171 10330 9874
6/04 11012 11467 11457 10369 10516 10051
7/04 10763 11195 11186 10026 10147 9695
8/04 10926 11367 11347 10066 10197 9701
9/04 11018 11445 11435 10175 10325 9812
10/04 11036 11466 11456 10331 10492 9945
11/04 11402 11838 11828 10749 10941 10322
12/04 11893 12343 12333 11114 11337 10645
1/05 11716 12157 12138 10843 11052 10404
2/05 12001 12435 12426 11071 11300 10599
3/05 11834 12259 12251 10876 11121 10404
4/05 11695 12115 12096 10669 10916 10173
5/05 11882 12300 12292 11009 11303 10502
6/05 11970 12382 12364 11024 11349 10538
7/05 12337 12764 12746 11434 11791 10913
8/05 12189 12599 12580 11330 11689 10813
9/05 12129 12537 12518 11422 11797 10938
10/05 12020 12413 12394 11231 11590 10807
11/05 12456 12848 12828 11655 12031 11221
12/05 12513 12908 12899 11660 12048 11254
1/06 12816 13213 13193 11968 12385 11569
2/06 12866 13266 13246 12001 12413 11517
3/06 13027 13422 13402 12150 12589 11725
4/06 13220 13601 13591 12313 12740 11847
5/06 12987 13359 13340 11959 12364 11488
6/06 12948 13306 13298 11975 12380 11498
7/06 13110 13474 13456 12049 12407 11458
8/06 13435 13789 13782 12335 12704 11743
9/06 13672 14034 14026 12653 13006 11991
10/06 14142 14407 14487 13065 13448 12390
====================================================================================================================================
SOURCE: LIPPER INC.
Past performance cannot guarantee investment in the Fund at the close of not. Performance shown in the chart and
comparable future results. the reporting period and paid the table(s) does not reflect deduction of
applicable contingent deferred sales taxes a shareholder would pay on Fund
The data shown in the chart include charges. Index results include distributions or sale of Fund shares.
reinvested distributions, applicable reinvested dividends, but they do not Performance of the indexes does not
sales charges, Fund expenses and reflect sales charges. Performance of an reflect the effects of taxes.
management fees. Results for Class B index of funds reflects fund expenses
shares are calculated as if a hypo- and management fees; performance of a
thetical shareholder had liquidated his market index does
entire
8
AIM Diversified Dividend Fund
========================================== ========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 6.97%
Inception (12/31/01) 7.44% CLASS A SHARES Class B Shares 6.68
1 Year 11.23 Inception (12/31/01) 6.81% Class C Shares 6.61
1 Year 6.54 Class R Shares 6.84
CLASS B SHARES Investor Class Shares 7.11
Inception (12/31/01) 7.85% CLASS B SHARES
1 Year 11.87 Inception (12/31/01) 7.23% ==========================================
1 Year 6.93
CLASS C SHARES
Inception (12/31/01) 7.97% CLASS C SHARES
1 Year 15.90 Inception (12/31/01) 7.38%
1 Year 11.03
CLASS R SHARES
Inception 8.51% CLASS R SHARES
1 Year 17.38 Inception 7.92%
1 Year 12.54
INVESTOR CLASS SHARES
Inception 8.72% INVESTOR CLASS SHARES
1 Year 17.78 Inception 8.12%
1 Year 12.85
========================================== ==========================================
CLASS R SHARES' INCEPTION DATE IS SHARES FOR THE PERIOD USING BLENDED FROM 5% BEGINNING AT THE TIME OF
OCTOBER 25, 2005. RETURNS SINCE THAT DATE RETURNS. CLASS A SHARES' INCEPTION PURCHASE TO 0% AT THE BEGINNING OF THE
ARE HISTORICAL RETURNS. ALL OTHER DATE IS DECEMBER 31, 2001. SEVENTH YEAR. THE CDSC ON CLASS C SHARES
RETURNS ARE BLENDED RETURNS OF IS 1% FOR THE FIRST YEAR AFTER PURCHASE.
HISTORICAL CLASS R SHARE PERFORMANCE AND THE PERFORMANCE DATA QUOTED CLASS R SHARES DO NOT HAVE A FRONT-END
RESTATED CLASS A SHARE PERFORMANCE (FOR REPRESENT PAST PERFORMANCE AND CANNOT SALES CHARGE; RETURNS SHOWN ARE AT NET
PERIODS PRIOR TO THE INCEPTION DATE OF GUARANTEE COMPARABLE FUTURE RESULTS; ASSET VALUE AND DO NOT REFLECT A 0.75%
CLASS R SHARES) AT NET ASSET CURRENT PERFORMANCE MAY BE LOWER OR CDSC THAT MAY BE IMPOSED ON A TOTAL
VALUE, ADJUSTED TO REFLECT THE HIGHER HIGHER. PLEASE VISIT AIMINVESTMENTS.COM REDEMPTION OF RETIREMENT PLAN ASSETS
RULE 12B-1 FEES APPLICABLE TO CLASS R FOR THE MOST RECENT MONTH-END WITHIN THE FIRST YEAR. INVESTOR CLASS
SHARES. CLASS A SHARES' INCEPTION DATE PERFORMANCE. PERFORMANCE FIGURES REFLECT SHARES DO NOT HAVE A FRONT-END SALES
IS DECEMBER 31, 2001. REINVESTED DISTRIBUTIONS, CHANGES IN NET CHARGE OR A CDSC; THEREFORE, PERFORMANCE
ASSET VALUE AND THE EFFECT OF THE IS AT NET ASSET VALUE.
INVESTOR CLASS SHARES' INCEPTION MAXIMUM SALES CHARGE UNLESS OTHERWISE
DATE IS JULY 15,2005. RETURNS SINCE THAT STATED. INVESTMENT RETURN AND PRINCIPAL THE PERFORMANCE OF THE FUND'S SHARE
DATE ARE HISTORICAL RETURNS. ALL OTHER VALUE WILL FLUCTUATE SO THAT YOU MAY CLASSES WILL DIFFER PRIMARILY DUE TO
RETURNS ARE BLENDED RETURNS OF HAVE A GAIN OR LOSS WHEN YOU SELL DIFFERENT SALES CHARGE STRUCTURES AND
HISTORICAL INVESTOR CLASS SHARE SHARES. CLASS EXPENSES.
PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE CLASS A SHARE PERFORMANCE REFLECTS HAD THE ADVISOR NOT WAIVED FEES
INCEPTION DATE OF INVESTOR CLASS SHARES) THE MAXIMUM 5.50% SALES CHARGE, AND AND/OR REIMBURSED EXPENSES IN THE
AT NET ASSET VALUE, RESTATED PERFORMANCE CLASS B AND CLASS C SHARE PERFORMANCE PAST, PERFORMANCE WOULD HAVE BEEN LOWER.
WILL REFLECT THE RULE 12B-1 FEES REFLECTS THE APPLICABLE CONTINGENT
APPLICABLE TO CLASS A DEFERRED SALES CHARGE (CDSC) FOR THE
PERIOD INVOLVED. THE CDSC ON CLASS B
SHARES DECLINES
9
AIM Diversified Dividend Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
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 Diversified Dividend credentials and experience of the AIM in providing investment advisory and
Fund (the "Fund") and, as required by officers and employees of AIM who will portfolio administrative services to the
law, determines annually whether to provide investment advisory services to Fund and concluded that such performance
approve the continuance of the Fund's the Fund. In reviewing the was satisfactory.
advisory agreement with A I M qualifications of AIM to provide
Advisors, Inc. ("AIM"). Based upon the investment advisory services, the Board o Fees relative to those of clients of
recommendation of the Investments considered such issues as AIM's AIM with comparable investment
Committee of the Board, at a meeting portfolio and product review process, strategies. The Board reviewed the
held on June 27, 2006, the Board, various back office support functions effective advisory fee rate (before
including all of the independent provided by AIM and AIM's equity and waivers) for the Fund under the Advisory
trustees, approved the continuance of fixed income trading operations. Based Agreement. The Board noted that this
the advisory agreement (the "Advisory on the review of these and other rate was (i) below the effective
Agreement") between the Fund and AIM for factors, the Board concluded that the advisory fee rates (before waivers) for
another year, effective July 1, 2006. quality of services to be provided by three mutual funds advised by AIM with
AIM was appropriate and that AIM investment strategies comparable to
The Board considered the factors currently is providing satisfactory those of the Fund; (ii) below the
discussed below in evaluating the services in accordance with the terms of effective advisory fee rate (before
fairness and reasonableness of the the Advisory Agreement. waivers) for a variable insurance fund
Advisory Agreement at the meeting on advised by AIM and offered to insurance
June 27, 2006 and as part of the Board's o The performance of the Fund relative company separate accounts with
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed investment strategies comparable to
deliberations, the Board and the the performance of the Fund during the those of the Fund; (iii) comparable to
independent trustees did not identify past one and three calendar years the effective sub-advisory fee rate for
any particular factor that was against the performance of funds advised one variable insurance fund sub-advised
controlling, and each trustee attributed by other advisors with investment by an AIM affiliate and offered to
different weights to the various strategies comparable to those of the insurance company separate accounts
factors. Fund. The Board noted that the Fund's with investment strategies comparable to
performance in such periods was above those of the Fund, although the total
One responsibility of the independent the median performance of such advisory fees for such variable
Senior Officer of the Fund is to manage comparable funds. Based on this review insurance fund were above those for the
the process by which the Fund's proposed and after taking account of all of the Fund; and (iv) above the total advisory
management fees are negotiated to ensure other factors that the Board considered fee rates for 39 separately managed
that they are negotiated in a manner in determining whether to continue the accounts/wrap accounts managed by an AIM
which is at arms' length and reasonable. Advisory Agreement for the Fund, the affiliate with investment strategies
To that end, the Senior Officer must Board concluded that no changes should comparable to those of the Fund and
either supervise a competitive bidding be made to the Fund and that it was not comparable to or below the total
process or prepare an independent necessary to change the Fund's portfolio advisory fee rates for 49 separately
written evaluation. The Senior Officer management team at this time. Although managed accounts/wrap accounts managed
has recommended an independent written the independent written evaluation of by an AIM affiliate with investment
evaluation in lieu of a competitive the Fund's Senior Officer (discussed strategies comparable to those of the
bidding process and, upon the direction below) only considered Fund performance Fund. The Board noted that AIM has
of the Board, has prepared such an through the most recent calendar year, agreed to limit the Fund's total
independent written evaluation. Such the Board also reviewed more recent Fund operating expenses, as discussed below.
written evaluation also considered performance, which did not change their Based on this review, the Board
certain of the factors discussed below. conclusions. concluded that the advisory fee rate for
the Fund under the Advisory Agreement
The discussion below serves as a o The performance of the Fund relative was fair and reasonable.
summary of the Senior Officer's to indices. The Board reviewed the
independent written evaluation, as well performance of the Fund during the past o Fees relative to those of comparable
as a discussion of the material factors one and three calendar years against the funds with other advisors. The Board
and the conclusions with respect thereto performance of the Lipper Large-Cap Core reviewed the advisory fee rate for the
that formed the basis for the Board's Index. The Board noted that the Fund's Fund under the Advisory Agreement. The
approval of the Advisory Agreement. performance was comparable to the Board compared effective contractual
After consideration of all of the performance of such Index for the one advisory fee rates at a common asset
factors below and based on its informed year period and above such Index for the level at the end of the past calendar
business judgment, the Board determined three year period. Based on this review year and noted that the Fund's rate was
that the Advisory Agreement is in the and after taking account of all of the below the median rate of the funds
best interests of the Fund and its other factors that the Board considered advised by other advisors with
shareholders and that the compensation in determining whether to continue the investment strategies comparable to
to AIM under the Advisory Agreement is Advisory Agreement for the Fund, the those of the Fund that the Board
fair and reasonable and would have been Board concluded that no changes should reviewed. The Board noted that AIM has
obtained through arm's length be made to the Fund and that it was not agreed to limit the Fund's total
negotiations. necessary to change the Fund's portfolio operating expenses, as discussed below.
management team at this time. Although Based on this review, the Board
Unless otherwise stated, information the independent written evaluation of concluded that the advisory fee rate for
presented below is as of June 27, 2006 the Fund's Senior Officer (discussed the Fund under the Advisory Agreement
and does not reflect any changes that below) only considered Fund performance was fair and reasonable.
may have occurred since June 27, 2006, through the most recent calendar year,
including but not limited to changes to the Board also reviewed more recent Fund o Expense limitations and fee waivers.
the Fund's performance, advisory fees, performance, which did not change their The Board noted that AIM has
expense limitations and/or fee waivers. conclusions. contractually agreed to waive fees
and/or limit expenses of the Fund
o The nature and extent of the advisory o Meetings with the Fund's portfolio through June 30, 2007 in an amount
services to be provided by AIM. The managers and investment personnel. With necessary to limit total annual
Board reviewed the services to be respect to the Fund, the Board is operating expenses to a specified
provided by AIM under the Advisory meeting periodically with such Fund's percentage of average daily net assets
Agreement. Based on such review, the portfolio managers and/or other for each class of the Fund. The Board
Board concluded that the range of investment personnel and believes that also noted that AIM has voluntarily
services to be provided by AIM under the such individuals are competent and able agreed to waive fees and/or limit
Advisory Agreement was appropriate and to continue to carry out their expenses of the Fund in an amount
that AIM currently is providing services responsibilities under the Advisory necessary to limit total annual
in accordance with the terms of the Agreement. operating
Advisory Agreement.
(continued)
10
AIM Diversified Dividend Fund
expenses to a specified percentage of o Independent written evaluation and employed by AIM and its affiliates to
average daily net assets for each class recommendations of the Fund's Senior provide those services. Based on the
of the Fund that is lower than the Officer. The Board noted that, upon review of these and other factors, the
contractual agreement. The Board their direction, the Senior Officer of Board concluded that AIM and its
considered the contractual and voluntary the Fund, who is independent of AIM and affiliates were qualified to continue to
nature of these fee waivers/expense AIM's affiliates, had prepared an provide non-investment advisory services
limitations and noted that the independent written evaluation in order to the Fund, including administrative,
contractual agreement remains in effect to assist the Board in determining the transfer agency and distribution
until June 30, 2007 and that the reasonableness of the proposed services, and that AIM and its
voluntary agreement can be terminated at management fees of the AIM Funds, affiliates currently are providing
any time by AIM without further notice including the Fund. The Board noted that satisfactory non-investment advisory
to investors. The Board considered the the Senior Officer's written evaluation services.
effect these fee waivers/expense had been relied upon by the Board in
limitations would have on the Fund's this regard in lieu of a competitive o Other factors and current trends. The
estimated expenses and concluded that bidding process. In determining whether Board considered the steps that AIM and
the levels of fee waivers/expense to continue the Advisory Agreement for its affiliates have taken over the last
limitations for the Fund were fair and the Fund, the Board considered the several years, and continue to take, in
reasonable. Senior Officer's written evaluation. order to improve the quality and
efficiency of the services they provide
o Breakpoints and economies of scale. o Profitability of AIM and its to the Funds in the areas of investment
The Board reviewed the structure of the affiliates. The Board reviewed performance, product line
Fund's advisory fee under the Advisory information concerning the profitability diversification, distribution, fund
Agreement, noting that it includes six of AIM's (and its affiliates') operations, shareholder services and
breakpoints. The Board reviewed the investment advisory and other activities compliance. The Board concluded that
level of the Fund's advisory fees, and and its financial condition. The Board these steps taken by AIM have improved,
noted that such fees, as a percentage of considered the overall profitability of and are likely to continue to improve,
the Fund's net assets, have decreased as AIM, as well as the profitability of AIM the quality and efficiency of the
net assets increased because the in connection with managing the Fund. services AIM and its affiliates provide
Advisory Agreement includes breakpoints. The Board noted that AIM's operations to the Fund in each of these areas, and
The Board noted that, due to the Fund's remain profitable, although increased support the Board's approval of the
asset levels at the end of the past expenses in recent years have reduced continuance of the Advisory Agreement
calendar year and the way in which the AIM's profitability. Based on the review for the Fund.
advisory fee breakpoints have been of the profitability of AIM's and its
structured, the Fund has yet to fully affiliates' investment advisory and
benefit from the breakpoints. The Board other activities and its financial
concluded that the Fund's fee levels condition, the Board concluded that the
under the Advisory Agreement therefore compensation to be paid by the Fund to
reflect economies of scale and that it AIM under its Advisory Agreement was not
was not necessary to change the advisory excessive.
fee breakpoints in the Fund's advisory
fee schedule. o Benefits of soft dollars to AIM. The
Board considered the benefits realized
o Investments in affiliated money market by AIM as a result of brokerage
funds. The Board also took into account transactions executed through "soft
the fact that uninvested cash and cash dollar" arrangements. Under these
collateral from securities lending arrangements, brokerage commissions paid
arrangements, if any (collectively, by the Fund and/or other funds advised
"cash balances") of the Fund may be by AIM are used to pay for research and
invested in money market funds advised execution services. This research may
by AIM pursuant to the terms of an SEC be used by AIM in making investment
exemptive order. The Board found that decisions for the Fund. The Board
the Fund may realize certain benefits concluded that such arrangements were
upon investing cash balances in AIM appropriate.
advised money market funds, including a
higher net return, increased liquidity, o AIM's financial soundness in light of
increased diversification or decreased the Fund's needs. The Board considered
transaction costs. The Board also found whether AIM is financially sound and has
that the Fund will not receive reduced the resources necessary to perform its
services if it invests its cash balances obligations under the Advisory
in such money market funds. The Board Agreement, and concluded that AIM has
noted that, to the extent the Fund the financial resources necessary to
invests uninvested cash in affiliated fulfill its obligations under the
money market funds, AIM has voluntarily Advisory Agreement.
agreed to waive a portion of the
advisory fees it receives from the Fund o Historical relationship between the
attributable to such investment. The Fund and AIM. In determining whether to
Board further determined that the continue the Advisory Agreement for the
proposed securities lending program Fund, the Board also considered the
and related procedures with respect to prior relationship between AIM and the
the lending Fund is in the best Fund, as well as the Board's knowledge
interests of the lending Fund and its of AIM's operations, and concluded that
respective shareholders. The Board it was beneficial to maintain the
therefore concluded that the investment current relationship, in part, because
of cash collateral received in of such knowledge. The Board also
connection with the securities lending reviewed the general nature of the
program in the money market funds non-investment advisory services
according to the procedures is in the currently performed by AIM and its
best interests of the lending Fund and affiliates, such as administrative,
its respective shareholders. transfer agency and distribution
services, and the fees received by AIM
and its affiliates for performing such
services. In addition to reviewing such
services, the trustees also considered
the organizational structure
11
Supplement to Annual Report dated 10/31/06
AIM Diversified Dividend Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS INSTITUTIONAL CLASS SHARES HAVE NO SALES
For periods ended 10/31/06 CHARGE; THEREFORE, PERFORMANCE IS AT NAV.
The following information has been prepared Inception 8.77% PERFORMANCE OF INSTITUTIONAL CLASS SHARES
provide Institutional Class shareholders with 1 Year 17.96 WILL DIFFER FROM PERFORMANCE OF OTHER SHARE
a performance overview specific to their 6 Months* 7.18 CLASSES PRIMARILY DUE TO DIFFERING SALES
holdings. Institutional Class shares are CHARGES AND CLASS EXPENSES.
offered exclusively to institutional ===================================
investors, including defined contribution
plans that meet certain criteria. AVERAGE ANNUAL TOTAL RETURNS HAD THE ADVISOR NOT WAIVED FEES AND/OR
For periods ended 9/30/06, most REIMBURSED EXPENSES IN THE PAST, PERFORMANCE
recent calendar quarter-end WOULD HAVE BEEN LOWER.
Inception 8.16% PLEASE NOTE THAT PAST PERFORMANCE IS NOT
1 Year 13.11 INDICATIVE OF FUTURE RESULTS. MORE RECENT
6 Months* 5.16 RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
ALL RETURNS ASSUME REINVESTMENT OF
*Cumulative total return that has DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
not been annualized PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
=================================== SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST. SEE FULL
INSTITUTIONAL CLASS SHARES' REPORT FOR INFORMATION ON COMPARATIVE
INCEPTION DATE IS OCTOBER 25, 2005. BENCHMARKS. PLEASE CONSULT YOUR FUND
RETURNS SINCE THAT DATE ARE PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
HISTORICAL RETURNS. ALL OTHER CURRENT MONTH-END PERFORMANCE, PLEASE CALL
RETURNS ARE BLENDED RETURNS OF 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
HISTORICAL INSTITUTIONAL CLASS
SHARE PERFORMANCE AND RESTATED
CLASS A SHARE PERFORMANCE (FOR
PERIODS PRIOR TO THE INCEPTION DATE
OF INSTITUTIONAL CLASS SHARES) AT
NET ASSET VALUE (NAV) AND REFLECT
THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS
DECEMBER 31, 2001.
==============================================
NASDAQ SYMBOL DDFIX
==============================================
Over for information on your Fund's expenses.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM DDI-INS-1 A I M Distributors, Inc --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur divide your account value by $1,000 The hypothetical account values and
ongoing costs, including management fees and (for example, an $8,600 account expenses may not be used to estimate the
other Fund expenses. This example is intended value divided by $1,000 = 8.6), actual ending account balance or expenses you
to help you understand your ongoing costs (in then multiply the result by the paid for the period. You may use this
dollars) of investing in the Fund and to number in the table under the information to compare the ongoing costs of
compare these costs with ongoing costs of heading entitled "Actual Expenses investing in the Fund and other funds. To do
investing in other mutual funds. The example Paid During Period" to estimate the so, compare this 5% hypothetical example with
is based on an investment of $1,000 invested expenses you paid on your account the 5% hypothetical examples that appear in
at the beginning of the period and held for during this period. the shareholder reports of the other funds.
the entire period May 1, 2006, through October
31, 2006. Hypothetical example for comparison Please note that the expenses shown in
purposes the table are meant to highlight your ongoing
Actual expenses costs only. Therefore, the hypothetical
The table below also provides information is useful in comparing ongoing
The table below provides information about information about hypothetical costs only, and will not help you determine
actual account values and actual expenses. You account values and hypothetical the relative total costs of owning different
may use the information in this table, expenses based on the Fund's actual funds.
together with the amount you invested, to expense ratio and an assumed rate
estimate the expenses that you paid over the of return of 5% per year before
period. Simply expenses, which is not the Fund's
actual return. The Fund's actual
cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
Institutional $1,000.00 $1,071.80 $3.08 $1,022.23 $3.01 0.59%
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, 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 DDI-INS-1 A I M Distributors, Inc.
AIM Diversified Dividend Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS-94.00%
AEROSPACE & DEFENSE-4.59%
Honeywell International Inc. 271,700 $ 11,444,004
- ---------------------------------------------------------------------------
Raytheon Co. 600,400 29,989,980
- ---------------------------------------------------------------------------
United Technologies Corp. 744,600 48,935,112
===========================================================================
90,369,096
===========================================================================
APPAREL RETAIL-3.65%
Limited Brands, Inc. 1,508,900 44,467,283
- ---------------------------------------------------------------------------
TJX Cos., Inc. (The) 945,400 27,369,330
===========================================================================
71,836,613
===========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.16%
VF Corp. 301,300 22,901,813
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.86%
Bank of New York Co., Inc. (The) 468,500 16,102,345
- ---------------------------------------------------------------------------
Federated Investors, Inc.-Class B 471,360 16,162,934
- ---------------------------------------------------------------------------
State Street Corp. 374,600 24,060,558
===========================================================================
56,325,837
===========================================================================
AUTO PARTS & EQUIPMENT-1.09%
Johnson Controls, Inc. 263,100 21,453,174
===========================================================================
BREWERS-1.46%
Anheuser-Busch Cos., Inc. 605,300 28,703,326
===========================================================================
CASINOS & GAMING-1.08%
International Game Technology 502,101 21,344,313
===========================================================================
COMPUTER HARDWARE-3.59%
Hewlett-Packard Co. 803,900 31,143,086
- ---------------------------------------------------------------------------
International Business Machines Corp. 428,100 39,526,473
===========================================================================
70,669,559
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.24%
Automatic Data Processing, Inc. 532,100 26,307,024
- ---------------------------------------------------------------------------
First Data Corp. 385,400 9,345,950
- ---------------------------------------------------------------------------
Western Union Co.(a) 385,400 8,498,070
===========================================================================
44,151,044
===========================================================================
DISTRIBUTORS-0.69%
Genuine Parts Co. 300,300 13,669,656
===========================================================================
DIVERSIFIED BANKS-1.25%
U.S. Bancorp 419,200 14,185,728
- ---------------------------------------------------------------------------
Wachovia Corp. 188,300 10,450,650
===========================================================================
24,636,378
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
DIVERSIFIED CHEMICALS-1.65%
E. I. du Pont de Nemours and Co. 464,500 $ 21,274,100
- ---------------------------------------------------------------------------
PPG Industries, Inc. 163,200 11,162,880
===========================================================================
32,436,980
===========================================================================
ELECTRIC UTILITIES-2.74%
American Electric Power Co., Inc. 720,000 29,829,600
- ---------------------------------------------------------------------------
Exelon Corp. 388,800 24,097,824
===========================================================================
53,927,424
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.28%
Emerson Electric Co. 533,300 45,010,520
===========================================================================
FOREST PRODUCTS-1.15%
Weyerhaeuser Co. 357,200 22,714,348
===========================================================================
GENERAL MERCHANDISE STORES-1.35%
Target Corp. 449,900 26,625,082
===========================================================================
HEALTH CARE EQUIPMENT-3.40%
Baxter International Inc. 505,000 23,214,850
- ---------------------------------------------------------------------------
Medtronic, Inc. 574,500 27,966,660
- ---------------------------------------------------------------------------
Stryker Corp. 300,300 15,702,687
===========================================================================
66,884,197
===========================================================================
HOME IMPROVEMENT RETAIL-1.23%
Home Depot, Inc. (The) 646,500 24,133,845
===========================================================================
HOUSEHOLD APPLIANCES-0.84%
Snap-on Inc. 351,900 16,549,857
===========================================================================
HOUSEHOLD PRODUCTS-2.09%
Colgate-Palmolive Co. 187,500 11,994,375
- ---------------------------------------------------------------------------
Kimberly-Clark Corp. 438,900 29,195,628
===========================================================================
41,190,003
===========================================================================
HYPERMARKETS & SUPER CENTERS-0.94%
Wal-Mart Stores, Inc. 374,400 18,450,432
===========================================================================
INDUSTRIAL CONGLOMERATES-2.55%
General Electric Co. 1,428,000 50,137,080
===========================================================================
INDUSTRIAL GASES-0.74%
Praxair, Inc. 242,800 14,628,700
===========================================================================
INDUSTRIAL MACHINERY-2.66%
Illinois Tool Works Inc. 735,734 35,263,731
- ---------------------------------------------------------------------------
Pentair, Inc. 518,000 17,062,920
===========================================================================
52,326,651
===========================================================================
</Table>
F-1
AIM Diversified Dividend Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
INSURANCE BROKERS-1.20%
Marsh & McLennan Cos., Inc. 801,200 $ 23,587,328
===========================================================================
INTEGRATED OIL & GAS-4.10%
Eni S.p.A. (Italy)(b) 412,800 12,492,478
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 373,300 26,661,086
- ---------------------------------------------------------------------------
Occidental Petroleum Corp. 531,800 24,962,692
- ---------------------------------------------------------------------------
Total S.A. (France)(b) 243,404 16,564,566
===========================================================================
80,680,822
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.03%
AT&T Inc. 609,000 20,858,250
- ---------------------------------------------------------------------------
BellSouth Corp. 859,900 38,781,490
===========================================================================
59,639,740
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.78%
Merrill Lynch & Co., Inc. 181,400 15,857,988
- ---------------------------------------------------------------------------
Morgan Stanley 252,100 19,268,003
===========================================================================
35,125,991
===========================================================================
MULTI-LINE INSURANCE-0.49%
Genworth Financial Inc.-Class A 287,900 9,627,376
===========================================================================
MULTI-UTILITIES-2.05%
Dominion Resources, Inc. 317,000 25,673,830
- ---------------------------------------------------------------------------
Wisconsin Energy Corp. 322,000 14,792,680
===========================================================================
40,466,510
===========================================================================
OIL & GAS DRILLING-0.44%
GlobalSantaFe Corp. 168,400 8,739,960
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.50%
Bank of America Corp. 422,500 22,760,075
- ---------------------------------------------------------------------------
Citigroup Inc. 530,000 26,584,800
===========================================================================
49,344,875
===========================================================================
PACKAGED FOODS & MEATS-2.29%
General Mills, Inc. 582,600 33,103,332
- ---------------------------------------------------------------------------
Sara Lee Corp. 700,300 11,975,130
===========================================================================
45,078,462
===========================================================================
PHARMACEUTICALS-10.05%
Abbott Laboratories 698,700 33,195,237
- ---------------------------------------------------------------------------
Bristol-Myers Squibb Co. 571,400 14,142,150
- ---------------------------------------------------------------------------
Johnson & Johnson 707,700 47,698,980
- ---------------------------------------------------------------------------
Lilly (Eli) and Co. 558,500 31,281,585
- ---------------------------------------------------------------------------
Merck & Co. Inc. 309,200 14,043,864
- ---------------------------------------------------------------------------
Pfizer Inc. 1,476,780 39,356,187
- ---------------------------------------------------------------------------
Wyeth 357,000 18,217,710
===========================================================================
197,935,713
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
PROPERTY & CASUALTY INSURANCE-1.82%
MBIA Inc. 344,000 $ 21,334,880
- ---------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 284,900 14,566,937
===========================================================================
35,901,817
===========================================================================
PUBLISHING-1.16%
Gannett Co., Inc. 387,600 22,922,664
===========================================================================
REGIONAL BANKS-4.15%
Fifth Third Bancorp 908,100 36,187,785
- ---------------------------------------------------------------------------
North Fork Bancorp., Inc. 669,100 19,122,878
- ---------------------------------------------------------------------------
SunTrust Banks, Inc. 335,000 26,461,650
===========================================================================
81,772,313
===========================================================================
RESTAURANTS-0.84%
OSI Restaurant Partners, Inc. 500,200 16,641,654
===========================================================================
SEMICONDUCTORS-2.52%
Linear Technology Corp. 851,700 26,504,904
- ---------------------------------------------------------------------------
Texas Instruments Inc. 763,900 23,054,502
===========================================================================
49,559,406
===========================================================================
SOFT DRINKS-0.79%
Coca-Cola Co. (The) 331,300 15,478,336
===========================================================================
SPECIALIZED CONSUMER SERVICES-0.94%
H&R Block, Inc. 845,000 18,471,700
===========================================================================
SPECIALTY CHEMICALS-0.93%
Ecolab Inc. 403,000 18,276,050
===========================================================================
SYSTEMS SOFTWARE-1.91%
Microsoft Corp. 1,313,500 37,710,585
===========================================================================
THRIFTS & MORTGAGE FINANCE-2.11%
Fannie Mae 452,600 26,821,076
- ---------------------------------------------------------------------------
Hudson City Bancorp, Inc. 1,076,300 14,777,599
===========================================================================
41,598,675
===========================================================================
TOBACCO-1.62%
Altria Group, Inc. 391,600 31,848,828
===========================================================================
Total Common Stocks (Cost $1,562,283,906) 1,851,484,733
===========================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY SECURITIES-0.30%
U.S. TREASURY NOTES-0.30%
3.38%, 02/28/07(c) $ 3,000,000 2,983,350
- ---------------------------------------------------------------------------
3.38%, 02/15/08(c) 3,000,000 2,946,570
===========================================================================
Total U.S. Treasury Securities (Cost
$5,979,082) 5,929,920
===========================================================================
</Table>
F-2
AIM Diversified Dividend Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-5.50%
Liquid Assets Portfolio-Institutional
Class(d) 54,198,593 $ 54,198,593
- ---------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 54,198,593 54,198,593
===========================================================================
Total Money Market Funds (Cost
$108,397,186) 108,397,186
===========================================================================
TOTAL INVESTMENTS-99.80% (Cost
$1,676,660,174) 1,965,811,839
===========================================================================
OTHER ASSETS LESS LIABILITIES-0.20% 3,989,748
===========================================================================
NET ASSETS-100.00% $1,969,801,587
___________________________________________________________________________
===========================================================================
</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, 2006 was $29,057,044,
which represented 1.48% of the Fund's Net Assets. See Note 1A.
(c) 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, 2006
was $5,929,920, which represented 0.30% 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.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Diversified Dividend Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,568,262,988) $1,857,414,653
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $108,397,186) 108,397,186
============================================================
Total investments (cost $1,676,660,174) 1,965,811,839
============================================================
Foreign currencies, at value (cost $265,617) 268,008
- ------------------------------------------------------------
Receivables for:
Investments sold 3,271,418
- ------------------------------------------------------------
Investments sold to affiliates 850,557
- ------------------------------------------------------------
Fund shares sold 1,313,426
- ------------------------------------------------------------
Dividends and Interest 2,474,335
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 584,592
- ------------------------------------------------------------
Other assets 46,933
============================================================
Total assets 1,974,621,108
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 970,056
- ------------------------------------------------------------
Fund shares reacquired 1,909,358
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 718,205
- ------------------------------------------------------------
Fund expenses advanced 47,287
- ------------------------------------------------------------
Accrued distribution fees 367,081
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,271
- ------------------------------------------------------------
Accrued transfer agent fees 623,808
- ------------------------------------------------------------
Accrued operating expenses 180,455
============================================================
Total liabilities 4,819,521
============================================================
Net assets applicable to shares outstanding $1,969,801,587
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,596,378,948
- ------------------------------------------------------------
Undistributed net investment income 1,806,095
- ------------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 82,462,488
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 289,154,056
============================================================
$1,969,801,587
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 262,276,255
____________________________________________________________
============================================================
Class B $ 98,900,799
____________________________________________________________
============================================================
Class C $ 56,354,236
____________________________________________________________
============================================================
Class R $ 429,968
____________________________________________________________
============================================================
Investor Class $1,522,234,619
____________________________________________________________
============================================================
Institutional Class $ 29,605,710
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 18,895,668
____________________________________________________________
============================================================
Class B 7,189,358
____________________________________________________________
============================================================
Class C 4,100,931
____________________________________________________________
============================================================
Class R 30,975
____________________________________________________________
============================================================
Investor Class 109,684,797
____________________________________________________________
============================================================
Institutional Class 2,133,439
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 13.88
- ------------------------------------------------------------
Offering price per share
(Net asset value of $13.88 divided by
94.50%) $ 14.69
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 13.76
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 13.74
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 13.88
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 13.88
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 13.88
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Diversified Dividend Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $210,819) $ 43,189,099
- --------------------------------------------------------------------------
Dividends from affiliated money market funds 2,855,017
- --------------------------------------------------------------------------
Interest 226,509
==========================================================================
Total investment income 46,270,625
==========================================================================
EXPENSES:
Advisory fees 10,028,238
- --------------------------------------------------------------------------
Administrative services fees 447,084
- --------------------------------------------------------------------------
Custodian fees 151,644
- --------------------------------------------------------------------------
Distribution fees:
Class A 572,983
- --------------------------------------------------------------------------
Class B 944,380
- --------------------------------------------------------------------------
Class C 466,478
- --------------------------------------------------------------------------
Class R 756
- --------------------------------------------------------------------------
Investor Class 1,768,474
- --------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 3,763,808
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional 1,350
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 29,030
- --------------------------------------------------------------------------
Other 468,550
==========================================================================
Total expenses 18,642,775
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (801,059)
==========================================================================
Net expenses 17,841,716
==========================================================================
Net investment income 28,428,909
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains from securities
sold to affiliates of $59,854) 83,605,237
- --------------------------------------------------------------------------
Foreign currencies (1,798)
==========================================================================
83,603,439
==========================================================================
Change in net unrealized appreciation of:
Investment securities 199,428,770
- --------------------------------------------------------------------------
Foreign currencies 3,088
==========================================================================
199,431,858
==========================================================================
Net gain from investment securities and foreign currencies 283,035,297
==========================================================================
Net increase in net assets resulting from operations $311,464,206
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Diversified Dividend Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 28,428,909 $ 8,389,133
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 83,603,439 27,219,604
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 199,431,858 (57,210,846)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 311,464,206 (21,602,109)
==============================================================================================
Distributions to shareholders from net investment income:
Class A (3,086,793) (1,900,682)
- ----------------------------------------------------------------------------------------------
Class B (668,366) (595,295)
- ----------------------------------------------------------------------------------------------
Class C (331,431) (251,639)
- ----------------------------------------------------------------------------------------------
Class R (2,051) --
- ----------------------------------------------------------------------------------------------
Investor Class (21,911,514) (5,537,164)
- ----------------------------------------------------------------------------------------------
Institutional Class (253,928) --
==============================================================================================
Total distributions from net investment income (26,254,083) (8,284,780)
==============================================================================================
Distributions to shareholders from net realized gains:
Class A (2,831,926) (1,261,433)
- ----------------------------------------------------------------------------------------------
Class B (1,224,877) (887,849)
- ----------------------------------------------------------------------------------------------
Class C (591,537) (318,378)
- ----------------------------------------------------------------------------------------------
Class R (136) --
- ----------------------------------------------------------------------------------------------
Investor Class (20,043,897) --
- ----------------------------------------------------------------------------------------------
Institutional Class (3,759) --
==============================================================================================
Total distributions from net realized gains (24,696,132) (2,467,660)
==============================================================================================
Decrease in net assets resulting from distributions (50,950,215) (10,752,440)
==============================================================================================
Share transactions-net:
Class A 18,263,287 146,191,618
- ----------------------------------------------------------------------------------------------
Class B (6,409,806) 44,099,057
- ----------------------------------------------------------------------------------------------
Class C 4,279,812 29,372,653
- ----------------------------------------------------------------------------------------------
Class R 392,930 10,000
- ----------------------------------------------------------------------------------------------
Investor Class (231,151,076) 1,584,319,461
- ----------------------------------------------------------------------------------------------
Institutional Class 27,697,517 47,507
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (186,927,336) 1,804,040,296
==============================================================================================
Net increase in net assets 73,586,655 1,771,685,747
==============================================================================================
NET ASSETS:
Beginning of year 1,896,214,932 124,529,185
==============================================================================================
End of year (including undistributed net investment income
of $1,806,095 and $(307,559), respectively) $1,969,801,587 $1,896,214,932
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-6
AIM Diversified Dividend Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Diversified Dividend Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The 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.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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
F-7
AIM Diversified Dividend Fund
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights,
nor are they limited by any expense limitation arrangements between the
Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income are paid quarterly and net
realized capital gain, if any, is generally paid annually and recorded on
ex-dividend date. The Fund may elect to treat a portion of the proceeds
from redemptions as distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. If a written call option expires on the
stipulated expiration date, or if the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or a loss if the closing purchase
transaction exceeds the premium received when the option was written)
without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is extinguished. If a written
option is exercised, the Fund realizes a gain or a loss from the sale of
the underlying security and the proceeds of the sale are increased by the
premium originally received.
F-8
AIM Diversified Dividend Fund
Realized gains and losses on these contracts are included in the Statement
of Operations. A risk in writing a call option is that the Fund gives up
the opportunity for profit if the market price of the security increases
and the option is exercised. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. Realized and unrealized gains and losses on these contracts are
included in the Statement of Operations. A risk in buying an option is that
the Fund pays a premium whether or not the option is exercised. In
addition, there can be no assurance that a liquid secondary market will
exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $350 million 0.60%
- --------------------------------------------------------------------
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>
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 expenses (excluding certain items discussed below) of
Class A, Class B, Class C, Class R , Investor Class and Institutional Class
shares to 1.40%, 2.15%, 2.15%, 1.65%, 1.40% and 1.15% of average daily net
assets, respectively, through at least June 30, 2007. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the net annual
operating expenses to exceed the number reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, in addition to the
expense reimbursement arrangement with 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. In
addition, the Fund may also benefit from a one time credit to be used to offset
future custodian expenses. These credits are used to pay certain expenses
incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended October 31, 2006, AIM waived advisory fees of $6,043 and
reimbursed class level expenses of $67,516, $122,258, $60,389, $45 and $446,599
for Class A, Class B, Class C, Class R and Investor Class shares, respectively.
At October 31, 2006, the advisor advanced to the Fund $47,287 for payment of
Fund expenses.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,086.
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, 2006, AIM was paid $447,084.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the
F-9
AIM Diversified Dividend Fund
Trust's Board of Trustees. For the year ended October 31, 2006, the Fund paid
AIS $3,763,808 for Class A, Class B, Class C, Class R and Investor Class shares
and $1,350 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 and 0.50% of the average daily net assets of Class R shares. The Fund,
pursuant to the Investor Class Plan, reimburses ADI for its allocated share of
expenses incurred pursuant to the Investor Class Plan for the period, up to a
maximum annual rate of 0.25% of the average daily net assets of Investor Class
shares. Of the Rule 12b-1 payments, 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, 2006, the Class
A, Class B, Class C, Class R and Investor Class shares paid $572,983, $944,380,
$466,478, $756 and $1,768,474, 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, 2006, ADI advised the Fund that it retained $88,939 in
front-end sales commissions from the sale of Class A shares and $8,232, $55,762,
$5,932 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances 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, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $39,379,766 $146,288,169 $(131,469,342) $ -- $ 54,198,593 $1,425,576 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 76,883,564 (22,684,971) -- 54,198,593 666,650 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 39,379,766 95,740,295 (135,120,061) -- -- 762,791 --
===================================================================================================================================
Total
Investments
in
Affiliates $78,759,532 $318,912,028 $(289,274,374) $ -- $108,397,186 $2,855,017 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the year ended October 31, 2006, the Fund
engaged in securities sales of $969,929, which resulted in net realized gains of
$59,854, and securities purchases of $2,966,172.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $96,123.
F-10
AIM Diversified Dividend Fund
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to 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, 2006, the Fund paid legal fees of $9,712
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $39,895,528 $ 9,650,189
- ----------------------------------------------------------------------------------------
Long-term capital gain 11,054,687 1,102,251
========================================================================================
Total distributions $50,950,215 $10,752,440
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 13,183,393
- ------------------------------------------------------------------------------
Undistributed long-term gain 72,704,645
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 287,956,880
- ------------------------------------------------------------------------------
Temporary book/tax differences (422,279)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,596,378,948
==============================================================================
Total net assets $1,969,801,587
______________________________________________________________________________
==============================================================================
</Table>
F-11
AIM Diversified Dividend Fund
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation on foreign currencies of $2,391.
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, 2006.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $165,323,944 and
$412,055,316, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $324,137,982
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (36,183,493)
==============================================================================
Net unrealized appreciation of investment securities $287,954,489
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,677,857,350.
</Table>
NOTE 10 --RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of corporate actions,
reorganization expenses and foreign currencies, on October 31, 2006,
undistributed net investment income was decreased by $61,172, undistributed net
realized gains was increased by $66,797 and shares of beneficial interest
decreased by $5,625. This reclassification had no effect on the net assets of
the Fund.
F-12
AIM Diversified Dividend Fund
NOTE 11--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A, Class
B, Class C, Class R, Investor Class and Institutional Class. Investor Class
shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge unless certain waiver
criteria are met. Class B shares and Class C shares are sold with CDSC. Class R
shares, Investor Class 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 on or about the month-end which is at least eight years after the date of
purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2006(a) 2005
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,950,288 $ 89,904,101 13,366,462 $ 162,870,472
- ----------------------------------------------------------------------------------------------------------------------------
Class B 2,123,032 27,181,960 5,147,569 61,668,926
- ----------------------------------------------------------------------------------------------------------------------------
Class C 1,313,145 17,092,506 2,592,218 30,951,388
- ----------------------------------------------------------------------------------------------------------------------------
Class R(b) 36,096 472,177 830 10,000
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(c) 2,424,328 31,254,402 785,388 9,516,788
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class(d) 2,301,390 29,960,920 3,940 47,507
============================================================================================================================
Issued as reinvestment of dividends:
Class A 441,148 5,620,783 240,678 2,899,503
- ----------------------------------------------------------------------------------------------------------------------------
Class B 139,034 1,749,870 111,219 1,322,000
- ----------------------------------------------------------------------------------------------------------------------------
Class C 65,628 825,919 43,783 520,338
- ----------------------------------------------------------------------------------------------------------------------------
Class R(b) 168 2,187 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(c) 3,058,799 38,929,501 414,470 5,093,831
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class(d) 19,848 257,687 -- --
============================================================================================================================
Issued in connection with acquisitions:(e)
Class A -- -- 805,015 9,990,447
- ----------------------------------------------------------------------------------------------------------------------------
Class B -- -- 126,959 1,560,956
- ----------------------------------------------------------------------------------------------------------------------------
Class C -- -- 427,503 5,254,987
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(c) -- -- 134,782,259 1,672,062,947
============================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 639,340 8,263,997 415,881 5,018,665
- ----------------------------------------------------------------------------------------------------------------------------
Class B (645,065) (8,263,997) (419,467) (5,018,665)
============================================================================================================================
Reacquired:
Class A (6,637,587) (85,525,594) (2,857,287) (34,587,469)
- ----------------------------------------------------------------------------------------------------------------------------
Class B (2,120,974) (27,077,639) (1,287,821) (15,434,160)
- ----------------------------------------------------------------------------------------------------------------------------
Class C (1,072,394) (13,638,613) (616,105) (7,354,060)
- ----------------------------------------------------------------------------------------------------------------------------
Class R(b) (6,119) (81,434) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Investor Class(c) (23,451,173 (301,334,979) (8,329,274) (102,354,105)
- ----------------------------------------------------------------------------------------------------------------------------
Institutional Class(d) (191,739) (2,521,090) -- --
============================================================================================================================
(14,612,807) $(186,927,336) 145,754,220 $1,804,040,296
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 8% of the outstanding shares of
the Fund. 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 such as,
securities brokerage, distribution, third party record keeping and
account servicing. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by this entity is also owned
beneficially.
(b) Class R shares commenced sales on October 25, 2005.
(c) Investor Class shares commenced sales on July 15, 2005.
(d) Institutional Class shares commenced operations on October 25, 2005.
(e) As of the opening of business on July 18, 2005, the Fund acquired all
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. Each class of shares of AIM Core
Stock Fund was exchanged for the like class of shares of the Fund based
on the relative net asset value of AIM Core Stock Fund to the net asset
value of the Fund on the close of business, July 15, 2005. AIM Core
Stock Fund's net assets as of the close of business on July 15, 2005 of
$1,688,869,337, including $137,673,754 of unrealized appreciation, were
combined with the net assets of the Fund immediately before the
acquisition of $279,480,415. The combined aggregate net assets of the
Fund subsequent to the reorganization were $1,968,349,752.
F-13
AIM Diversified Dividend Fund
NOTE 12--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.11 $ 11.48 $ 10.26 $ 8.70 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.19(a) 0.17(b) 0.14 0.06(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.92 0.85 1.23 1.54 (1.27)
=================================================================================================================================
Total from investment operations 2.11 1.02 1.37 1.60 (1.30)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.18) (0.18) (0.15) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) (0.21) -- -- --
=================================================================================================================================
Total distributions (0.34) (0.39) (0.15) (0.04) --
=================================================================================================================================
Net asset value, end of period $ 13.88 $ 12.11 $ 11.48 $ 10.26 $ 8.70
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 17.66% 8.92% 13.36% 18.39% (13.00)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $262,276 $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% 1.00% 1.51% 1.75%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.03%(d) 1.15% 1.70% 2.12% 4.26%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 1.43%(d) 1.27%(b) 1.27% 0.65% (0.34)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 9% 22% 30% 72% 42%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, excluding the special dividend, remained the same and
the ratio of net investment income to average net assets, excluding the
special dividend was 1.24%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $229,192,909.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM Diversified Dividend Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.01 $ 11.38 $ 10.17 $ 8.65 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(a) 0.09(b) 0.07 0.00(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.90 0.85 1.21 1.53 (1.27)
=================================================================================================================================
Total from investment operations 2.00 0.94 1.28 1.53 (1.35)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.09) (0.10) (0.07) (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) (0.21) -- -- --
=================================================================================================================================
Total distributions (0.25) (0.31) (0.07) (0.01) --
=================================================================================================================================
Net asset value, end of period $ 13.76 $ 12.01 $ 11.38 $ 10.17 $ 8.65
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 16.87% 8.28% 12.63% 17.67% (13.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $98,901 $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% 1.65% 2.16% 2.40%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.78%(d) 1.85% 2.35% 2.77% 4.91%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.78%(d) 0.62%(b) 0.62% 0.00% (0.99)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 9% 22% 30% 72% 42%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, excluding the special dividend, remained the same and
the ratio of net investment income to average net assets, excluding the
special dividend was 0.59%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $94,437,993.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-15
AIM Diversified Dividend Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
DECEMBER 31, 2001
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.99 $ 11.37 $ 10.16 $ 8.65 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10(a) 0.09(b) 0.07 0.00(a) (0.08)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.90 0.84 1.21 1.52 (1.27)
=================================================================================================================================
Total from investment operations 2.00 0.93 1.28 1.52 (1.35)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.09) (0.10) (0.07) (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) (0.21) -- -- --
=================================================================================================================================
Total distributions (0.25) (0.31) (0.07) (0.01) --
=================================================================================================================================
Net asset value, end of period $ 13.74 $ 11.99 $ 11.37 $10.16 $ 8.65
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 16.90% 8.20% 12.64% 17.55% (13.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $56,354 $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% 1.65% 2.16% 2.40%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.78%(d) 1.85% 2.35% 2.77% 4.91%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.78%(d) 0.62%(b) 0.62% 0.00% (0.99)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 9% 22% 30% 72% 42%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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, excluding the special dividend, remained the same and
the ratio of net investment income to average net assets, excluding the
special dividend was 0.59%.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $46,647,993.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-16
AIM Diversified Dividend Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
----------------------------------
OCTOBER 25, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.11 $11.99
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16(a) 0.00
- ------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.92 0.12
================================================================================================
Total from investment operations 2.08 0.12
================================================================================================
Less distributions:
Dividends from net investment income (0.15) --
- ------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) --
================================================================================================
Total distributions (0.31) --
================================================================================================
Net asset value, end of period $13.88 $12.11
________________________________________________________________________________________________
================================================================================================
Total return(b) 17.38% 1.00%
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 430 $ 10
================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.25%(c) 1.25%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28%(c) 1.39%(d)
================================================================================================
Ratio of net investment income to average net assets 1.18%(c) 1.03%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 9% 22%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $151,264.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-17
AIM Diversified Dividend Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
-------------------------------
JULY 15, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2006 2005
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.11 $ 12.36
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.20(a) 0.05
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.92 (0.26)
=============================================================================================
Total from investment operations 2.12 (0.21)
=============================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.04)
- ---------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) --
=============================================================================================
Total distributions (0.35) (0.04)
=============================================================================================
Net asset value, end of period $ 13.88 $ 12.11
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 17.77% (1.68)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,522,235 $1,546,221
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.87%(c) 0.97%(d)
- ---------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.90%(c) 1.09%(d)
=============================================================================================
Ratio of net investment income to average net assets 1.56%(c) 1.30%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 9% 22%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,516,037,078.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-18
AIM Diversified Dividend Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------
OCTOBER 25, 2005
(DATE SALES
YEAR ENDED COMMENCED) TO
OCTOBER 31, OCTOBER 31,
2006 2005
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.12 $11.99
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02(a) 0.00
- ------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.12 0.13
================================================================================================
Total from investment operations 2.14 0.13
================================================================================================
Less distributions:
Dividends from net investment income (0.22) --
- ------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.16) --
================================================================================================
Total distributions (0.38) --
================================================================================================
Net asset value, end of period $ 13.88 $12.12
________________________________________________________________________________________________
================================================================================================
Total return(b) 17.96% 1.08%
________________________________________________________________________________________________
================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,606 $ 48
________________________________________________________________________________________________
================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.59%(c) 0.68%(d)
- ------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.59%(c) 0.80%(d)
================================================================================================
Ratio of net investment income to average net assets 1.84%(c) 1.59%(d)
________________________________________________________________________________________________
================================================================================================
Portfolio turnover rate(e) 9% 22%
________________________________________________________________________________________________
================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $14,180,631.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor-Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings of
fact that AIM and ADI entered into certain arrangements permitting market timing
of the AIM Funds and failed to disclose these arrangements in the prospectuses
for such Funds, and conclusions of law to the effect that AIM and ADI violated
the West Virginia securities laws. The WVASC orders AIM and ADI to cease any
further violations and seeks to impose monetary sanctions, including restitution
to affected investors, disgorgement of fees, reimbursement of investigatory,
administrative and legal costs and an "administrative assessment," to be
determined by the Commissioner. Initial research indicates that these damages
could be limited or capped by statute.
F-19
AIM Diversified Dividend Fund
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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; and
- 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 (all the claims in
this category of lawsuits were dismissed with prejudice by the court on
September 29, 2006, except for the Section 36(b) claim which was dismissed
with leave to amend to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-20
AIM Diversified Dividend Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Diversified Dividend Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Diversified Dividend Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
October 31, 2004 were audited by another independent registered public
accounting firm whose report, dated December 15, 2004, expressed an unqualified
opinion on those financial highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-21
AIM Diversified Dividend Fund
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2006, 86.85% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $11,054,687 for
the Fund's tax year ended October 31, 2006.
For its tax year ended October 31, 2006, the Fund designates 87.40%, 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 in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 0.48% was derived from U.S. Treasury
Obligations.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
For its tax year ended October 31, 2006, the Fund designates 5.03%, or the
maximum amount allowable, of its dividend distributions as qualified interest
income exempt from U.S. income tax for non-resident alien shareholders. Your
actual amount of qualified interest income for the calendar year will be
reported in your Form 1042-S mailing. You should consult your tax advisor
regarding treatment of the amounts.
The Fund designates qualified short-term capital gain distributions exempt
from U.S. tax for non-resident alien shareholders of $1,198 for the Fund's tax
year end October 31, 2006.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 4.99%, 4.84%, 5.59% and 7.28%, respectively.
F-22
AIM Diversified Dividend Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-23
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Diversified Dividend Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
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DOMESTIC EQUITY AIM LARGE CAP
BASIC VALUE FUND
Large-Cap Value
Annual Report to Shareholders o October 31, 2006
Table of Contents
Supplemental Information ........... 2
Letters to Shareholders ............ 3
Performance Summary ................ 5
Management Discussion .............. 5
Fund Expenses ...................... 7
Long-term Fund Performance ......... 8
Approval of Advisory Agreement ..... 10
Schedule of Investments ............ F-1
Financial Statements ............... F-3
Notes to Financial Statements ...... F-5
Financial Highlights ...............F-12
Auditor's Report ...................F-17
Tax Disclosures ....................F-18
Trustees and Officers ..............F-19 [COVER GLOBE IMAGE]
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--Registered Trademark--
AIM Large Cap Basic Value Fund
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, 2006, and is based on total net assets.
ABOUT SHARE CLASSES o Although the Fund's return during net asset values for shareholder
certain periods was positively impacted transactions and the returns based on
o Class B shares are not available as an by its investment in initial public those net asset values may differ from
investment for retirement plans offerings (IPOs), there can be no the net asset values and returns
maintained pursuant to Section 401 of assurance that the Fund will have reported in the Financial Highlights.
the Internal Revenue Code, including favorable IPO investment opportunities
401(k) plans, money purchase pension in the future. o Industry classifications used in this
plans and profit sharing plans. Plans report are generally according to the
that had existing accounts invested in Global Industry Classification Standard,
Class B shares prior to September 30, ABOUT INDEXES USED IN THIS REPORT which was developed by and is the
2003, will continue to be allowed to exclusive property and a service mark of
make additional purchases. o The unmanaged LIPPER LARGE-CAP VALUE Morgan Stanley Capital International
FUNDS INDEX represents an average of the Inc. and Standard & Poor's.
o Class R shares are available only to performance of the 30 largest
certain retirement plans. Please see the large-capitalization value funds tracked The Fund provides a complete list of its
prospectus for more information. by Lipper Inc., an independent mutual holdings four times in each fiscal year,
fund performance monitor. at the quarter-ends. For the second and
fourth quarters, the lists appear in the
o Investor Class shares are closed to o The unmanaged RUSSELL 1000--Registered Value Fund's semiannual and annual reports
most investors. For more information on Trademark-- VALUE INDEX is a subset of to shareholders. For the first and third
who may continue to invest in Investor the unmanaged RUSSELL 1000--Registered quarters, the Fund files the lists with
Class shares, please see the prospectus. Trademark-- INDEX, which represents the Securities and Exchange Commission
the performance of the stocks of (SEC) on Form N-Q. The most recent list
large-capitalization companies; the Value of portfolio holdings is available at
PRINCIPAL RISKS OF INVESTING IN THE FUND subset measures the performance of AIMinvestments.com. From our home page,
Russell 1000 companies with lower click on Products & Performance, then
o Foreign securities have additional price/book ratios and lower forecasted Mutual Funds, then Fund Overview. Select
risks, including exchange rate changes, growth values. your Fund from the drop-down menu and
political and economic upheaval, the click on Complete Quarterly Holdings.
relative lack of information about the o The unmanaged STANDARD & POOR'S Shareholders can also look up the Fund's
companies, relatively low market COMPOSITE INDEX OF 500 STOCKS (the S&P Forms N-Q on the SEC Web site at
liquidity and the potential lack of 500--Registered Trademark-- Index) sec.gov. Copies of the Fund's Forms N-Q
strict financial and accounting controls is an index of common stocks frequently may be reviewed and copied at the SEC
and standards. used as a general measure of U.S. stock Public Reference Room in Washington,
market performance. D.C. You can obtain information on the
o Prices of equity securities change in operation of the Public Reference Room,
response to many factors including the o The Fund is not managed to track the including information about duplicating
historical and prospective earnings of performance of any particular index, fee charges, by calling 202-942-8090 or
the issuer, the value of its assets, including the indexes defined here, and 800-732-0330, or by electronic request at
general economic conditions, interest consequently, the performance of the the following e-mail address:
rates, investor perceptions and market Fund may deviate significantly from the publicinfo@sec.gov. The SEC file numbers
liquidity. performance of the index. for the Fund are 811-01424 and
002-25469.
o The value of convertible securities in o A direct investment cannot be made in
which the Fund invests may be affected an index. Unless otherwise indicated, A description of the policies and
by market interest rates, the risk that index results include reinvested procedures that the Fund uses to
the issuer may default on interest or dividends, and they do not reflect sales determine how to vote proxies relating
principal payments and the value of the charges. Performance of an index of to portfolio securities is available
underlying common stock into which these funds reflects fund expenses; without charge, upon request, from our
securities may be converted. performance of a market index does not. Client Services department at
800-959-4246 or on the AIM Web
o Debt securities are particularly OTHER INFORMATION site, AIMinvestments.com. On the home
vulnerable to credit risk and interest page, scroll down and click on AIM Funds
rate fluctuations. o The returns shown in the management's Proxy Policy. The information is also
discussion of Fund performance are based available on the SEC Web site, sec.gov.
o Because a large percentage of the on net asset values calculated for
Fund's assets may be invested in a shareholder transactions. Generally Information regarding how the Fund voted
limited number of securities, a change accepted accounting principles require proxies related to its portfolio
in the value of these securities could adjustments to be made to the net assets securities during the 12 months ended
significantly affect the value of your of the Fund at period end for financial June 30, 2006, is available at our Web
investment in the Fund. reporting purposes, and as such, the 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 SEC 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 Class A Shares LCBAX
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING. Class B Shares LCBBX
============================================================================== Class C Shares LCBCX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class R Shares LCBRX
Investor Class Shares LCINX
AIMinvestments.com ========================================
2
AIM Large Cap Basic Value Fund
Dear Shareholders of The AIM Family of Funds --Registered
Trademark--:
We're pleased to provide you with this report, which
includes a discussion of how your Fund was managed during the
review period ended October 31, 2006, and what factors
affected its performance.
[TAYLOR As we approach the end of 2006, it seems likely that many
PHOTO] investors may see the value of their investments increase
this year. Global equity markets, collectively, recorded
double-digit gains for the year ended October 31, 2006, as
did the U.S. stock market. Also, the investment grade bond
market in the United States rose for the same period.
While stock and bond markets generally enjoyed positive
year-to-date returns, their performance was affected by
PHILIP TAYLOR short-term economic and geopolitical events. For example, the
U.S. stock market was weak in the second quarter of 2006 when
it appeared that inflation might be rising. Only after the
U.S. Federal Reserve Board decided in August that inflation
was contained and that short-term interest rates need not be
increased--the first time it kept rates unchanged in more
than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for all
investors. At AIM Investments --Registered Trademark--, we
believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio. AIM
Investments can help by offering a broad product line that
gives your financial advisor the necessary tools to build a
portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each asset
class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed income.
A legend in the left column illustrates the methodology. Your
report cover now shows your Fund's asset class color, plus
the asset class and sub-asset class name are shown in the
upper-left corner. The reason for these changes is to help
you better understand where your Fund fits into your overall
portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial advisor
can help allocate your portfolio appropriately and review
your investments regularly to help ensure they remain
suitable as your financial situation changes. While there are
no guarantees with any investment program, a long-term plan
that's based on your financial goals, risk tolerance and time
horizon is more likely to keep you and your investments on
track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is
their unpredictability. While past performance cannot
guarantee comparable future results, we believe that staying
invested for the long term with a thoughtful plan offers the
best opportunity for weathering that unpredictability. We at
AIM Investments remain committed to building enduring
solutions to help you achieve your investment goals, and
we're pleased you've placed your trust in us.
Information about investing, the markets and your Fund is
always available on our Web site, AIMinvestments.com. If you
have questions about your individual account, we invite you
to contact one of our highly trained client services
representatives at 800-959-4246.
Sincerely,
/S/ PHILIP TAYLOR
Philip Taylor
President -- AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Large Cap Basic Value Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed
its comprehensive review* of each fund's advisory agreement
with A I M Advisors, Inc. (AIM) to make certain your
interests are being served in terms of fees, performance and
operations.
[CROCKETT Looking ahead, your Board finds many reasons to be
PHOTO] positive about AIM's management and strategic direction. Most
importantly, AIM's investment management discipline has paid
off in terms of improved overall performance. We are also
pleased with AIM's efforts to seek more cost-effective ways
of delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
BRUCE L. CROCKETT organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few years,
your Board will be meeting at these various centers of
excellence to learn about their progress and how they may
serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction and
progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a letter
addressed to me at AIM Investments, AIM Investments Tower, 11
Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
*To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the "Products
& Performance" tab at the AIM Web site (AIMinvestments.com)
and click on "Investment Advisory Agreement Renewals." The
approval of advisory agreement information for your Fund is
also included in this annual report on pages 10-11.
4
AIM Large Cap Basic Value Fund
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
================================================================================ term. Second, our investments have
little in common with popular benchmark
PERFORMANCE SUMMARY indexes and most of our peers. And
third, the Fund's short-term relative
For the fiscal year ended October 31, 2006, Class A shares of AIM Large Cap Basic performance may naturally be different
Value Fund, excluding applicable sales charges, underperformed the S&P 500 than the market and peers and have
Index, the Russell 1000 Value Index and the Lipper Large-Cap Value Funds Index. little information value since we simply
don't own the same stocks.
We attribute the Fund's underperformance versus its broad market and
style-specific indexes to below-market returns from selected investments in the MARKET CONDITIONS AND YOUR FUND
information technology, consumer discretionary and industrials sectors. Top
contributors to performance were selected investments in the financials and Equity markets posted healthy gains
energy sectors. during the fiscal year as favorable
economic data and solid corporate
Your Fund's long-term performance information appears on pages 8 and 9. profits overshadowed housing market
concerns along with volatility and
FUND VS. INDEXES investor uncertainty regarding interest
rates and oil prices. The
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales telecommunication services and materials
charges were included, returns would be lower. sectors led the market for the fiscal
year while information technology and
Class A Shares 15.68% health care stocks generally trailed.
Class B Shares 14.86
Class C Shares 14.78 The Fund's financials stocks were
Class R Shares 15.33 among the largest contributors to Fund
Investor Class Shares 15.65 performance. A robust capital markets
S&P 500 Index (Broad Market Index) 16.33 environment combined with generally
Russell 1000 Value Index (Style-Specific Index) 21.46 favorable operating fundamentals across
Lipper Large-Cap Value Funds Index (Peer Group Index) 18.41 most other business lines led to
substantial share price increases for
SOURCE: LIPPER INC. our investments in JPMORGAN CHASE,
MORGAN STANLEY and MERRILL LYNCH.
================================================================================ JPMorgan Chase was the single largest
contributor to Fund performance as the
HOW WE INVEST fair value is independent of the company continued to drive towards its
company's stock price. profitability goals in virtually all of
We seek to create wealth by maintaining its business lines. FANNIE MAE also
a long-term investment horizon and o Market prices are more volatile than contributed to Fund performance as
investing in companies that are selling business values, partly because concerns over past accounting issues
at a significant discount to their investors regularly overreact to dissipated and investors focused on the
estimated intrinsic value--a value negative news. company's compelling fundamentals.
based on the estimated future cash flows
generated by the business. The Fund's Since our application of this The Fund's oil service holdings also
philosophy is based on two elements that strategy is highly disciplined and made a positive contribution to
we believe have extensive empirical relatively unique, it is important to performance during the fiscal year.
evidence: understand the benefits and limitations Improving earnings prospects led to
of our process. First, the investment stock price gains in excess of 25% for
o Companies have a measurable estimated strategy seeks to preserve your capital both SCHLUMBERGER and TRANSOCEAN.
intrinsic value. Importantly, this while growing it at above-market rates
estimated over the long (continued)
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. Pharmaceuticals 8.2% 1. Tyco International Ltd. 4.1%
[PIE CHART] 2. Other Diversified Financial 2. Cardinal Health, Inc. 4.0
Information Technology 12.4% Services 7.1 3. JPMorgan Chase & Co. 3.9
Energy 7.2% 3. Industrial Conglomerates 6.5 4. UnitedHealth Group Inc. 3.8
Consumer Staples 6.3% 4. Advertising 5.7 5. CA Inc. 3.5
Materials 2.9% 5. Systems Software 5.0 6. Fannie Mae 3.3
Money Market Funds Plus 7. Citigroup Inc. 3.2
Other Assets Less Liabilities 2.7% Total Net Assets $345.35 million 8. Target Corp. 3.2
Financials 22.6% 9. Omnicom Group Inc. 3.0
Health Care 17.4% Total Number of Holdings* 43 10. Wyeth 3.0
Consumer Discretionary 15.1%
Industrials 13.4% 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.
======================================== ======================================== ========================================
5
AIM Large Cap Basic Value Fund
A modest number of Fund holdings CONTEXT FOR RESULTS BRET W. STANLEY
posted price declines during the [STANLEY Chartered Financial
reporting period. The Fund's largest As managers and shareholders, we know a PHOTO] Analyst, senior
detractors from performance were DELL, long-term investment horizon and portfolio manager, is
CENDANT and CA. After selling its travel attractive portfolio estimated intrinsic lead manager of AIM
distribution business, CENDANT split value content are critical to creating Large Cap Basic Value Fund. He joined
into three separate operating companies: wealth. But we understand maintaining a AIM in 1998. Mr. Stanley earned a B.B.A.
REALOGY (real estate), WYNDAM WORLDWIDE long-term investment horizon is a in finance from The University of Texas
(hospitality) and AVIS BUDGET GROUP (car challenge. When considering our at Austin and an M.S. in finance from
rental). Following the split, the Fund short-term results we encourage the University of Houston.
sold its positions in Wyndam Worldwide shareholders to review our long-term
and Avis Budget Group while retaining results on pages 8 and 9 and be mindful R. CANON COLEMAN II
Realogy. of a few key points. We are long-term Chartered Financial
investors that provide a portfolio that [COLEMAN Analyst, portfolio
Enterprise software firm CA's stock is distinct from market indexes and most PHOTO] manager, is manager of
declined during the fiscal year as a of our peers. AIM Large Cap Basic
result of investor concerns regarding Value Fund. He joined
senior management turnover, Several studies have shown AMVESCAP in 1999. Mr. Coleman earned a
weaker-than-expected quarterly earnings short-term results typically have little B.S. and an M.S. in accounting from the
and a stock options issue. Despite these information value and the frequent University of Florida. He also earned an
short-term headwinds, our estimate of trading of stocks or mutual funds can be M.B.A. from the Wharton School at the
fundamental intrinsic value for CA a costly exercise-potentially reducing University of Pennsylvania.
remained unchanged. actual returns by several percentage
points per year as shareholders MATTHEW W. SEINSHEIMER
During the fiscal year, we reduced unknowingly exchange tomorrow's winner [SEINSHEIMER Chartered Financial
the Fund's energy sector exposure for tomorrow's loser. In addition, a PHOTO] Analyst, senior
because we concluded current energy recent Yale University study reveals portfolio manager, is
equity valuations warranted less half of all mutual funds charge an manager of AIM Large Cap
exposure to the sector. active management fee for essentially a Basic Value Fund. He
closet-index portfolio. While this may joined AIM in 1998. He earned a B.B.A.
During the fiscal year, we also sold create smooth and innocuous short-term from Southern Methodist University and
our positions in ALCOA, HCA, KRAFT relative performance, it can virtually an M.B.A. from The University of Texas
FOODS, MASCO, MCKESSON and WELLPOINT ensure long-term underperformance. at Austin.
based on valuation and other portfolio
considerations. We initiated positions Considering these factors, your Fund MICHAEL J. SIMON
in DELL, MICROSOFT and UNITEDHEALTH is doing something different and old Chartered Financial
GROUP. While Dell and Microsoft's growth fashioned-investing for the long term [SIMON Analyst, senior
and business models are in the early in what we consider to be a common-sense PHOTO] portfolio manager, is
stages of a transition, we believe approach to creating wealth in a manager of AIM Large Cap
current market valuations do not reflect portfolio that is unique and Basic Value Fund. He
the long-term positives of their attractively valued. joined AIM in 2001. Mr. Simon earned a
dominant market positions and the B.B.A. in finance from Texas Christian
compelling economics of their IN CLOSING University and an M.B.A. from the
businesses. University of Chicago.
As managers and shareholders, we remain
PORTFOLIO ASSESSMENT optimistic about AIM Large Cap Basic Assisted by the Basic Value Team
Value Fund's portfolio. We are
We believe the single most important continually searching for opportunities
indicator of the way AIM Large Cap Basic to increase the portfolio's estimated
Value Fund is positioned for potential intrinsic value, and we thank you for
success is not our historical investment your investment and for sharing our
results or popular statistical measures, long-term horizon.
but the portfolio's estimated intrinsic
value--the aggregate business value of The views and opinions expressed in
the portfolio based on our estimate of management's discussion of Fund
intrinsic value for each individual performance are those of A I M Advisors,
holding. At the close of the reporting Inc. These views and opinions are
period, and in our opinion, the subject to change at any time based on
difference between the market price and factors such as market and economic
the estimated intrinsic value of the conditions. These views and opinions may
portfolio was above the Fund's not be relied upon as investment advice
historical average and what we believe or recommendations, or as an offer for a
was available in the broad market. While particular security. The information is
there is no assurance that market value not a complete analysis of every aspect
will ever reflect our estimate of the of any market, country, industry,
portfolio's intrinsic value, as managers security or the Fund. Statements of fact
and shareholders we believe this are from sources considered reliable,
provides the best indication that your but A I M Advisors, Inc. makes no
Fund is positioned to potentially representation or warranty as to their
achieve its objective of long-term completeness or accuracy. Although
growth of capital. historical performance is no guarantee
of future results, these insights may
help you understand our investment
management philosophy.
FOR A PRESENTATION OF YOUR FUND'S
See important Fund and index LONG-TERM PERFORMANCE, PLEASE SEE PAGES
disclosures on the inside front cover. 8 AND 9.
6
AIM Large Cap Basic Value Fund
CALCULATING YOUR ONGOING FUND EXPENSES
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 or in the table under the heading entitled ongoing costs of investing in the Fund
contingent deferred sales charges on "Actual Expenses Paid During Period" to and other funds. To do so, compare this
redemptions, and redemption fees, if estimate the expenses you paid on your 5% hypothetical example with the 5%
any; and (2) ongoing costs, including account during this period. hypothetical examples that appear in the
management fees; distribution and/or shareholder reports of the other funds.
service (12b-1) fees; and other Fund HYPOTHETICAL EXAMPLE FOR
expenses. This example is intended to COMPARISON PURPOSES Please note that the expenses shown
help you understand your ongoing costs in the table are meant to highlight your
(in dollars) of investing in the Fund The table below also provides ongoing costs only and do not reflect
and to compare these costs with ongoing information about hypothetical account any transaction costs, such as sales
costs of investing in other mutual values and hypothetical expenses based charges (loads) on purchase payments,
funds. The example is based on an on the Fund's actual expense ratio and contingent deferred sales charges on
investment of $1,000 invested at the an assumed rate of return of 5% per year redemptions, and redemption fees, if
beginning of the period and held for the before expenses, which is not the Fund's any. Therefore, the hypothetical
entire period May 1, 2006, through actual return. The Fund's actual information is useful in comparing
October 31, 2006. cumulative total returns at net asset ongoing costs only, and will not help
value after expenses for the six months you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2006, appear in the of owning different funds. In addition,
table "Cumulative Total Returns" on if these transaction costs were
The table below provides information page 9. included, your costs would have been
about actual account values and actual higher.
expenses. You may use the information in
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $1,024.20 $6.28 $1,019.00 $6.26 1.23%
B 1,000.00 1,021.10 10.09 1,015.22 10.06 1.98
C 1,000.00 1,020.40 10.08 1,015.22 10.06 1.98
R 1,000.00 1,022.40 7.54 1,017.74 7.53 1.48
Investor 1,000.00 1,024.80 6.28 1,019.00 6.26 1.23
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
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
====================================================================================
DATE AIM LARGE CAP
BASIC VALUE RUSSELL 1000 LIPPER LARGE-CAP
FUND-CLASS A S&P 500 VALUE VALUE FUNDS
SHARES INDEX INDEX INDEX
6/30/99 $9450 $10000 $10000 $10000
7/99 9100 9689 9707 9716
8/99 8874 9641 9347 9539
9/99 8458 9376 9021 9186
10/99 8883 9970 9540 9629
11/99 9242 10172 9466 9663
12/99 9697 10770 9511 9960
1/00 9424 10230 9201 9539
2/00 9269 10036 8518 9137
3/00 10331 11018 9557 9974
4/00 10292 10686 9446 9864
5/00 10555 10467 9545 9871
6/00 10233 10725 9109 9762
7/00 10457 10557 9223 9718
8/00 11091 11213 9735 10281
9/00 11266 10621 9825 10118
10/00 11744 10576 10067 10199
11/00 11335 9743 9693 9762
12/00 11805 9791 10179 10155
1/01 12138 10138 10218 10239
2/01 11962 9215 9934 9746
3/01 11560 8631 9583 9367
4/01 12178 9301 10052 9898
5/01 12541 9364 10279 10057
6/01 12502 9136 10050 9784
7/01 12492 9046 10029 9717
8/01 11953 8481 9627 9262
9/01 10670 7797 8949 8540
10/01 10728 7946 8872 8595
11/01 11610 8555 9388 9146
12/01 11953 8630 9609 9284
1/02 11717 8504 9535 9113
2/02 11492 8340 9551 9063
3/02 12207 8654 10002 9462
4/02 11786 8129 9659 9059
5/02 11727 8070 9708 9071
6/02 10611 7495 9150 8439
7/02 9699 6911 8299 7710
8/02 9826 6956 8363 7761
9/02 8464 6201 7433 6864
10/02 9013 6746 7983 7368
11/02 9737 7143 8486 7830
12/02 9179 6723 8118 7457
1/03 8905 6548 7922 7280
2/03 8592 6450 7710 7098
3/03 8562 6512 7723 7093
4/03 9385 7048 8403 7692
5/03 10208 7419 8946 8166
6/03 10316 7514 9057 8259
7/03 10552 7646 9192 8374
8/03 10915 7795 9336 8515
9/03 10757 7713 9244 8420
10/03 11159 8148 9810 8885
11/03 11394 8220 9943 8994
12/03 12119 8651 10556 9545
1/04 12364 8810 10742 9689
2/04 12686 8932 10972 9894
3/04 12637 8798 10875 9775
4/04 12363 8659 10610 9595
5/04 12363 8778 10718 9665
6/04 12725 8948 10971 9878
7/04 11941 8652 10816 9640
8/04 11882 8687 10970 9709
9/04 11980 8781 11140 9824
10/04 12107 8915 11325 9929
11/04 12734 9275 11898 10360
12/04 13214 9591 12296 10689
1/05 12999 9357 12078 10482
2/05 13204 9553 12477 10777
3/05 13027 9384 12306 10601
4/05 12812 9206 12086 10391
5/05 13057 9498 12377 10634
6/05 13174 9512 12512 10742
7/05 13546 9865 12874 11092
8/05 13312 9776 12819 11044
9/05 13429 9855 12998 11150
10/05 13242 9690 12668 10917
11/05 13770 10057 13085 11293
12/05 14044 10061 13163 11358
1/06 14564 10327 13674 11690
2/06 14496 10355 13757 11711
3/06 14800 10484 13943 11858
4/06 14957 10624 14297 12154
5/06 14477 10319 13935 11857
6/06 14281 10333 14025 11865
7/06 14330 10397 14365 12047
8/06 14506 10644 14605 12269
9/06 14869 10919 14896 12554
10/06 15325 11272 15387 12929
====================================================================================
SOURCE: LIPPER INC.
========================================
Past performance cannot guarantee This chart, which is a logarithmic Excluding applicable sales charges, the
comparable future results. chart, presents the fluctuations in the Fund's Class A shares boast attractive
value of the Fund and its indexes. We long-term performance relative to the
The data shown in the chart include believe that a logarithmic chart is more Fund's peer group index, the Lipper
reinvested distributions, applicable effective than other types of charts in Large-Cap Value Funds Index. At net
sales charges, Fund expenses and illustrating changes in value during the asset value, the Fund's Class A shares
management fees. Index results include early years shown in the chart. The outperformed the index for the period
reinvested dividends, but they do not vertical axis, the one that indicates from the Fund's and the lead portfolio
reflect sales charges. Performance of an the dollar value of an investment, is manager's inception on June 30, 1999,
index of funds reflects fund expenses constructed with each segment through October 31, 2006. During that
and management fees; performance of a representing a percent change in the period, and excluding applicable sales
market index does not. Performance shown value of the investment. In this chart, charges, the Fund's Class A shares'
in the chart and table(s) does not each segment represents a doubling, or average annual total return was 6.81%,
reflect deduction of taxes a shareholder 100% change, in the value of the while the index's average annual total
would pay on Fund distributions or sale investment. In other words, the space return was 3.56%.
of Fund shares. Performance of the between $5,000 and $10,000 is the same
indexes does not reflect the effects of size as the space between $10,000 and For the five years ended October 31,
taxes. $20,000. 2006, the Fund's Class A shares' average
annual total return at net asset value,
7.39%, was lower than the average annual
total return for the Lipper Large-Cap
Value Funds Index, 8.51%. For the one
year ended October 31, 2006, the Fund's
Class A shares underperformed the Fund's
peer group index. Class A shares,
excluding applicable sales charges,
returned 15.68% while the index returned
18.41%.
========================================
8
AIM Large Cap Basic Value Fund
======================================== ======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
sales charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares 2.42%
Inception (6/30/99) 5.99% CLASS A SHARES Class B Shares 2.11
5 Years 6.18 Inception (6/30/99) 5.63% Class C Shares 2.04
1 Year 9.29 5 Years 5.67 Class R Shares 2.24
1 Year 4.62 Investor Class Shares 2.48
CLASS B SHARES
Inception (8/1/00) 5.39% CLASS B SHARES ========================================
5 Years 6.36 Inception (8/1/00) 4.96%
1 Year 9.85 5 Years 5.82
1 Year 4.89
CLASS C SHARES
Inception (8/1/00) 5.38% CLASS C SHARES
5 Years 6.66 Inception (8/1/00) 4.96%
1 Year 13.78 5 Years 6.14
1 Year 8.89
CLASS R SHARES
Inception 6.61% CLASS R SHARES
5 Years 7.18 Inception 6.26%
1 Year 15.33 5 Years 6.66
1 Year 10.42
INVESTOR CLASS SHARES
Inception 6.84% INVESTOR CLASS SHARES
5 Years 7.43 Inception 6.47%
1 Year 15.65 5 Years 6.90
1 Year 10.71
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE CANNOT GUARANTEE COMPARABLE FUTURE BE IMPOSED ON A TOTAL REDEMPTION OF
3, 2002. RETURNS SINCE THAT DATE ARE RESULTS; CURRENT PERFORMANCE MAY BE RETIREMENT PLAN ASSETS WITHIN THE FIRST
HISTORICAL RETURNS. ALL OTHER RETURNS LOWER OR HIGHER. PLEASE VISIT YEAR. INVESTOR CLASS SHARES DO NOT HAVE
ARE BLENDED RETURNS OF HISTORICAL CLASS AIMINVESTMENTS.COM FOR THE MOST RECENT A FRONT-END SALES CHARGE OR A CDSC;
R SHARE PERFORMANCE AND RESTATED CLASS A MONTH-END PERFORMANCE. PERFORMANCE THEREFORE, PERFORMANCE IS AT NET ASSET
SHARE PERFORMANCE (FOR PERIODS PRIOR TO FIGURES REFLECT REINVESTED VALUE.
THE INCEPTION DATE OF CLASS R SHARES) AT DISTRIBUTIONS, CHANGES IN NET ASSET
NET ASSET VALUE, ADJUSTED TO REFLECT THE VALUE AND THE EFFECT OF THE MAXIMUM THE PERFORMANCE OF THE FUND'S SHARE
HIGHER RULE 12b-1 FEES APPLICABLE TO SALES CHARGE UNLESS OTHERWISE STATED. CLASSES WILL DIFFER PRIMARILY DUE TO
CLASS R SHARES. CLASS A SHARES' INVESTMENT RETURN AND PRINCIPAL VALUE DIFFERENT SALES CHARGE STRUCTURES AND
INCEPTION DATE IS JUNE 30, 1999. WILL FLUCTUATE SO THAT YOU MAY HAVE A CLASS EXPENSES.
GAIN OR LOSS WHEN YOU SELL SHARES.
INVESTOR CLASS SHARES' INCEPTION
DATE IS SEPTEMBER 30, 2003. RETURNS SINCE CLASS A SHARE PERFORMANCE REFLECTS
THAT DATE ARE HISTORICAL RETURNS. ALL THE MAXIMUM 5.50% SALES CHARGE, AND
OTHER RETURNS ARE BLENDED RETURNS OF CLASS B AND CLASS C SHARE PERFORMANCE
HISTORICAL INVESTOR CLASS SHARE REFLECTS THE APPLICABLE CONTINGENT
PERFORMANCE AND RESTATED CLASS A SHARE DEFERRED SALES CHARGE (CDSC) FOR THE
PERFORMANCE (FOR PERIODS PRIOR TO THE PERIOD INVOLVED. THE CDSC ON CLASS B
INCEPTION DATE OF INVESTOR CLASS SHARES) SHARES DECLINES FROM 5% BEGINNING AT THE
AT NET ASSET VALUE, WHICH RESTATED TIME OF PURCHASE TO 0% AT THE BEGINNING
PERFORMANCE WILL REFLECT THE HIGHER RULE OF THE SEVENTH YEAR. THE CDSC ON CLASS C
12b-1 FEES APPLICABLE TO CLASS A SHARES SHARES IS 1% FOR THE FIRST YEAR AFTER
FOR THE PERIOD USING BLENDED RETURNS. PURCHASE. CLASS R SHARES DO NOT HAVE A
CLASS A SHARES' INCEPTION DATE IS JUNE FRONT-END SALES CHARGE; RETURNS SHOWN
30, 1999. ARE AT NET ASSET VALUE AND DO NOT
REFLECT A 0.75% CDSC THAT MAY
THE PERFORMANCE DATA QUOTED
REPRESENT PAST PERFORMANCE AND
9
AIM Large Cap Basic Value Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Equity o The quality of services to be provided to continue to carry out their
Funds (the "Board") oversees the by AIM. The Board reviewed the responsibilities under the Advisory
management of AIM Large Cap Basic Value credentials and experience of the Agreement.
Fund (the "Fund") and, as required by officers and employees of AIM who will
law, determines annually whether to provide investment advisory services to o Overall performance of AIM. The Board
approve the continuance of the Fund's the Fund. In reviewing the considered the overall performance of
advisory agreement with A I M Advisors, qualifications of AIM to provide AIM in providing investment advisory and
Inc. ("AIM"). Based upon the investment advisory services, the Board portfolio administrative services to the
recommendation of the Investments considered such issues as AIM's Fund and concluded that such performance
Committee of the Board, at a meeting portfolio and product review process, was satisfactory.
held on June 27, 2006, the Board, various back office support functions
including all of the independent provided by AIM and AIM's equity and o Fees relative to those of clients of
trustees, approved the continuance of fixed income trading operations. Based AIM with comparable investment
the advisory agreement (the "Advisory on the review of these and other strategies. The Board reviewed the
Agreement") between the Fund and AIM for factors, the Board concluded that the effective advisory fee rate (before
another year, effective July 1, 2006. quality of services to be provided by waivers) for the Fund under the Advisory
AIM was appropriate and that AIM Agreement. The Board noted that this
The Board considered the factors currently is providing satisfactory rate was (i) below the effective
discussed below in evaluating the services in accordance with the terms of advisory fee rate (before waivers) for a
fairness and reasonableness of the the Advisory Agreement. mutual fund advised by AIM with
Advisory Agreement at the meeting on investment strategies comparable to
June 27, 2006 and as part of the Board's o The performance of the Fund relative those of the Fund and the same as the
ongoing oversight of the Fund. In their to comparable funds. The Board reviewed effective advisory fee rate (before
deliberations, the Board and the the performance of the Fund during the waivers) for a second mutual fund
independent trustees did not identify past one, three and five calendar years advised by AIM with investment
any particular factor that was against the performance of funds advised strategies comparable to those of the
controlling, and each trustee attributed by other advisors with investment Fund; (ii) below the effective advisory
different weights to the various strategies comparable to those of the fee rate (before waivers) for a variable
factors. Fund. The Board noted that the Fund's insurance fund advised by AIM and
performance in such periods was at or offered to insurance company separate
One responsibility of the above the median performance of such accounts with investment strategies
independent Senior Officer of the Fund comparable funds. Based on this review comparable to those of the Fund; (iii)
is to manage the process by which the and after taking account of all of the above the effective sub-advisory fee
Fund's proposed management fees are other factors that the Board considered rate for an offshore fund advised and
negotiated to ensure that they are in determining whether to continue the sub-advised by AIM affiliates with
negotiated in a manner which is at arms' Advisory Agreement for the Fund, the investment strategies comparable to
length and reasonable. To that end, the Board concluded that no changes should those of the Fund, although the total
Senior Officer must either supervise a be made to the Fund and that it was not advisory fees for such offshore fund
competitive bidding process or prepare necessary to change the Fund's portfolio were above those for the Fund; (iv)
an independent written evaluation. The management team at this time. Although above the effective sub-advisory fee
Senior Officer has recommended an the independent written evaluation of rate for a variable insurance fund
independent written evaluation in lieu the Fund's Senior Officer (discussed sub-advised by an AIM affiliate and
of a competitive bidding process and, below) only considered Fund performance offered to insurance company separate
upon the direction of the Board, has through the most recent calendar year, accounts with investment strategies
prepared such an independent written the Board also reviewed more recent Fund comparable to those of the Fund,
evaluation. Such written evaluation also performance, which did not change their although the total advisory fees for
considered certain of the factors conclusions. such variable insurance fund were above
discussed below. those for the Fund; and (v) below the
o The performance of the Fund relative total advisory fee rates for three
The discussion below serves as a to indices. The Board reviewed the separately managed accounts/wrap
summary of the Senior Officer's performance of the Fund during the past accounts managed by an AIM affiliate
independent written evaluation, as well one, three and five calendar years with investment strategies comparable to
as a discussion of the material factors against the performance of the Lipper those of the Fund and above the total
and the conclusions with respect thereto Large-Cap Value Index. The Board noted advisory fee rates for 39 separately
that formed the basis for the Board's that the Fund's performance was managed accounts/wrap accounts managed
approval of the Advisory Agreement. comparable to the performance of such by an AIM affiliate with investment
After consideration of all of the Index for the one and three year periods strategies comparable to those of the
factors below and based on its informed and above such Index for the five year Fund. The Board noted that AIM has
business judgment, the Board determined period. Based on this review and after agreed to limit the Fund's total
that the Advisory Agreement is in the taking account of all of the other operating expenses, as discussed below.
best interests of the Fund and its factors that the Board considered in Based on this review, the Board
shareholders and that the compensation determining whether to continue the concluded that the advisory fee rate for
to AIM under the Advisory Agreement is Advisory Agreement for the Fund, the the Fund under the Advisory Agreement
fair and reasonable and would have been Board concluded that no changes should was fair and reasonable.
obtained through arm's length be made to the Fund and that it was not
negotiations. necessary to change the Fund's portfolio o Fees relative to those of comparable
management team at this time. Although funds with other advisors. The Board
Unless otherwise stated, information the independent written evaluation of reviewed the advisory fee rate for the
presented below is as of June 27, 2006 the Fund's Senior Officer (discussed Fund under the Advisory Agreement. The
and does not reflect any changes that below) only considered Fund performance Board compared effective contractual
may have occurred since June 27, 2006, through the most recent calendar year, advisory fee rates at a common asset at
including but not limited to changes to the Board also reviewed more recent Fund the end of the past calendar year level
the Fund's performance, advisory fees, performance, which did not change their and noted that the Fund's rate was below
expense limitations and/or fee waivers. conclusions. the median rate of the funds advised by
other advisors with investment
o The nature and extent of the advisory o Meetings with the Fund's portfolio strategies comparable to those of the
services to be provided by AIM. The managers and investment personnel. With Fund that the Board reviewed. The Board
Board reviewed the services to be respect to the Fund, the Board is noted that AIM has agreed to limit the
provided by AIM under the Advisory meeting periodically with such Fund's Fund's total operating expenses, as
Agreement. Based on such review, the portfolio managers and/or other discussed below. Based on this review,
Board concluded that the range of investment personnel and believes that the Board concluded that the advisory
services to be provided by AIM under the such individuals are competent and able fee rate for the Fund under the Advisory
Advisory Agreement was appropriate and Agreement was fair and reasonable.
that AIM currently is providing services
in accordance with the terms of the (continued)
Advisory Agreement.
10
AIM Large Cap Basic Value Fund
o Expense limitations and fee waivers. o Independent written evaluation and employed by AIM and its affiliates to
The Board noted that AIM has recommendations of the Fund's Senior provide those services. Based on the
contractually agreed to waive fees Officer. The Board noted that, upon review of these and other factors, the
and/or limit expenses of the Fund their direction, the Senior Officer of Board concluded that AIM and its
through June 30, 2007 in an amount the Fund, who is independent of AIM and affiliates were qualified to continue to
necessary to limit total annual AIM's affiliates, had prepared an provide non-investment advisory services
operating expenses to a specified independent written evaluation in order to the Fund, including administrative,
percentage of average daily net assets to assist the Board in determining the transfer agency and distribution
for each class of the Fund. The Board reasonableness of the proposed services, and that AIM and its
considered the contractual nature of management fees of the AIM Funds, affiliates currently are providing
this fee waiver/expense limitation and including the Fund. The Board noted that satisfactory non-investment advisory
noted that it remains in effect through the Senior Officer's written evaluation services.
June 30, 2007. The Board considered the had been relied upon by the Board in
effect this fee waiver/expense this regard in lieu of a competitive o Other factors and current trends. The
limitation would have on the Fund's bidding process. In determining whether Board considered the steps that AIM and
estimated expenses and concluded that to continue the Advisory Agreement for its affiliates have taken over the last
the levels of fee waivers/expense the Fund, the Board considered the several years, and continue to take, in
limitations for the Fund were fair and Senior Officer's written evaluation. order to improve the quality and
reasonable. efficiency of the services they provide
o Profitability of AIM and its to the Funds in the areas of investment
o Breakpoints and economies of scale. affiliates. The Board reviewed performance, product line
The Board reviewed the structure of the information concerning the profitability diversification, distribution, fund
Fund's advisory fee under the Advisory of AIM's (and its affiliates') operations, shareholder services and
Agreement, noting that it includes two investment advisory and other activities compliance. The Board concluded that
breakpoints. The Board reviewed the and its financial condition. The Board these steps taken by AIM have improved,
level of the Fund's advisory fees, and considered the overall profitability of and are likely to continue to improve,
noted that such fees, as a percentage of AIM, as well as the profitability of AIM the quality and efficiency of the
the Fund's net assets, would decrease as in connection with managing the Fund. services AIM and its affiliates provide
net assets increase because the Advisory The Board noted that AIM's operations to the Fund in each of these areas, and
Agreement includes breakpoints. The remain profitable, although increased support the Board's approval of the
Board noted that, due to the Fund's expenses in recent years have reduced continuance of the Advisory Agreement
asset levels at the end of the past AIM's profitability. Based on the review for the Fund.
calendar year and the way in which the of the profitability of AIM's and its
advisory fee breakpoints have been affiliates' investment advisory and
structured, the Fund has yet to benefit other activities and its financial
from the breakpoints. The Board condition, the Board concluded that the
concluded that the Fund's fee levels compensation to be paid by the Fund to
under the Advisory Agreement therefore AIM under its Advisory Agreement was not
would reflect economies of scale at excessive.
higher asset levels and that it was not
necessary to change the advisory fee o Benefits of soft dollars to AIM. The
breakpoints in the Fund's advisory fee Board considered the benefits realized
schedule. by AIM as a result of brokerage
transactions executed through "soft
o Investments in affiliated money market dollar" arrangements. Under these
funds. The Board also took into account arrangements, brokerage commissions paid
the fact that uninvested cash and cash by the Fund and/or other funds advised
collateral from securities lending by AIM are used to pay for research and
arrangements, if any (collectively, execution services. This research may be
"cash balances") of the Fund may be used by AIM in making investment
invested in money market funds advised decisions for the Fund. The Board
by AIM pursuant to the terms of an SEC concluded that such arrangements were
exemptive order. The Board found that appropriate.
the Fund may realize certain benefits
upon investing cash balances in AIM o AIM's financial soundness in light of
advised money market funds, including a the Fund's needs. The Board considered
higher net return, increased liquidity, whether AIM is financially sound and has
increased diversification or decreased the resources necessary to perform its
transaction costs. The Board also found obligations under the Advisory
that the Fund will not receive reduced Agreement, and concluded that AIM has
services if it invests its cash balances the financial resources necessary to
in such money market funds. The Board fulfill its obligations under the
noted that, to the extent the Fund Advisory Agreement.
invests uninvested cash in affiliated
money market funds, AIM has voluntarily o Historical relationship between the
agreed to waive a portion of the Fund and AIM. In determining whether to
advisory fees it receives from the Fund continue the Advisory Agreement for the
attributable to such investment. The Fund, the Board also considered the
Board further determined that the prior relationship between AIM and the
proposed securities lending program and Fund, as well as the Board's knowledge
related procedures with respect to the of AIM's operations, and concluded that
lending Fund is in the best interests of it was beneficial to maintain the
the lending Fund and its respective current relationship, in part, because
shareholders. The Board therefore of such knowledge. The Board also
concluded that the investment of cash reviewed the general nature of the
collateral received in connection with non-investment advisory services
the securities lending program in the currently performed by AIM and its
money market funds according to the affiliates, such as administrative,
procedures is in the best interests of transfer agency and distribution
the lending Fund and its respective services, and the fees received by AIM
shareholders. and its affiliates for performing such
services. In addition to reviewing such
services, the trustees also considered
the organizational structure
11
Supplement to Annual Report dated 10/31/06
AIM Large Cap Basic Value Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/06 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been prepared to RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
provide Institutional Class shareholders with Inception 7.00% ALL RETURNS ASSUME REINVESTMENT OF
a performance overview specific to their 5 Years 7.67 DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
holdings. Institutional Class shares are 1 Year 16.28 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
offered exclusively to institutional 6 Months* 2.73 SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
investors, including defined contribution LESS THAN THEIR ORIGINAL COST. SEE FULL
plans that meet certain criteria. =================================== REPORT FOR INFORMATION ON COMPARATIVE
BENCHMARKS. PLEASE CONSULT YOUR FUND
AVERAGE ANNUAL TOTAL RETURNS PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
For periods ended 9/30/06,most CURRENT MONTH-END PERFORMANCE, PLEASE CALL
recent calendar quarter-end 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
Inception 6.64%
5 Years 7.14
1 Year 11.35
6 Months* 0.72
*Cumulative total return that has
not been annualized
===================================
INSTITUTIONAL CLASS SHARES'
INCEPTION DATE IS APRIL 30, 2004.
RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER
RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS
SHARE PERFORMANCE AND RESTATED
CLASS A SHARE PERFORMANCE (FOR
PERIODS PRIOR TO THE INCEPTION DATE
OF INSTITUTIONAL CLASS SHARES) AT
NET ASSET VALUE (NAV) AND REFLECT
THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS JUNE
30, 1999.
INSTITUTIONAL CLASS SHARES
HAVE NO SALES CHARGE; THEREFORE,
PERFORMANCE IS AT NAV. PERFORMANCE
OF INSTITUTIONAL CLASS SHARES WILL
DIFFER FROM PERFORMANCE OF OTHER
SHARE CLASSES PRIMARILY DUE TO
DIFFERING SALES CHARGES AND CLASS
EXPENSES.
==============================================
NASDAQ SYMBOL LCBIX
==============================================
Over for information on your Fund's expenses.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM LCBV-INS-1 A I M Distributors, Inc. --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example
As a shareholder of the Fund, you incur divide your account value by $1,000 The hypothetical account values and
ongoing costs, including management fees and (for example, an $8,600 account expenses may not be used to estimate the
other Fund expenses. This example is intended value divided by $1,000 = 8.6), actual ending account balance or expenses you
to help you understand your ongoing costs (in then multiply the result by the paid for the period. You may use this
dollars) of investing in the Fund and to number in the table under the information to compare the ongoing costs of
compare these costs with ongoing costs of heading entitled "Actual Expenses investing in the Fund and other funds. To do
investing in other mutual funds. The example Paid During Period" to estimate the so, compare this 5% hypothetical example with
is based on an investment of $1,000 invested expenses you paid on your account the 5% hypothetical examples that appear in
at the beginning of the period and held for during this period. the shareholder reports of the other funds.
the entire period May 1, 2006, through October
31, 2006. Hypothetical example for comparison Please note that the expenses shown in
purposes the table are meant to highlight your ongoing
Actual expenses costs only. Therefore, the hypothetical
The table below also provides information is useful in comparing ongoing
The table below provides information about information about hypothetical costs only, and will not help you determine
actual account values and actual expenses. You account values and hypothetical the relative total costs of owning different
may use the information in this table, expenses based on the Fund's actual funds.
together with the amount you invested, to expense ratio and an assumed rate
estimate the expenses that you paid over the of return of 5% per year before
period. Simply expenses, which is not the Fund's
actual return. The Fund's actual
cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
Institutional $1,000.00 $1,027.30 $3.68 $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, 2006, through October 31,
2006, 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, 2006, 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 A I M Distributors, Inc.
AIM Large Cap Basic Value Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.30
ADVERTISING-5.72%
Interpublic Group of Cos., Inc. (The)(a)(b) 852,703 $ 9,302,989
- -----------------------------------------------------------------------
Omnicom Group Inc. 103,024 10,451,785
=======================================================================
19,754,774
=======================================================================
AEROSPACE & DEFENSE-1.37%
Honeywell International Inc. 112,300 4,730,076
=======================================================================
APPAREL RETAIL-1.81%
Gap, Inc. (The) 296,700 6,236,634
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.93%
Bank of New York Co., Inc. (The) 193,600 6,654,032
=======================================================================
BREWERS-2.22%
Molson Coors Brewing Co.-Class B 107,797 7,672,990
=======================================================================
COMPUTER HARDWARE-2.88%
Dell Inc.(b) 409,535 9,963,987
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.86%
Deere & Co. 34,800 2,962,524
=======================================================================
CONSTRUCTION MATERIALS-2.89%
Cemex S.A. de C.V.-ADR (Mexico)(b) 324,336 9,970,089
=======================================================================
CONSUMER ELECTRONICS-1.97%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 98,326 3,424,694
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 82,313 3,373,187
=======================================================================
6,797,881
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.50%
Ceridian Corp.(b) 57,211 1,348,463
- -----------------------------------------------------------------------
First Data Corp. 337,780 8,191,165
- -----------------------------------------------------------------------
Western Union Co.(b) 271,700 5,990,985
=======================================================================
15,530,613
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.84%
Waste Management, Inc. 261,550 9,802,894
=======================================================================
FOOD RETAIL-2.47%
Kroger Co. (The) 136,578 3,071,639
- -----------------------------------------------------------------------
Safeway Inc. 185,800 5,455,088
=======================================================================
8,526,727
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
GENERAL MERCHANDISE STORES-3.15%
Target Corp. 183,932 $ 10,885,096
=======================================================================
HEALTH CARE DISTRIBUTORS-4.04%
Cardinal Health, Inc. 213,289 13,959,765
=======================================================================
HEALTH CARE EQUIPMENT-1.31%
Baxter International Inc. 98,800 4,541,836
=======================================================================
INDUSTRIAL CONGLOMERATES-6.54%
General Electric Co. 235,645 8,273,496
- -----------------------------------------------------------------------
Tyco International Ltd. 486,300 14,311,809
=======================================================================
22,585,305
=======================================================================
INDUSTRIAL MACHINERY-1.79%
Illinois Tool Works Inc. 129,030 6,184,408
=======================================================================
INSURANCE BROKERS-0.54%
Marsh & McLennan Cos., Inc. 63,600 1,872,384
=======================================================================
INVESTMENT BANKING & BROKERAGE-4.94%
Merrill Lynch & Co., Inc. 95,553 8,353,243
- -----------------------------------------------------------------------
Morgan Stanley 114,000 8,713,020
=======================================================================
17,066,263
=======================================================================
MANAGED HEALTH CARE-3.82%
UnitedHealth Group Inc. 270,728 13,206,112
=======================================================================
MOVIES & ENTERTAINMENT-2.41%
Walt Disney Co. (The) 264,968 8,335,893
=======================================================================
MULTI-LINE INSURANCE-1.83%
Hartford Financial Services Group, Inc. (The) 72,600 6,328,542
=======================================================================
OIL & GAS DRILLING-2.45%
Transocean Inc.(b) 116,677 8,463,750
- -----------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-4.80%
Halliburton Co. 234,800 7,595,780
- -----------------------------------------------------------------------
Schlumberger Ltd. 142,200 8,969,976
=======================================================================
16,565,756
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-7.07%
Citigroup Inc. 219,619 11,016,089
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 282,356 13,394,969
=======================================================================
24,411,058
=======================================================================
PACKAGED FOODS & MEATS-1.60%
Unilever N.V. (Netherlands)(c) 223,900 5,518,999
=======================================================================
</Table>
F-1
AIM Large Cap Basic Value Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
PHARMACEUTICALS-8.20%
Pfizer Inc. 316,799 $ 8,442,693
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(c) 112,452 9,551,248
- -----------------------------------------------------------------------
Wyeth 202,322 10,324,492
=======================================================================
28,318,433
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.32%
ACE Ltd. 139,800 8,003,550
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.76%
Realogy Corp.(b) 101,228 2,609,658
=======================================================================
SYSTEMS SOFTWARE-5.01%
CA Inc. 483,175 11,963,413
- -----------------------------------------------------------------------
Microsoft Corp. 185,725 5,332,165
=======================================================================
17,295,578
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.26%
Fannie Mae 189,932 11,255,370
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $245,000,077) 336,010,977
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-2.46%
Liquid Assets Portfolio-Institutional
Class(d) 4,247,102 $ 4,247,102
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 4,247,102 4,247,102
=======================================================================
Total Money Market Funds (Cost
$8,494,204) 8,494,204
=======================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.76% (Cost
$253,494,281) 344,505,181
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.04%
Liquid Assets Portfolio-Institutional
Class(d)(e) 7,064,265 7,064,265
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $7,064,265) 7,064,265
=======================================================================
TOTAL INVESTMENTS-101.80% (Cost $260,558,546) 351,569,446
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.80)% (6,221,907)
=======================================================================
NET ASSETS-100.00% $345,347,539
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security was out on loan at October 31, 2006.
(b) Non-income producing security.
(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, 2006 was $15,070,247,
which represented 4.36% 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 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
AIM Large Cap Basic Value Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost $245,000,077)* $336,010,977
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $15,558,469) 15,558,469
===========================================================
Total investments (cost $260,558,546) 351,569,446
===========================================================
Receivables for:
Investments sold 1,276,438
- -----------------------------------------------------------
Fund shares sold 359,193
- -----------------------------------------------------------
Dividends 226,304
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 66,724
- -----------------------------------------------------------
Other assets 46,647
===========================================================
Total assets 353,544,752
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 671,073
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 88,360
- -----------------------------------------------------------
Collateral upon return of securities loaned 7,064,265
- -----------------------------------------------------------
Fund expenses advanced 8,289
- -----------------------------------------------------------
Accrued distribution fees 111,454
- -----------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,602
- -----------------------------------------------------------
Accrued transfer agent fees 176,402
- -----------------------------------------------------------
Accrued operating expenses 75,768
===========================================================
Total liabilities 8,197,213
===========================================================
Net assets applicable to shares outstanding $345,347,539
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $237,283,124
- -----------------------------------------------------------
Undistributed net investment income 1,419,152
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and futures contracts 15,634,348
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 91,010,915
===========================================================
$345,347,539
___________________________________________________________
===========================================================
NET ASSETS:
Class A $126,700,388
___________________________________________________________
===========================================================
Class B $ 60,626,662
___________________________________________________________
===========================================================
Class C $ 27,153,348
___________________________________________________________
===========================================================
Class R $ 1,736,387
___________________________________________________________
===========================================================
Investor Class $ 44,452,164
___________________________________________________________
===========================================================
Institutional Class $ 84,678,590
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,101,108
___________________________________________________________
===========================================================
Class B 4,043,065
___________________________________________________________
===========================================================
Class C 1,810,966
___________________________________________________________
===========================================================
Class R 111,998
___________________________________________________________
===========================================================
Investor Class 2,837,219
___________________________________________________________
===========================================================
Institutional Class 5,353,056
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 15.64
- -----------------------------------------------------------
Offering price per share
(Net asset value of $15.64 divided by
94.50%) $ 16.55
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.00
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 14.99
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 15.50
___________________________________________________________
===========================================================
Investor Class:
Net asset value and offering price per
share $ 15.67
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 15.82
___________________________________________________________
===========================================================
</Table>
* At October 31, 2006, securities with an aggregate value of $6,974,763 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Large Cap Basic Value Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $92,990) $ 6,036,380
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $20,910) 432,150
- -------------------------------------------------------------------------
Interest 31,430
=========================================================================
Total investment income 6,499,960
=========================================================================
EXPENSES:
Advisory fees 2,402,690
- -------------------------------------------------------------------------
Administrative services fees 142,103
- -------------------------------------------------------------------------
Custodian fees 45,730
- -------------------------------------------------------------------------
Distribution fees:
Class A 325,607
- -------------------------------------------------------------------------
Class B 669,714
- -------------------------------------------------------------------------
Class C 268,591
- -------------------------------------------------------------------------
Class R 7,577
- -------------------------------------------------------------------------
Investor Class 153,427
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 880,048
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 8,957
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 23,431
- -------------------------------------------------------------------------
Other 295,489
=========================================================================
Total expenses 5,223,364
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (185,834)
=========================================================================
Net expenses 5,037,530
=========================================================================
Net investment income 1,462,430
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 30,028,353
- -------------------------------------------------------------------------
Foreign currencies 20,164
- -------------------------------------------------------------------------
Futures contracts (427,499)
=========================================================================
29,621,018
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 22,509,610
- -------------------------------------------------------------------------
Foreign currencies (1,694)
=========================================================================
22,507,916
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 52,128,934
=========================================================================
Net increase in net assets resulting from operations $53,591,364
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Large Cap Basic Value Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,462,430 $ 215,066
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 29,621,018 6,551,541
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 22,507,916 26,904,317
==========================================================================================
Net increase in net assets resulting from operations 53,591,364 33,670,924
==========================================================================================
Distributions to shareholders from net investment
income -- Institutional Class (190,287) --
==========================================================================================
Share transactions-net:
Class A (21,403,749) (34,461,008)
- ------------------------------------------------------------------------------------------
Class B (17,625,053) (23,033,557)
- ------------------------------------------------------------------------------------------
Class C (3,141,903) (6,865,487)
- ------------------------------------------------------------------------------------------
Class R 223,229 220,012
- ------------------------------------------------------------------------------------------
Investor Class (27,024,996) (14,239,429)
- ------------------------------------------------------------------------------------------
Institutional Class (20,483,726) 69,905,745
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (89,456,198) (8,473,724)
==========================================================================================
Net increase (decrease) in net assets (36,055,121) 25,197,200
==========================================================================================
NET ASSETS:
Beginning of year 381,402,660 356,205,460
==========================================================================================
End of year (including undistributed net investment income
of $1,419,152 and $126,845, respectively) $345,347,539 $381,402,660
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Equity
Funds (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
F-5
AIM Large Cap Basic Value Fund
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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 the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
F-6
AIM Large Cap Basic Value Fund
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included
in the Statement of Operations. The Fund could be exposed to risk, which
may be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
K. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
Initial margin deposits required upon entering into futures contracts are
satisfied by the segregation of specific securities as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "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. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities.
L. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.60%
- --------------------------------------------------------------------
Next $1 billion 0.575%
- --------------------------------------------------------------------
Over $2 billion 0.55%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Class A, Class B, Class C, Class R,
Investor Class and Institutional Class shares to 1.22%, 1.97%, 1.97%, 1.47%,
1.22% and 0.97% of average daily net assets, respectively, through at least June
30, 2007. In determining the advisor's obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into account, and could
cause the net annual operating expenses to exceed the numbers reflected above:
(i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items; (v) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, in addition to the expense reimbursement arrangement with 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. In addition, the Fund may also benefit from a
one time credit to be used to offset future custodian expenses. Those credits
are used to pay certain expenses incurred by the Fund.
F-7
AIM Large Cap Basic Value Fund
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended October 31, 2006, AIM waived advisory fees of $1,964 and
reimbursed $160,462 of class level expenses of Class A, Class B, Class C, Class
R and Investor Class shares in proportion to the net assets of each class. At
October 31, 2006 the advisor advanced to the Fund $8,289 for the payment of Fund
expenses.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,463.
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, 2006, AIM was paid $142,103.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the Trust's Board of Trustees. For
the year ended October 31, 2006, the Fund paid AIS $880,048 for Class A, Class
B, Class C, Class R and Investor Class shares and $8,957 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. Of the Rule 12b-1 payments,
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, 2006, the Class A, Class B, Class C, Class
R and Investor Class shares paid $325,607, $669,714, $268,591, $7,577 and
$153,427, 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, 2006, ADI advised the Fund that it retained $36,390 in
front-end sales commissions from the sale of Class A shares and $148, $34,432,
$1,679 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in affiliated money market funds. The Fund and the money
market funds below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,993,056 $ 48,144,540 $ (47,890,494) $ -- $4,247,102 $205,228 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 20,620,285 (16,373,183) -- 4,247,102 78,452 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,993,056 33,935,114 (37,928,170) -- -- 127,560 --
==================================================================================================================================
Subtotal $7,986,112 $102,699,939 $(102,191,847) $ -- $8,494,204 $411,240 $ --
==================================================================================================================================
</Table>
F-8
AIM Large Cap Basic Value Fund
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 59,862,605 $ (52,798,340) $ -- $ 7,064,265 $ 20,910 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $7,986,112 $162,562,544 $(154,990,187) $ -- $15,558,469 $432,150 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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, for the year ended October 31, 2006, the Fund
engaged in securities purchases of $6,083,475.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $20,945.
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, 2006, the Fund paid legal fees of $5,069
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
F-9
AIM Large Cap Basic Value Fund
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At October 31, 2006, securities with an aggregate value of $6,974,763 were
on loan to brokers. The loans were secured by cash collateral of $7,064,265
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2006, the Fund received dividends on cash
collateral investments of $20,910 for securities lending transactions, which are
net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------
Distributions paid from ordinary income $190,287 $ --
________________________________________________________________________________
================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
Undistributed ordinary income $ 1,484,388
- --------------------------------------------------------------------------
Undistributed long-term gain 17,373,248
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 89,272,016
- --------------------------------------------------------------------------
Temporary book/tax differences (65,237)
- --------------------------------------------------------------------------
Shares of beneficial interest 237,283,124
==========================================================================
Total net assets $345,347,539
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $16.
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 $12,106,274 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes.
The Fund does not have a capital loss carry forward as of October 31, 2006.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $99,480,512 and
$188,500,705, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $93,576,037
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,304,037)
===============================================================================
Net unrealized appreciation of investment securities $89,272,000
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $262,297,446.
</Table>
F-10
AIM Large Cap Basic Value Fund
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on October 31, 2006, undistributed net investment income was
increased by $20,164, and undistributed net realized gain was decreased by
$20,164. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A, Class
B, Class C, Class R, Investor Class and Institutional Class. Investor Class
shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge unless certain waiver
criteria are met. Class B shares and Class C shares are sold with CDSC. Class R
shares, Investor Class 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 on or about the month-end which is at least eight years after the date of
purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,003,429 $ 29,509,350 2,255,204 $ 30,096,888
- ----------------------------------------------------------------------------------------------------------------------
Class B 745,722 10,546,710 677,589 8,750,040
- ----------------------------------------------------------------------------------------------------------------------
Class C 253,602 3,604,955 389,525 5,035,443
- ----------------------------------------------------------------------------------------------------------------------
Class R 52,039 761,417 53,404 710,389
- ----------------------------------------------------------------------------------------------------------------------
Investor Class 573,538 8,402,610 653,244 8,732,324
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class 4,261,077 63,124,408 5,551,474 73,962,199
======================================================================================================================
Issued as reinvestment of dividends:
Institutional Class 13,123 190,287 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 364,628 5,397,746 395,891 5,284,334
- ----------------------------------------------------------------------------------------------------------------------
Class B (378,891) (5,397,746) (408,349) (5,284,334)
======================================================================================================================
Reacquired:
Class A (3,835,554) (56,310,845) (5,238,235) (69,842,230)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,608,380) (22,774,017) (2,049,123) (26,499,263)
- ----------------------------------------------------------------------------------------------------------------------
Class C (478,309) (6,746,858) (919,907) (11,900,930)
- ----------------------------------------------------------------------------------------------------------------------
Class R (37,230) (538,188) (36,750) (490,377)
- ----------------------------------------------------------------------------------------------------------------------
Investor Class (2,374,939) (35,427,606) (1,718,766) (22,971,753)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class (5,684,681) (83,798,421) (301,752) (4,056,454)
======================================================================================================================
(6,130,826) $(89,456,198) (696,551) $ (8,473,724)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 13% of
the outstanding shares of the Fund. 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, 22% 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.
F-11
AIM Large Cap Basic Value Fund
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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,
----------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.52 $ 12.36 $ 11.39 $ 9.20 $ 10.94
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.06 0.02 0.01 (0.00) 0.01
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.06 1.14 0.96 2.19 (1.75)
========================================================================================================================
Total from investment operations 2.12 1.16 0.97 2.19 (1.74)
========================================================================================================================
Net asset value, end of period $ 15.64 $ 13.52 $ 12.36 $ 11.39 $ 9.20
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 15.68% 9.38% 8.52% 23.80% (15.90)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $126,700 $129,410 $150,190 $121,980 $94,387
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(c) 1.35% 1.33% 1.42% 1.38%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28%(c) 1.37% 1.35% 1.42% 1.38%
========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.40%(c) 0.15% 0.11% (0.01)% 0.11%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 26% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $130,242,872.
<Table>
<Caption>
CLASS B
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.06 $ 12.02 $ 11.15 $ 9.07 $ 10.86
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.05) (0.07) (0.07) (0.07) (0.06)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.99 1.11 0.94 2.15 (1.73)
====================================================================================================================
Total from investment operations 1.94 1.04 0.87 2.08 (1.79)
====================================================================================================================
Net asset value, end of period $ 15.00 $ 13.06 $ 12.02 $ 11.15 $ 9.07
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 14.86% 8.65% 7.80% 22.93% (16.48)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $60,627 $69,040 $84,896 $80,018 $63,977
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 2.03% 1.98% 2.07% 2.02%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(c) 2.05% 2.00% 2.07% 2.02%
====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(c) (0.53)% (0.54)% (0.66)% (0.53)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 26% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $66,971,409.
F-12
AIM Large Cap Basic Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.06 $ 12.02 $ 11.15 $ 9.07 $ 10.85
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) (0.05) (0.07) (0.07) (0.07) (0.06)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.98 1.11 0.94 2.15 (1.72)
====================================================================================================================
Total from investment operations 1.93 1.04 0.87 2.08 (1.78)
====================================================================================================================
Net asset value, end of period $ 14.99 $ 13.06 $ 12.02 $ 11.15 $ 9.07
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 14.78% 8.65% 7.80% 22.93% (16.41)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,153 $26,593 $30,835 $26,566 $21,775
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.97%(c) 2.03% 1.98% 2.07% 2.02%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(c) 2.05% 2.00% 2.07% 2.02%
====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.35)%(c) (0.53)% (0.54)% (0.66)% (0.53)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 26% 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. Does not include sales charges.
(c) Ratios are based on average daily net assets of $26,859,072.
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.44 $12.31 $11.36 $ 9.20 $ 11.60
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) 0.02 (0.00) (0.01) (0.02) (0.00)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.04 1.13 0.96 2.18 (2.40)
======================================================================================================================
Total from investment operations 2.06 1.13 0.95 2.16 (2.40)
======================================================================================================================
Net asset value, end of period $15.50 $13.44 $12.31 $11.36 $ 9.20
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 15.33% 9.18% 8.36% 23.48% (20.69)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,736 $1,306 $ 991 $ 588 $ 8
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(c) 1.53% 1.48% 1.57% 1.54%(d)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%(c) 1.55% 1.50% 1.57% 1.54%(d)
======================================================================================================================
Ratio of net investment income (loss) to average net assets 0.15%(c) (0.03)% (0.04)% (0.16)% (0.05)%(d)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(e) 26% 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 $1,515,472.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-13
AIM Large Cap Basic Value Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
-------------------------------------------------
SEPTEMBER 30,
2003
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
-------------------------------- OCTOBER 31,
2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.55 $ 12.37 $ 11.39 $10.98
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.06 0.03 0.03 0.00
- ---------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.06 1.15 0.95 0.41
===============================================================================================================
Total from investment operations 2.12 1.18 0.98 0.41
===============================================================================================================
Net asset value, end of period $ 15.67 $ 13.55 $ 12.37 $11.39
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 15.65% 9.54% 8.60% 3.73%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $44,452 $62,838 $70,548 $ 178
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(c) 1.28% 1.24% 1.25%(d)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28%(c) 1.30% 1.25% 1.25%(d)
===============================================================================================================
Ratio of net investment income to average net assets 0.40%(c) 0.22% 0.20% 0.16%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 26% 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 $61,370,806.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2006 2005 2004
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.63 $ 12.38 $ 12.62
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.13 0.10 0.04
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.09 1.15 (0.28)
=====================================================================================================
Total from investment operations 2.22 1.25 $ (0.24)
=====================================================================================================
Less dividends from net investment income (0.03) -- --
=====================================================================================================
Net asset value, end of period $ 15.82 $ 13.63 $ 12.38
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 16.28% 10.10% (1.90)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $84,679 $92,214 $18,745
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.73%(c) 0.76% 0.80%(d)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.73%(c) 0.77% 0.81%(d)
=====================================================================================================
Ratio of net investment income to average net assets 0.89%(c) 0.74% 0.64%(d)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(e) 26% 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 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 $113,488,701.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM Large Cap Basic Value Fund
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs and an
"administrative assessment," to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
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; and
- 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 (all the claims in
this category of lawsuits were dismissed with prejudice by the court on
September 29, 2006, except for the Section 36(b) claim which was dismissed
with leave to amend to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
F-15
AIM Large Cap Basic Value Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-16
AIM Large Cap Basic Value Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Large Cap Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Large Cap Basic Value Fund (one
of the funds constituting AIM Equity Funds, hereafter referred to as the "Fund")
at October 31, 2006, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for each of the two
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before October 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated December 15, 2004, expressed an unqualified opinion on those financial
highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-17
AIM Large Cap Basic Value Fund
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2006, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2006 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 in your Form 1099-DIV. You should consult your tax advisor
regarding treatment of the amounts.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDER
For its tax year ended October 31, 2006, the Fund designates 0%, or the maximum
amount allowable, of its dividend distributions as qualified interest income
exempt from U.S. income tax for non-resident alien shareholders. Your actual
amount of qualified interest income for the calendar year will be reported in
your Form 1042-S mailing. You should consult your tax advisor regarding
treatment of the amounts.
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 12.50%, 12.29%, 10.62% and 11.65%, respectively.
F-18
AIM Large Cap Basic Value Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-19
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Large Cap Basic Value Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
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--Registered Trademark--
DOMESTIC EQUITY AIM Large Cap
Growth Fund
Large-Cap Growth
Annual Report to Shareholders o October 31, 2006
Table of Contents
Supplemental Information ............. 2
Letters to Shareholders .............. 3
Performance Summary .................. 5
Management Discussion ................ 5
Fund Expenses ........................ 7
Long-term Fund Performance ........... 8
Approval of Advisory Agreement ....... 10
Schedule of Investments .............. F-1
Financial Statements ................. F-3
Notes to Financial Statements ........ F-6
Financial Highlights ................. F-13
Auditor's Report ..................... F-19
Tax Disclosures ...................... F-20 [COVER GLOBE IMAGE]
Trustees and Officers ................ F-21
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
AIM Large Cap Growth Fund
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, 2006, and is based on total net assets.
ABOUT SHARE CLASSES of common stocks frequently used as a returns based on those net asset values
general measure of U.S. stock market may differ from the net asset values
o Effective September 30, 2003, Class B performance. and returns reported in the Financial
shares are not available as an Highlights.
investment for retirement plans o The unmanaged RUSSELL 1000
maintained pursuant to Section 401 of --Registered Trademark-- GROWTH INDEX is
the Internal Revenue Code, including a subset of the unmanaged Russell 1000 The Fund provides a complete list of
401(k) plans, money purchase pension Index, which represents the performance its holdings four times in each fiscal
plans and profit sharing plans. Plans of the stocks of large-capitalization year, at the quarter-ends. For the
that have existing accounts invested in companies; the Growth subset measures second and fourth quarters, the lists
Class B shares will continue to be the performance of Russell 1000 appear in the Fund's semiannual and
allowed to make additional purchases. companies with higher price/book ratios annual reports to shareholders. For the
and higher forecasted growth values. first and third quarters, the Fund
o Class R shares are available only to The unmanaged files the lists with the Securities and
certain retirement plans. Please see Exchange Commission (SEC) on Form N-Q.
the prospectus for more information. o The unmanaged LIPPER LARGE-CAP GROWTH The most recent list of portfolio
FUNDS INDEX represents an average of holdings is available at
o Investor Class shares are closed to the performance of the 30 largest AIMinvestments.com. From our home page,
most investors. For more information on large-capitalization growth funds click on Products & Performance, then
who may continue to invest in the tracked by Lipper Inc., an independent Mutual Funds, then Fund Overview.
Investor Class shares, please see the mutual fund performance monitor. Select your Fund from the drop-down
prospectus. menu and click on Complete Quarterly
o The Fund is not managed to track the Holdings. Shareholders can also look up
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of any particular index, the Fund's Forms N-Q on the SEC Web
including the indexes defined here, and site at sec.gov. Copies of the Fund's
o Foreign securities have additional consequently, the performance of the Forms N-Q may be reviewed and copied at
risks, including exchange rate changes, Fund may deviate significantly from the the SEC Public Reference Room in
political and economic upheaval, the performance of the indexes. Washington, D.C. You can obtain
relative lack of information about these information on the operation of the
companies, relatively low market o A direct investment cannot be made in Public Reference Room, including
liquidity and the potential lack of an index. Unless otherwise indicated, information about duplicating fee
strict financial and accounting controls index results include reinvested charges, by calling 202-942-8090 or
and standards. dividends, and they do not reflect 800-732-0330, or by electronic request
sales charges. Performance of an index at the following e-mail address:
o Prices of equity securities change in of funds reflects fund expenses; publicinfo@sec.gov. The SEC file
response to many factors including the performance of a market index does not. numbers for the Fund are 811-01424 and
historical and prospective earnings of 002-25469.
the issuer, the value of its assets, OTHER INFORMATION
general economic conditions, interest A description of the policies and
rates, investor perceptions and market o Industry classifications used in this procedures that the Fund uses to
liquidity. report are generally according to the determine how to vote proxies relating
Global Industry Classification to portfolio securities is available
o Although the Fund's return during Standard, which was developed by and is without charge, upon request, from our
certain periods was positively impacted the exclusive property and a service Client Services department at
by its investments in initial public mark of Morgan Stanley Capital 800-959-4246 or on the AIM Web site,
offerings (IPOs), there can be no International Inc. and Standard & AIMinvestments.com. On the home page,
assurance that the Fund will have Poor's. scroll down and click on AIM Funds
favorable IPO investment opportunities Proxy Policy. The information is also
in the future. o The returns shown in management's available on the SEC Web site, sec.gov.
discussion of Fund performance are
ABOUT INDEXES USED IN THIS REPORT based on net asset values calculated Information regarding how the Fund
for shareholder transactions. Generally voted proxies related to its portfolio
o The unmanaged STANDARD & POOR'S accepted accounting principles require securities during the 12 months ended
COMPOSITE INDEX OF 500 STOCKS (the S&P adjustments to be made to the net June 30, 2006, is available at our Web
500--Registered Trademark-- Index) is an assets of the Fund at period end for site. Go to AIMinvestments.com, access
index financial reporting purposes, and as the About Us tab, click on Required
such, the net asset values for Notices and then click on Proxy Voting
shareholder transactions and the Activity. Next, select the Fund from
the drop-down menu. The information is
also available on the SEC 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 FUND NASDAQ SYMBOLS
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=================================================================================== Class A Shares LCGAX
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Class B Shares LCGBX
Class C Shares LCGCX
AIMinvestments.com Class R Shares LCRGX
Investor Class Shares LCGIX
=========================================
2
AIM Large Cap Growth Fund
Dear Shareholders of The AIM Family of Funds
--Registered Trademark--:
We're pleased to provide you with this report, which
includes a discussion of how your Fund was managed during
the review period ended October 31, 2006, and what factors
affected its performance.
As we approach the end of 2006, it seems likely that many
[TAYLOR investors may see the value of their investments increase
PHOTO] this year. Global equity markets, collectively, recorded
double-digit gains for the year ended October 31, 2006, as
did the U.S. stock market. Also, the investment grade bond
market in the United States rose for the same period.
While stock and bond markets generally enjoyed positive
year-to-date returns, their performance was affected by
short-term economic and geopolitical events. For example,
the U.S. stock market was weak in the second quarter of 2006
when it appeared that inflation might be rising. Only after
the U.S. Federal Reserve Board decided in August that
Philip Taylor inflation was contained and that short-term interest rates
need not be increased--the first time it kept rates
unchanged in more than two years--did equities truly surge.
Short-term market fluctuations are a fact of life for all
investors. At AIM Investments--Registered Trademark--, we
believe that investors can do two things to deal with
short-term market fluctuations: maintain a long-term
investment horizon and maintain a diversified portfolio. AIM
Investments can help by offering a broad product line that
gives your financial advisor the necessary tools to build a
portfolio that's right for you regardless of market
conditions. AIM Investments offers a comprehensive range of
retail mutual funds, including domestic, global and
international equity funds, taxable and tax-exempt
fixed-income funds, and a variety of allocation
portfolios--with varied risk and return characteristics to
match your needs. We maintain this extensive set of product
solutions for one reason: We believe in the value of
comprehensive, diversified investment portfolios.
We've changed the look of our annual reports to reflect
that belief. In our marketing and now our shareholder
literature, we represent a fully diversified portfolio
graphically as an allocation pie chart and assign each asset
class a color--green for domestic equity, blue for
international, orange for sector and purple for fixed
income. A legend in the left column illustrates the
methodology. Your report cover now shows your Fund's asset
class color, plus the asset class and sub-asset class name
are shown in the upper-left corner. The reason for these
changes is to help you better understand where your Fund
fits into your overall portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex. That's
why we also believe in the value of a trusted financial
advisor who will work with you to create an investment plan
you can stick with for the long term. Your financial advisor
can help allocate your portfolio appropriately and review
your investments regularly to help ensure they remain
suitable as your financial situation changes. While there
are no guarantees with any investment program, a long-term
plan that's based on your financial goals, risk tolerance
and time horizon is more likely to keep you and your
investments on track.
OUR COMMITMENT TO YOU
In the short term, the one sure thing about markets is their
unpredictability. While past performance cannot guarantee
comparable future results, we believe that staying invested
for the long term with a thoughtful plan offers the best
opportunity for weathering that unpredictability. We at AIM
Investments remain committed to building enduring solutions
to help you achieve your investment goals, and we're pleased
you've placed your trust in us.
Information about investing, the markets and your Fund is
always available on our Web site, AIMinvestments.com.
If you have questions about your individual account, we
invite you to contact one of our highly trained client
services representatives at 800-959-4246.
Sincerely,
/s/ PHILIP TAYLOR
Philip Taylor
President -- AIM Funds
CEO, AIM Investments
December 14, 2006
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
3
AIM Large Cap Growth Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed its
comprehensive review* of each fund's advisory agreement with
A I M Advisors, Inc. (AIM) to make certain your interests
are being served in terms of fees, performance and
operations.
[CROCKETT Looking ahead, your Board finds many reasons to be
PHOTO] positive about AIM's management and strategic direction.
Most importantly, AIM's investment management discipline has
paid off in terms of improved overall performance. We are
also pleased with AIM's efforts to seek more cost-effective
ways of delivering superior service.
In addition, AIM is realizing the benefits of belonging
to a leading independent global investment management
Bruce L. Crockett organization in its parent company, AMVESCAP PLC, which is
dedicated to helping people worldwide build their financial
security. AMVESCAP managed approximately $450 billion
globally as of October 31, 2006, operating under the AIM,
INVESCO, AIM Trimark, INVESCO PERPETUAL and Atlantic Trust
brands. These companies are home to an abundance of
investment talent that is gradually being integrated and
leveraged into centers of excellence, each focusing on a
given market segment or asset class. Over the next few
years, your Board will be meeting at these various centers
of excellence to learn about their progress and how they may
serve you through our goal of enhancing performance and
reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond funds--are
an early example of the kind of opportunities the AMVESCAP
organization can provide AIM clients. More information on
these funds can be found on AIM's Web site.
Your Board is very pleased with the overall direction
and progress of the AIM Funds. We're working closely and
effectively with AIM's management to continue this momentum.
As always, your Board is eager to hear your views on how we
might better serve you. Please send your comments in a
letter addressed to me at AIM Investments, AIM Investments
Tower, 11 Greenway Plaza, Suite 100, Houston TX 77046.
Sincerely,
/s/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
*To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the
"Products & Performance" tab at the AIM Web site
(AIMinvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of advisory agreement
information for your Fund is also included in this annual
report on pages 10-11.
4
AIM Large Cap Growth Fund
MANAGEMENT'S DISCUSSION earnings growth; focus on companies
OF FUND PERFORMANCE with management teams that profitably
reinvest shareholder cash flow
=================================================================================
o Valuation--focus on companies that
PERFORMANCE SUMMARY are attractively valued given their
growth potential
For the fiscal year ended October 31, 2006, Class A shares of AIM Large
Cap Growth Fund, excluding applicable sales charges, had double-digit returns o Risk assessment--avoid "high risk"
and performed in line with the Fund's style-specific index, the Russell 1000 companies as defined below
Growth Index. Much of this strong performance was driven by solid stock
selection in the information technology (IT), industrials and financials o Price momentum--focus on companies
sectors. with an upward trend in stock price
The Fund underperformed the broad market as represented by the S&P 500 Index Our fundamental analysis seeks to
largely due to the large weighting in value stocks in the index, as well as weak determine the company's drivers of
performance and an overweight position in the health care sector. earnings. To accomplish this goal, we
examine financial statements and
Your Fund's long-term performance appears on pages 8 and 9. analyze trends, growth rates and the
competitive landscape. We often meet
FUND VS. INDEXES with company management to evaluate
proprietary products and the quality of
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales management. We believe stocks that pass
charges were included, returns would be lower. our quantitative and fundamental
screens are more likely to outperform.
Class A Shares 10.57%
Class B Shares 9.70 We construct the portfolio using a
Class C Shares 9.70 bottom-up strategy, focusing on stocks
Class R Shares 10.23 rather than industries or sectors.
Investor Class Shares 10.51 While there are no formal sector
S&P 500 Index (Broad Market) 16.33 guidelines or constraints, internal
Russell 1000 Growth Index (Style-Specific Index) 10.84 controls and proprietary software help
Lipper Large-Cap Growth Funds Index (Peer Group Index) 6.23 us monitor risk levels and sector
concentration.
SOURCE: LIPPER INC.
Our sell process is designed to
================================================================================= avoid "high risk" situations we believe
lead to underperformance. Examples of
HOW WE INVEST Our quantitative model ranks "high risk" situations include:
companies based on factors we have
We believe a growth investment strategy found to be highly correlated with o Deteriorating business prospects
is an essential component of a outperformance in the large-cap growth
diversified portfolio. universe, including: o Extended valuation
Our investment process combines o Earnings--focus on companies o Slowing earnings growth
quantitative and fundamental analysis exhibiting strong growth in earnings,
to uncover companies exhibiting revenue and cash flows o Weakened balance sheet
long-term, sustainable earnings and
cash flow growth that is not yet o Quality--focus on companies with
reflected in investor expectations or sustainable (continued)
equity valuations.
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Aerospace & Defense 9.3% 1. Hewlett-Packard Co. 3.5%
2. Investment Banking & Brokerage 8.0 2. Goldman Sachs Group, Inc. (The) 3.5
[PIE CHART] 3. Communications Equipment 6.3 3. Cisco Systems, Inc. 3.2
4. Pharmaceuticals 5.3 4. Lockheed Martin Corp. 2.9
Consumer Discretionary 10.9% 5. Department Stores 5.2 5. America Movil S.A. de C.V.
Consumer Staples 5.7% -Series L ADR (Mexico) 2.7
Materials 4.1% Total Net Assets $2.29 billion 6. Lehman Brothers Holdings Inc. 2.2
Telecommunication Services 3.8% 7. News Corp.-Class A 2.1
Energy 2.6% Total Number of Holdings* 68 8. Motorola, Inc. 2.0
Money Market Funds Plus Other 9. AstraZeneca PLC-ADR
Assets Less Liabilities 1.3% (United Kingdom) 2.0
Information Technology 20.5% 10. Microsoft Corp. 2.0
Health Care 18.4%
Financials 16.8%
Industrials 15.9%
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.
========================================== ========================================== ==========================================
5
AIM Large Cap Growth Fund
MARKET CONDITIONS AND YOUR FUND particularly well included LOCKHEED IN CLOSING
MARTIN and BOEING. In the electrical
Domestic equities posted solid returns equipment area, ABB LTD was one of the We remain committed to our investment
during the fiscal year, leaving several Fund's top contributors during the process of focusing on the attractively
major market indexes near multi-year fiscal year. priced stocks of large-cap companies
highs. Positive economic growth, with sustainable cash flow and earnings
favorable corporate earnings results and In the financials sector, investment growth. Thank you for your commitment to
continued benign inflation supported banking and brokerage stocks generally AIM Large Cap Growth Fund.
equities despite high energy prices and continued to perform well. Our
the U.S. Federal Reserve Board's (the investment process led us to an THE VIEWS AND OPINIONS EXPRESSED IN
Fed) tightening campaign. overweight position in this area; MANAGEMENT'S DISCUSSION OF FUND
several of the Fund's holdings PERFORMANCE ARE THOSE OF A I M ADVISORS,
Although mixed signals from the Fed contributed to performance, including INC. THESE VIEWS AND OPINIONS ARE
created some market volatility in May GOLDMAN SACHS, LEHMAN BROTHERS, BEAR SUBJECT TO CHANGE AT ANY TIME BASED ON
and June, the market began to rally when STEARNS and MORGAN STANLEY. Favorable FACTORS SUCH AS MARKET AND ECONOMIC
the Fed left interest rates unchanged at capital markets and solid merger and CONDITIONS. THESE VIEWS AND OPINIONS MAY
several meetings in August and acquisition activity continued to drive NOT BE RELIED UPON AS INVESTMENT ADVICE
September. In addition, the price of these stocks during the fiscal year. OR RECOMMENDATIONS, OR AS AN OFFER FOR A
crude oil declined nearly 15% from PARTICULAR SECURITY. THE INFORMATION IS
record highs reached earlier in the The Fund underperformed versus the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
YEAR. Prices of other commodities also Russell 1000 Growth Index by the widest OF ANY MARKET, COUNTRY, INDUSTRY,
fell, fostering optimism that a hard margin in the health care sector. The SECURITY OR THE FUND. STATEMENTS OF FACT
landing for the U.S. economy could be Fund's underperformance in this sector ARE FROM SOURCES CONSIDERED RELIABLE,
avoided. While small-and mid-cap stocks was driven primarily by several health BUT A I M ADVISORS, INC. MAKES NO
continued to lead the market higher, care providers and services REPRESENTATION OR WARRANTY AS TO THEIR
large-cap stocks also performed well. holdings--AETNA, UNITEDHEALTH GROUP and COMPLETENESS OR ACCURACY. ALTHOUGH
Additionally, value stocks outperformed CIGNA. In addition, eyecare holding HISTORICAL PERFORMANCE IS NO GUARANTEE
growth stocks. Positive performance was ALCON was also a significant detractor. OF FUTURE RESULTS, THESE INSIGHTS MAY
broad among S&P 500 sectors with the While we sold Aetna, Cigna and Alcon due HELP YOU UNDERSTAND OUR INVESTMENT
best returns found in the to less upside in earnings estimates, we MANAGEMENT PHILOSOPHY.
telecommunication services, materials, continued to own UnitedHealthcare at the
energy and financials sectors. close of the fiscal year. An overweight
position in the sector hurt performance See important Fund and index
The Fund enjoyed strong absolute and as investors appeared to rotate out of disclosures on the inside front cover.
relative performance during the fiscal last year's strong performers in the
year, led by solid stock selection in health care sector to invest in other
the IT, industrials and financials opportunities. Geoffrey V. Keeling
sectors. Positive performance was Chartered Financial Analyst,
broad-based as significant detractors to The Fund also underperformed in the [KEELING senior portfolio manager, is
performance were concentrated in the energy sector due to both stock PHOTO] co-manager of AIM Large Cap
health care sector. selection and an over-weight position. Growth Fund. He joined AIM
The Fund's overweight position detracted in 1995. Mr. Keeling earned a B.B.A in
The Fund's outperformance in the IT from relative performance as many energy finance from The University of Texas at
sector was driven largely by strong stocks were negatively affected by the Austin.
stock selection in several areas, falling price of crude oil late in the
including semiconductors and computers reporting period. One of the key
and peripherals. Semiconductor detractors was CONOCOPHILIPS, a holding Robert L. Shoss
manufacturer FREESCALE was a key that we subsequently sold due to less Senior portfolio manager,
contributor to Fund performance as its upside in earnings estimates. [SHOSS is co-manager of AIM Large
stock price appreciated dramatically PHOTO] Cap Growth Fund. He joined
following the announcement that a Our investment process led us to AIM in 1995. Mr. Shoss earned
consortium of private equity firms was reduce exposure to the health care, energy a B.A. from The University of Texas at
acquiring the company. The stock was and IT sectors due to less upside in Austin and an M.B.A. and a J.D. from the
sold by the end of the reporting period. earnings estimates. Proceeds from these University of Houston.
Computer maker HEWLETT-PACKARD also sales were primarily invested in what we
performed well during the reporting believed were a number of attractive Assisted by the Large/Multi-Cap Growth
period. opportunities in the industrials, Team
financials, materials and consumer
The industrials sector benefited from discretionary sectors. All changes to
a broad-based rally during the first the Fund were based on our bottom-up
quarter of 2006, and the Fund stock selection process of identifying
outperformed the benchmark Russell 1000 high quality growth companies trading at
Growth in this sector due to strong what we believe are attractive
stock selection. Specific areas of valuations.
strength for the Fund included aerospace FOR A PRESENTATION OF YOUR FUND'S
and defense and electrical equipment. LONG-TERM PERFORMANCE, PLEASE SEE PAGES
Examples of aerospace and defense 8 AND 9.
holdings that performed
6
AIM Large Cap Growth Fund
CALCULATING YOUR ONGOING FUND EXPENSES
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 or in the table under the heading entitled ONGOING COSTS OF INVESTING IN THE FUND
contingent deferred sales charges on "Actual Expenses Paid During Period" to AND OTHER FUNDS. TO DO SO, COMPARE THIS
redemptions, and redemption fees, if estimate the expenses you paid on your 5% HYPOTHETICAL EXAMPLE WITH THE 5%
any; and (2) ongoing costs, including account during this period. HYPOTHETICAL EXAMPLES THAT APPEAR IN THE
management fees; distribution and/or SHAREHOLDER REPORTS OF THE OTHER FUNDS.
service (12b-1) fees; and other Fund HYPOTHETICAL EXAMPLE FOR
expenses. This example is intended to COMPARISON PURPOSES Please note that the expenses shown
help you understand your ongoing costs in the table are meant to highlight your
(in dollars) of investing in the Fund The table below also provides ongoing costs only and do not reflect
and to compare these costs with ongoing information about hypothetical account any transaction costs, such as sales
costs of investing in other mutual values and hypothetical expenses based charges (loads) on purchase payments,
funds. The example is based on an on the Fund's actual expense ratio and contingent deferred sales charges on
investment of $1,000 invested at the an assumed rate of return of 5% per year redemptions, and redemption fees, if
beginning of the period and held for the before expenses, which is not the Fund's any. Therefore, the hypothetical
entire period May 1, 2006, through actual return. The Fund's actual information is useful in comparing
October 31, 2006. cumulative total returns at net asset ongoing costs only, and will not help
value after expenses for the six months you determine the relative total costs
ACTUAL EXPENSES ended October 31, 2006, appear in the of owning different funds. In addition,
table "Cumulative Total Returns" on page if these transaction costs were
The table below provides information 9. included, your costs would have been
about actual account values and actual higher.
expenses. You may use the information in
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $999.10 $6.70 $1,018.50 $6.77 1.33%
B 1,000.00 996.30 10.47 1,014.72 10.56 2.08
C 1,000.00 995.30 10.46 1,014.72 10.56 2.08
R 1,000.00 998.20 7.96 1,017.24 8.03 1.58
Investor 1,000.00 999.10 6.30 1,018.90 6.36 1.25
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
===================================================================================================================================
7
AIM Large Cap Growth Fund
YOUR FUND'S LONG-TERM PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
Index data from 2/28/99, fund data from 3/1/99
====================================================================================================================================
[MOUNTAIN CHART]
DATE AIM LARGE CAP GROWTH FUND S&P 500 RUSSELL 1000 GROWTH LIPPER LARGE-CAP GROWTH
-CLASS A SHARES INDEX INDEX FUNDS INDEX
2/28/99 $10000 $10000 $10000
3/99 $10116 10400 10527 10568
4/99 9935 10803 10540 10605
5/99 9621 10548 10216 10253
6/99 10354 11132 10932 10966
7/99 10098 10786 10584 10622
8/99 10117 10732 10757 10624
9/99 10098 10438 10531 10516
10/99 10745 11099 11327 11323
11/99 11458 11324 11938 11882
12/99 13180 11990 13179 13202
1/00 13313 11388 12561 12672
2/00 16092 11173 13175 13338
3/00 16692 12265 14119 14274
4/00 15808 11896 13447 13170
5/00 14818 11652 12770 12412
6/00 16778 11939 13737 13233
7/00 16911 11753 13165 12965
8/00 19529 12482 14357 14086
9/00 18578 11823 12999 13012
10/00 16883 11773 12384 12324
11/00 13809 10846 10558 10670
12/00 14303 10899 10224 10604
1/01 13770 11285 10930 10912
2/01 10762 10257 9075 9223
3/01 9402 9608 8087 8265
4/01 10497 10354 9110 9152
5/01 10258 10423 8976 9083
6/01 9954 10170 8768 8821
7/01 9582 10069 8549 8505
8/01 8812 9440 7850 7858
9/01 7936 8677 7066 7068
10/01 8393 8843 7437 7361
11/01 9049 9521 8151 8036
12/01 9135 9605 8136 8073
1/02 9021 9465 7992 7890
2/02 8517 9282 7661 7564
3/02 8984 9631 7926 7868
4/02 8365 9047 7279 7344
5/02 8184 8981 7103 7210
6/02 7670 8341 6446 6623
7/02 7147 7691 6091 6125
8/02 7156 7742 6109 6159
9/02 6671 6901 5476 5562
10/02 7014 7508 5978 5990
11/02 7062 7949 6303 6238
12/02 6719 7483 5867 5803
1/03 6586 7287 5725 5670
2/03 6624 7178 5699 5609
3/03 6767 7247 5805 5714
4/03 7129 7844 6234 6132
5/03 7529 8257 6545 6433
6/03 7586 8362 6635 6486
7/03 7748 8510 6800 6674
8/03 7995 8675 6969 6838
9/03 7843 8583 6895 6693
10/03 8452 9069 7282 7099
11/03 8624 9148 7358 7166
12/03 8690 9628 7613 7368
1/04 8852 9804 7768 7509
2/04 8852 9941 7818 7542
3/04 8900 9791 7673 7458
4/04 8690 9637 7583 7290
5/04 8957 9769 7725 7422
6/04 9119 9959 7821 7529
7/04 8577 9630 7379 7083
8/04 8491 9668 7343 7033
9/04 8739 9773 7413 7198
10/04 8720 9922 7528 7285
11/04 9196 10324 7787 7610
12/04 9462 10675 8092 7917
1/05 9234 10415 7823 7645
2/05 9330 10634 7906 7695
3/05 9168 10445 7762 7555
4/05 8797 10247 7614 7390
5/05 9225 10573 7982 7801
6/05 9358 10588 7953 7816
7/05 9625 10982 8342 8209
8/05 9501 10882 8234 8122
9/05 9768 10970 8272 8219
10/05 9635 10787 8192 8166
11/05 10044 11195 8545 8539
12/05 10121 11198 8518 8517
1/06 10663 11495 8668 8750
2/06 10491 11526 8654 8632
3/06 10662 11670 8782 8715
4/06 10662 11826 8770 8701
5/06 10081 11486 8473 8295
6/06 10072 11501 8439 8268
7/06 9987 11572 8278 8056
8/06 10110 11847 8537 8243
9/06 10339 12152 8771 8421
10/06 10647 12548 9080 8674
====================================================================================================================================
Source: Lipper Inc.
Past performance cannot guarantee chart and table(s) does not reflect vertical axis, the one that indicates
comparable future results. deduction of taxes a shareholder would the dollar value of an investment, is
pay on Fund distributions or sale of constructed with each segment
The data shown in the chart include Fund shares. Performance of the indexes representing a percent change in the
reinvested distributions, applicable does not reflect the effects of taxes. value of the investment. In this chart,
sales charges, Fund expenses and each segment represents a doubling, or
management fees. Index results include This chart, which is a logarithmic 100% change, in the value of the
reinvested dividends, but they do not chart, presents the fluctuations in the investment. In other words, the space
reflect sales charges. Performance of an value of the Fund and its indexes. We between $5,000 and $10,000 is the same
index of funds reflects fund expenses believe that a logarithmic chart is more size as the space between $10,000 and
and management fees; performance of a effective than other types of charts in $20,000.
market index does not. Performance shown illustrating changes in value during the
in the early years shown in the chart. The
8
AIM Large Cap Growth Fund
========================================== ========================================== ==========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
As of 10/31/06, including applicable sales As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
charges quarter-end, including applicable sales applicable sales charges
charges
CLASS A SHARES Class A Shares -0.09%
Inception (3/1/99) 0.82% CLASS A SHARES Class B Shares -0.37
5 Years 3.70 Inception (3/1/99) 0.43% Class C Shares -0.47
1 Year 4.48 5 Years 4.23 Class R Shares -0.18
1 Year 0.00 Investor Class Shares -0.09
CLASS B SHARES
Inception (4/5/99) -0.47% CLASS B SHARES ==========================================
5 Years 3.82 Inception (4/5/99) -0.89%
1 Year 4.70 5 Years 4.33
1 Year -0.12
CLASS C SHARES
Inception (4/5/99) -0.47% CLASS C SHARES
5 Years 4.16 Inception (4/5/99) -0.87%
1 Year 8.70 5 Years 4.68
1 Year 3.98
CLASS R SHARES
Inception 1.40% CLASS R SHARES
5 Years 4.69 Inception 1.01%
1 Year 10.23 5 Years 5.23
1 Year 5.48
INVESTOR CLASS SHARES
Inception 1.64% INVESTOR CLASS SHARES
5 Years 4.99 Inception 1.26%
1 Year 10.51 5 Years 5.54
1 Year 5.81
========================================== ==========================================
CLASS R SHARES' INCEPTION DATE IS JUNE HIGHER RULE 12b-1 FEES APPLICABLE TO PERFORMANCE REFLECTS THE APPLICABLE
3, 2002. RETURNS SINCE THAT DATE ARE CLASS A SHARES FOR THE PERIOD USING CONTINGENT DEFERRED SALES CHARGE (CDSC)
HISTORICAL RETURNS. ALL OTHER RETURNS BLENDED RETURNS. CLASS A SHARES' FOR THE PERIOD INVOLVED. THE CDSC ON
ARE BLENDED RETURNS OF HISTORICAL CLASS INCEPTION DATE IS MARCH 1, 1999. CLASS B SHARES DECLINES FROM 5%
R SHARE PERFORMANCE AND RESTATED CLASS A BEGINNING AT THE TIME OF PURCHASE TO 0%
SHARE PERFORMANCE (FOR PERIODS PRIOR TO THE PERFORMANCE DATA QUOTED REPRESENT AT THE BEGINNING OF THE SEVENTH YEAR.
THE INCEPTION DATE OF CLASS R SHARES) AT PAST PERFORMANCE AND CANNOT GUARANTEE THE CDSC ON CLASS C SHARES IS 1% FOR THE
NET ASSET VALUE, ADJUSTED TO REFLECT THE COMPARABLE FUTURE RESULTS; CURRENT FIRST YEAR AFTER PURCHASE. CLASS R
HIGHER RULE 12b-1 FEES APPLICABLE TO PERFORMANCE MAY BE LOWER OR HIGHER. SHARES DO NOT HAVE A FRONT-END SALES
CLASS R SHARES. CLASS A SHARES' PLEASE VISIT AIMinvestments.com FOR THE CHARGE; RETURNS SHOWN ARE AT NET ASSET
INCEPTION DATE IS MARCH 1, 1999. MOST RECENT MONTH-END PERFORMANCE. VALUE AND DO NOT REFLECT A 0.75% CDSC
PERFORMANCE FIGURES REFLECT REINVESTED THAT MAY BE IMPOSED ON A TOTAL
INVESTOR CLASS SHARES' INCEPTION DATE DISTRIBUTIONS, CHANGES IN NET ASSET REDEMPTION OF RETIREMENT PLAN ASSETS
IS SEPTEMBER 30, 2003. RETURNS SINCE VALUE AND THE EFFECT OF THE MAXIMUM WITHIN THE FIRST YEAR. INVESTOR CLASS
THAT DATE ARE HISTORICAL RETURNS. ALL SALES CHARGE UNLESS OTHERWISE STATED. SHARES DO NOT HAVE A FRONT-END SALES
OTHER RETURNS ARE BLENDED RETURNS OF INVESTMENT RETURN AND PRINCIPAL VALUE CHARGE OR A CDSC; THEREFORE, PERFORMANCE
HISTORICAL INVESTOR CLASS SHARE WILL FLUCTUATE SO THAT YOU MAY HAVE A IS AT NET ASSET VALUE.
PERFORMANCE AND RESTATED CLASS A SHARE GAIN OR LOSS WHEN YOU SELL SHARES.
PERFORMANCE (FOR PERIODS PRIOR TO THE THE PERFORMANCE OF THE FUND'S SHARE
INCEPTION DATE OF INVESTOR CLASS SHARES) CLASS A SHARE PERFORMANCE REFLECTS CLASSES WILL DIFFER PRIMARILY DUE TO
AT NET ASSET VALUE, WHICH RESTATED THE MAXIMUM 5.50% SALES CHARGE, AND DIFFERENT SALES CHARGE STRUCTURES AND
PERFORMANCE WILL REFLECT THE CLASS B AND CLASS C SHARE CLASS EXPENSES.
9
AIM Large Cap Growth Fund
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Equity Agreement was appropriate and that AIM o Meetings with the Fund's portfolio
Funds (the "Board") oversees the currently is providing services in managers and investment personnel. With
management of AIM Large Cap Growth Fund accordance with the terms of the respect to the Fund, the Board is
(the "Fund") and, as required by law, Advisory Agreement. meeting periodically with such Fund's
determines annually whether to approve portfolio managers and/or other
the continuance of the Fund's advisory o The quality of services to be provided investment personnel and believes that
agreement with A I M Advisors, Inc. by AIM. The Board reviewed the such individuals are competent and able
("AIM"). Based upon the recommendation credentials and experience of the to continue to carry out their
of the Investments Committee of the officers and employees of AIM who will responsibilities under the Advisory
Board, at a meeting held on June 27, provide investment advisory services to Agreement.
2006, the Board, including all of the the Fund. In reviewing the
independent trustees, approved the qualifications of AIM to provide o Overall performance of AIM. The Board
continuance of the advisory agreement investment advisory services, the Board considered the overall performance of
(the "Advisory Agreement") between the considered such issues as AIM's AIM in providing investment advisory and
Fund and AIM for another year, effective portfolio and product review process, portfolio administrative services to the
July 1, 2006. various back office support functions Fund and concluded that such performance
provided by AIM and AIM's equity and was satisfactory.
The Board considered the factors fixed income trading operations. Based
discussed below in evaluating the on the review of these and other o Fees relative to those of clients of
fairness and reasonableness of the factors, the Board concluded that the AIM with comparable investment
Advisory Agreement at the meeting on quality of services to be provided by strategies. The Board reviewed the
June 27, 2006 and as part of the Board's AIM was appropriate and that AIM effective advisory fee rate (before
ongoing oversight of the Fund. In their currently is providing satisfactory waivers) for the Fund under the Advisory
deliberations, the Board and the services in accordance with the terms of Agreement. The Board noted that this
independent trustees did not identify the Advisory Agreement. rate was (i) comparable to the effective
any particular factor that was advisory fee rate (before waivers) for a
controlling, and each trustee attributed o The performance of the Fund relative mutual fund advised by AIM with
different weights to the various to comparable funds. The Board reviewed investment strategies comparable to
factors. the performance of the Fund during the those of the Fund; (ii) below the
past one, three and five calendar years effective advisory fee rate (before
One responsibility of the independent against the performance of funds advised waivers) for a variable insurance fund
Senior Officer of the Fund is to manage by other advisors with investment advised by AIM and offered to insurance
the process by which the Fund's proposed strategies comparable to those of the company separate accounts with
management fees are negotiated to ensure Fund. The Board noted that the Fund's investment strategies comparable to
that they are negotiated in a manner performance was below the median those of the Fund; (iii) above the
which is at arms' length and reasonable. performance of such comparable funds for effective advisory and sub-advisory fee
To that end, the Senior Officer must the one and five year periods and above rates for one offshore fund advised by
either supervise a competitive bidding such median performance for the three an AIM affiliate and sub-advised by AIM
process or prepare an independent year period. Based on this review and with investment strategies comparable to
written evaluation. The Senior Officer after taking account of all of the other those of the Fund; (iv) above the
has recommended an independent written factors that the Board considered in effective sub-advisory fee rates for two
evaluation in lieu of a competitive determining whether to continue the variable insurance funds sub-advised by
bidding process and, upon the direction Advisory Agreement for the Fund, the an AIM affiliate and offered to
of the Board, has prepared such an Board concluded that no changes should insurance company separate accounts with
independent written evaluation. Such be made to the Fund and that it was not investment strategies comparable to
written evaluation also considered necessary to change the Fund's portfolio those of the Fund, although the total
certain of the factors discussed below. management team at this time. Although advisory fees for such variable
In addition, as discussed below, the the independent written evaluation of insurance funds were above those for the
Senior Officer made a recommendation to the Fund's Senior Officer (discussed Fund; and (v) comparable to or below the
the Board in connection with such below) only considered Fund performance total advisory fee rates for two
written evaluation. through the most recent calendar year, separately managed accounts/wrap
the Board also reviewed more recent Fund accounts managed by an AIM affiliate
The discussion below serves as a performance, which did not change their with investment strategies comparable to
summary of the Senior Officer's conclusions. those of the Fund and above the total
independent written evaluation and advisory fee rates for 17 separately
recommendation to the Board in o The performance of the Fund relative managed accounts/wrap accounts managed
connection there-with, as well as a to indices. The Board reviewed the by an AIM affiliate with investment
discussion of the material factors and performance of the Fund during the past strategies comparable to those of the
the conclusions with respect thereto one, three and five calendar years Fund. The Board noted that AIM has
that formed the basis for the Board's against the performance of the Lipper agreed to waive advisory fees of the
approval of the Advisory Agreement. Large-Cap Growth Index. The Board noted Fund and to limit the Fund's total
After consideration of all of the that the Fund's performance was operating expenses, as discussed below.
factors below and based on its informed comparable to the performance of such Based on this review, the Board
business judgment, the Board determined Index for the one and three year periods concluded that the advisory fee rate for
that the Advisory Agreement is in the and below such Index for the five year the Fund under the Advisory Agreement
best interests of the Fund and its period. Based on this review and after was fair and reasonable.
shareholders and that the compensation taking account of all of the other
to AIM under the Advisory Agreement is factors that the Board considered in o Fees relative to those of comparable
fair and reasonable and would have been determining whether to continue the funds with other advisors. The Board
obtained through arm's length Advisory Agreement for the Fund, the reviewed the advisory fee rate for the
negotiations. Board concluded that no changes should Fund under the Advisory Agreement. The
be made to the Fund and that it was not Board compared effective contractual
Unless otherwise stated, information necessary to change the Fund's portfolio advisory fee rates at a common asset
presented below is as of June 27, 2006 management team at this time. Although level at the end of the past calendar
and does not reflect any changes that the independent written evaluation of year and noted that the Fund's rate was
may have occurred since June 27, 2006, the Fund's Senior Officer (discussed comparable to the median rate of the
including but not limited to changes to below) only considered Fund performance funds advised by other advisors with
the Fund's performance, advisory fees, through the most recent calendar year, investment strategies comparable to
expense limitations and/or fee waivers. the Board also reviewed more recent Fund those of the Fund that the Board
performance, which did not change their reviewed. The Board noted that AIM has
o The nature and extent of the advisory conclusions. agreed to waive advisory fees of the
services to be provided by AIM. The Fund and to limit the Fund's total
Board reviewed the services to be operating expenses, as discussed below.
provided by AIM under the Advisory Based on this review, the Board conclud-
Agreement. Based on such review, the
Board concluded that the range of
services to be provided by AIM under the
Advisory (continued)
10
AIM Large Cap Growth Fund
ed that the advisory fee rate for the ket funds, AIM has voluntarily agreed to o AIM's financial soundness in light of
Fund under the Advisory Agreement was waive a portion of the advisory fees it the Fund's needs. The Board considered
fair and reasonable. receives from the Fund attributable to whether AIM is financially sound and has
such investment. The Board further the resources necessary to perform its
o Expense limitations and fee waivers. determined that the proposed securities obligations under the Advisory
The Board noted that AIM has lending program and related procedures Agreement, and concluded that AIM has
contractually agreed to waive advisory with respect to the lending Fund is in the financial resources necessary to
fees of the Fund through December 31, the best interests of the lending Fund fulfill its obligations under the
2009 to the extent necessary so that the and its respective shareholders. The Advisory Agreement.
advisory fees payable by the Fund do not Board therefore concluded that the
exceed a specified maximum advisory fee investment of cash collateral received o Historical relationship between the
rate, which maximum rate includes in connection with the securities Fund and AIM. In determining whether to
breakpoints and is based on net asset lending program in the money market continue the Advisory Agreement for the
levels. The Board considered the funds according to the procedures is in Fund, the Board also considered the
contractual nature of this fee waiver the best interests of the lending Fund prior relationship between AIM and the
and noted that it remains in effect and its respective shareholders. Fund, as well as the Board's knowledge
until December 31, 2009. The Board noted of AIM's operations, and concluded that
that AIM has contractually agreed to o Independent written evaluation and it was beneficial to maintain the
waive fees and/or limit expenses of the recommendations of the Fund's Senior current relationship, in part, because
Fund through June 30, 2007 in an amount Officer. The Board noted that, upon of such knowledge. The Board also
necessary to limit total annual their direction, the Senior Officer of reviewed the general nature of the
operating expenses to a specified the Fund, who is independent of AIM and non-investment advisory services
percentage of average daily net assets AIM's affiliates, had prepared an currently performed by AIM and its
for each class of the Fund. The Board independent written evaluation in order affiliates, such as administrative,
considered the contractual nature of to assist the Board in determining the transfer agency and distribution
this fee waiver/expense limitation and reasonableness of the proposed services, and the fees received by AIM
noted that it remains in effect through management fees of the AIM Funds, and its affiliates for performing such
June 30, 2007. The Board considered the including the Fund. The Board noted that services. In addition to reviewing such
effect these fee waivers/expense the Senior Officer's written evaluation services, the trustees also considered
limitations would have on the Fund's had been relied upon by the Board in the organizational structure employed by
estimated expenses and concluded that this regard in lieu of a competitive AIM and its affiliates to provide those
the levels of fee waivers/expense bidding process. In determining whether services. Based on the review of these
limitations for the Fund to continue the Advisory Agreement for and other factors, the Board concluded
were fair and reasonable. the Fund, the Board considered the that AIM and its affiliates were
Senior Officer's written evaluation and qualified to continue to provide
o Breakpoints and economies of scale. the recommendation made by the Senior non-investment advisory services to the
The Board reviewed the structure of the Officer to the Board that the Board Fund, including administrative, transfer
Fund's advisory fee under the Advisory consider whether the advisory fee agency and distribution services, and
Agreement, noting that it includes one waivers for certain equity AIM Funds, that AIM and its affiliates currently
breakpoint. The Board reviewed the level including the Fund, should be are providing satisfactory
of the Fund's advisory fees, and noted simplified. The Board concluded that it non-investment advisory services.
that such fees, as a percentage of the would be advisable to consider this
Fund's net assets, have decreased as net issue and reach a decision prior to the o Other factors and current trends. The
assets increased because the Advisory expiration date of such advisory fee Board considered the steps that AIM and
Agreement includes a breakpoint. The waivers. its affiliates have taken over the last
Board noted that AIM has contractually several years, and continue to take, in
agreed to waive advisory fees of the o Profitability of AIM and its order to improve the quality and
Fund through December 31, 2009 to the affiliates. The Board reviewed efficiency of the services they provide
extent necessary so that the advisory information concerning the profitability to the Funds in the areas of investment
fees payable by the Fund do not exceed a of AIM's (and its affiliates') performance, product line
specified maximum advisory fee rate, investment advisory and other activities diversification, distribution, fund
which maximum rate includes breakpoints and its financial condition. The Board operations, shareholder services and
and is based on net asset levels. The considered the overall profitability of compliance. The Board concluded that
Board concluded that the Fund's fee AIM, as well as the profitability of AIM these steps taken by AIM have improved,
levels under the Advisory Agreement in connection with managing the Fund. and are likely to continue to improve,
therefore reflect economies of scale and The Board noted that AIM's operations the quality and efficiency of the
that it was not necessary to change the remain profitable, although increased services AIM and its affiliates provide
advisory fee breakpoints in expenses in recent years have reduced to the Fund in each of these areas, and
the Fund's advisory fee schedule. AIM's profitability. Based on the review support the Board's approval of the
of the profitability of AIM's and its continuance of the Advisory Agreement
o Investments in affiliated money market affiliates' investment advisory and for the Fund.
funds. The Board also took into account other activities and its financial
the fact that uninvested cash and cash condition, the Board concluded that the
collateral from securities lending compensation to be paid by the Fund to
arrangements, if any (collectively, AIM under its Advisory Agreement was not
"cash balances") of the Fund may be excessive.
invested in money market funds advised
by AIM pursuant to the terms of an SEC o Benefits of soft dollars to AIM. The
exemptive order. The Board found that Board considered the benefits realized
the Fund may realize certain benefits by AIM as a result of brokerage
upon investing cash balances in AIM transactions executed through "soft
advised money market funds, including a dollar" arrangements. Under these
higher net return, increased liquidity, arrangements, brokerage commissions paid
increased diversification or decreased by the Fund and/or other funds advised
transaction costs. The Board also found by AIM are used to pay for research and
that the Fund will not receive reduced execution services. This research may be
services if it invests its cash balances used by AIM in making investment
in such money market funds. The Board decisions for the Fund. The Board
noted that, to the extent the Fund concluded that such arrangements were
invests uninvested cash in affiliated appropriate.
money mar-
</Table>
11
Supplement to Annual Report dated 10/31/06
AIM Large Cap Growth Fund
===================================
Institutional Class Shares AVERAGE ANNUAL TOTAL RETURNS PLEASE NOTE THAT PAST PERFORMANCE IS NOT
For periods ended 10/31/06 INDICATIVE OF FUTURE RESULTS. MORE RECENT
The following information has been prepared to RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
provide Institutional Class shareholders with Inception 1.76% ALL RETURNS ASSUME REINVESTMENT OF
a performance overview specific to their 5 Years 5.17 DISTRIBUTIONS AT NAV. INVESTMENT RETURN AND
holdings. Institutional Class shares are 1 Year 11.17 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
offered exclusively to institutional 6 Months* 0.26 SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR
investors, including defined contribution LESS THAN THEIR ORIGINAL COST. SEE FULL
plans that meet certain criteria. =================================== REPORT FOR INFORMATION ON COMPARATIVE
BENCHMARKS. PLEASE CONSULT YOUR FUND
AVERAGE ANNUAL TOTAL RETURNS PROSPECTUS FOR MORE INFORMATION. FOR THE MOST
For periods ended 9/30/06, most CURRENT MONTH END PERFORMANCE, PLEASE CALL
recent calendar quarter-end 800-451-4246 OR VISIT AIMINVESTMENTS.COM.
Inception 1.36%
5 Years 5.69
1 Year 6.28
6 Months* -2.83
*Cumulative total return that has
not been annualized
===================================
INSTITUTIONAL CLASS SHARES'
INCEPTION DATE IS APRIL 30, 2004.
RETURNS SINCE THAT DATE ARE
HISTORICAL RETURNS. ALL OTHER
RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS
SHARE PERFORMANCE AND RESTATED
CLASS A SHARE PERFORMANCE (FOR
PERIODS PRIOR TO THE INCEPTION DATE
OF INSTITUTIONAL CLASS SHARES) AT
NET ASSET VALUE (NAV) AND REFLECT
THE HIGHER RULE 12B-1 FEES
APPLICABLE TO CLASS A SHARES. CLASS
A SHARES' INCEPTION DATE IS MARCH
1, 1999.
INSTITUTIONAL CLASS SHARES
HAVE NO SALES CHARGE; THEREFORE,
PERFORMANCE IS AT NAV. PERFORMANCE
OF INSTITUTIONAL CLASS SHARES WILL
DIFFER FROM PERFORMANCE OF OTHER
SHARE CLASSES PRIMARILY DUE TO
DIFFERING SALES CHARGES AND CLASS
EXPENSES.
==============================================
NASDAQ SYMBOL LCIGX
==============================================
Over for information on your Fund's expenses.
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
AIMINVESTMENTS.COM LCG-INS-1 A I M Distributors, Inc. --REGISTERED TRADEMARK-- --REGISTERED TRADEMARK--
Information about your Fund's expenses
Calculating your ongoing Fund expenses
Example divide your account value by $1,000 The hypothetical account values and
(for example, an $8,600 account expenses may not be used to estimate the
As a shareholder of the Fund, you incur on value divided by $1,000 = 8.6), actual ending account balance or expenses you
going costs, including management fees and then multiply the result by the paid for the period. You may use this
other Fund expenses. This example is intended number in the table under the information to compare the ongoing costs of
to help you understand your ongoing costs (in heading entitled "Actual Expenses investing in the Fund and other funds. To do
dollars) of investing in the Fund and to Paid During Period" to estimate so, compare this 5% hypothetical example with
compare these costs with ongoing costs of the expenses you paid on your the 5% hypothetical examples that appear in
investing in other mutual funds. The example account during this period. the shareholder reports of the other funds.
is based on an investment of $1,000 invested
at the beginning of the period and held for Please note that the expenses shown in
the entire period May 1, 2006, through October Hypothetical example for comparison the table are meant to highlight your ongoing
31, 2006. purposes costs only. Therefore, the hypothetical
information is useful in comparing ongoing
Actual expenses The table below also provides costs only, and will not help you determine
information about hypothetical the relative total costs of owning different
The table below provides information about account values and hypothetical funds.
actual account values and actual expenses. You expenses based on the Fund's actual
may use the information in this table, expense ratio and an assumed rate
together with the amount you invested, to of return of 5% per year before
estimate the expenses that you paid over the expenses, which is not the Fund's
period. Simply actual return. The Fund's actual
cumulative total return after
expenses for the six months ended
October 31, 2006, appears in the
table on the front of this
supplement.
====================================================================================================================================
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 (5/1/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
Institutional $1,000.00 $1,002.60 $3.63 $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, 2006, through October 31,
2006, 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, 2006, 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 A I M Distributors, Inc.
AIM Large Cap Growth Fund
SCHEDULE OF INVESTMENTS
October 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-81.53%
AEROSPACE & DEFENSE-9.30%
Boeing Co. (The) 548,448 $ 43,799,057
- --------------------------------------------------------------------------
General Dynamics Corp. 561,000 39,887,100
- --------------------------------------------------------------------------
Lockheed Martin Corp. 752,079 65,378,227
- --------------------------------------------------------------------------
Northrop Grumman Corp. 486,976 32,330,337
- --------------------------------------------------------------------------
Raytheon Co.(a) 636,602 31,798,270
==========================================================================
213,192,991
==========================================================================
AGRICULTURAL PRODUCTS-0.83%
Archer-Daniels-Midland Co. 491,880 18,937,380
==========================================================================
APPAREL RETAIL-1.91%
American Eagle Outfitters, Inc. 453,937 20,790,315
- --------------------------------------------------------------------------
TJX Cos., Inc. (The) 797,959 23,100,913
==========================================================================
43,891,228
==========================================================================
APPLICATION SOFTWARE-3.10%
Amdocs Ltd.(b) 953,000 36,938,280
- --------------------------------------------------------------------------
BEA Systems, Inc.(b) 2,102,372 34,205,592
==========================================================================
71,143,872
==========================================================================
BREWERS-0.95%
Anheuser-Busch Cos., Inc. 461,000 21,860,620
==========================================================================
COMMUNICATIONS EQUIPMENT-5.21%
Cisco Systems, Inc.(b) 3,013,861 72,724,466
- --------------------------------------------------------------------------
Motorola, Inc. 2,027,535 46,754,957
==========================================================================
119,479,423
==========================================================================
COMPUTER HARDWARE-3.50%
Hewlett-Packard Co. 2,070,308 80,203,732
==========================================================================
DEPARTMENT STORES-5.21%
J.C. Penney Co., Inc.(a) 430,990 32,423,378
- --------------------------------------------------------------------------
Kohl's Corp.(b) 307,398 21,702,299
- --------------------------------------------------------------------------
Nordstrom, Inc.(a) 896,951 42,470,630
- --------------------------------------------------------------------------
Sears Holdings Corp.(a)(b) 131,669 22,972,290
==========================================================================
119,568,597
==========================================================================
DIVERSIFIED METALS & MINING-1.63%
Phelps Dodge Corp. 373,000 37,441,740
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.69%
Waste Management, Inc. 1,031,364 38,655,523
==========================================================================
HEALTH CARE DISTRIBUTORS-4.27%
AmerisourceBergen Corp. 723,000 34,125,600
- --------------------------------------------------------------------------
Cardinal Health, Inc. 354,898 23,228,074
- --------------------------------------------------------------------------
McKesson Corp. 810,725 40,609,215
==========================================================================
97,962,889
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE SERVICES-3.87%
Caremark Rx, Inc. 757,000 $ 37,267,110
- --------------------------------------------------------------------------
Laboratory Corp. of America Holdings(b) 561,000 38,422,890
- --------------------------------------------------------------------------
Quest Diagnostics Inc.(a) 263,000 13,081,620
==========================================================================
88,771,620
==========================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.97%
Manpower Inc. 329,000 22,296,330
==========================================================================
INDUSTRIAL CONGLOMERATES-1.14%
McDermott International, Inc.(b) 586,950 26,236,665
==========================================================================
INTEGRATED OIL & GAS-2.56%
Marathon Oil Corp. 360,520 31,148,928
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 585,662 27,490,974
==========================================================================
58,639,902
==========================================================================
INTERNET SOFTWARE & SERVICES-0.87%
Google Inc.-Class A(b) 41,865 19,944,067
==========================================================================
INVESTMENT BANKING & BROKERAGE-8.04%
Bear Stearns Cos. Inc. (The) 172,411 26,094,405
- --------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 419,228 79,565,282
- --------------------------------------------------------------------------
Lehman Brothers Holdings Inc. 646,847 50,350,571
- --------------------------------------------------------------------------
Morgan Stanley 370,000 28,279,100
==========================================================================
184,289,358
==========================================================================
IT CONSULTING & OTHER SERVICES-1.95%
Accenture Ltd.-Class A 1,360,035 44,758,752
==========================================================================
LIFE & HEALTH INSURANCE-1.58%
Prudential Financial, Inc. 470,544 36,198,950
==========================================================================
LIFE SCIENCES TOOLS & SERVICES-1.18%
Applera Corp.-Applied Biosystems Group 726,000 27,079,800
==========================================================================
MANAGED HEALTH CARE-3.80%
Coventry Health Care, Inc.(a)(b) 307,000 14,413,650
- --------------------------------------------------------------------------
Humana Inc.(b) 409,000 24,540,000
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 506,429 24,703,607
- --------------------------------------------------------------------------
WellPoint Inc.(b) 306,776 23,413,144
==========================================================================
87,070,401
==========================================================================
MOVIES & ENTERTAINMENT-2.12%
News Corp.-Class A 2,335,680 48,698,928
==========================================================================
MULTI-LINE INSURANCE-1.37%
Assurant, Inc.(a) 595,000 31,332,700
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.23%
JPMorgan Chase & Co. 592,780 28,121,483
==========================================================================
</Table>
F-1
AIM Large Cap Growth Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
PHARMACEUTICALS-1.30%
Merck & Co. Inc. 655,726 $ 29,783,075
==========================================================================
PROPERTY & CASUALTY INSURANCE-2.95%
Ambac Financial Group, Inc. 236,325 19,730,774
- --------------------------------------------------------------------------
Chubb Corp. (The) 590,904 31,406,548
- --------------------------------------------------------------------------
SAFECO Corp. 286,000 16,642,340
==========================================================================
67,779,662
==========================================================================
SOFT DRINKS-1.42%
PepsiCo, Inc. 514,535 32,642,100
==========================================================================
SPECIALTY STORES-1.62%
Office Depot, Inc.(b) 882,883 37,072,257
==========================================================================
SYSTEMS SOFTWARE-4.79%
BMC Software, Inc.(b) 749,969 22,731,560
- --------------------------------------------------------------------------
Microsoft Corp. 1,583,410 45,459,701
- --------------------------------------------------------------------------
Oracle Corp.(b) 2,252,327 41,600,480
==========================================================================
109,791,741
==========================================================================
TOBACCO-1.17%
UST Inc.(a) 501,889 26,881,175
==========================================================================
Total Domestic Common Stocks (Cost
$1,581,909,356) 1,869,726,961
==========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-17.16%
FINLAND-1.13%
Nokia Oyj-ADR (Communications Equipment) 1,298,428 25,812,748
==========================================================================
HONG KONG-1.09%
China Mobile Ltd. (Wireless Telecommunication
Services)(c) 3,064,000 24,977,545
==========================================================================
JAPAN-1.89%
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 1,275,992 22,816,340
- --------------------------------------------------------------------------
ORIX Corp. (Consumer Finance) 72,996 20,565,154
==========================================================================
43,381,494
==========================================================================
MEXICO-2.72%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 1,457,541 62,484,783
==========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
SOUTH KOREA-0.75%
Kookmin Bank (Diversified Banks)(c) 217,512 $ 17,238,283
==========================================================================
SWITZERLAND-4.67%
ABB Ltd. (Heavy Electrical Equipment)(c) 2,744,016 40,710,142
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 296,230 17,990,048
- --------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(c) 162,691 28,431,770
- --------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(b)(c) 123,000 19,846,817
==========================================================================
106,978,777
==========================================================================
UNITED KINGDOM-4.91%
AstraZeneca PLC-ADR (Pharmaceuticals) 785,000 46,079,500
- --------------------------------------------------------------------------
Diageo PLC (Distillers & Vintners) 1,660,000 30,715,370
- --------------------------------------------------------------------------
Rio Tinto PLC-ADR (Diversified Metals &
Mining)(a) 162,089 35,884,884
==========================================================================
112,679,754
==========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $334,504,592) 393,553,384
==========================================================================
MONEY MARKET FUNDS-1.58%
Liquid Assets Portfolio-Institutional
Class(d) 18,157,343 18,157,343
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 18,157,343 18,157,343
==========================================================================
Total Money Market Funds (Cost
$36,314,686) 36,314,686
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.27% (Cost
$1,952,728,634) 2,299,595,031
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.52%
STIC Prime Portfolio-Institutional
Class(d)(e) 34,785,504 34,785,504
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $34,785,504) 34,785,504
==========================================================================
TOTAL INVESTMENTS-101.79% (Cost
$1,987,514,138) 2,334,380,535
==========================================================================
OTHER ASSETS LESS LIABILITIES-(1.79)% (40,987,653)
==========================================================================
NET ASSETS-100.00% $2,293,392,882
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security was out on loan at October 31, 2006.
(b) Non-income producing security.
(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, 2006 was $154,020,897,
which represented 6.72% 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 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
AIM Large Cap Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
<Table>
ASSETS:
Investments, at value (cost
$1,916,413,948)* $ 2,263,280,345
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $71,100,190) 71,100,190
============================================================
Total investments (cost
$1,987,514,138) 2,334,380,535
============================================================
Cash 19,176
- ------------------------------------------------------------
Receivables for:
Fund shares sold 2,566,388
- ------------------------------------------------------------
Dividends 1,289,729
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 318,061
- ------------------------------------------------------------
Other assets 57,416
============================================================
Total assets 2,338,631,305
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 5,925,843
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 545,081
- ------------------------------------------------------------
Collateral upon return of securities
loaned 34,785,504
- ------------------------------------------------------------
Fund expenses advanced 541,951
- ------------------------------------------------------------
Accrued distribution fees 971,445
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,000
- ------------------------------------------------------------
Accrued transfer agent fees 1,573,641
- ------------------------------------------------------------
Accrued operating expenses 891,958
============================================================
Total liabilities 45,238,423
============================================================
Net assets applicable to shares outstanding $ 2,293,392,882
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 3,342,218,652
- ------------------------------------------------------------
Undistributed net investment income (loss) (2,870,028)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (1,392,822,799)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 346,867,057
============================================================
$ 2,293,392,882
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 981,750,327
____________________________________________________________
============================================================
Class B $ 637,594,335
____________________________________________________________
============================================================
Class C $ 179,730,387
____________________________________________________________
============================================================
Class R $ 11,230,501
____________________________________________________________
============================================================
Investor Class $ 347,620,907
____________________________________________________________
============================================================
Institutional Class $ 135,466,425
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 87,710,132
____________________________________________________________
============================================================
Class B 59,994,277
____________________________________________________________
============================================================
Class C 16,909,931
____________________________________________________________
============================================================
Class R 1,011,357
____________________________________________________________
============================================================
Investor Class 30,886,032
____________________________________________________________
============================================================
Institutional Class 11,937,237
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 11.19
- ------------------------------------------------------------
Offering price per share
(Net asset value of $11.19 divided by
94.50%) $ 11.84
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 10.63
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 10.63
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 11.10
____________________________________________________________
============================================================
Investor Class:
Net asset value and offering price per
share $ 11.25
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 11.35
____________________________________________________________
============================================================
</Table>
* At October 31, 2006, securities with an aggregate value of $34,533,067 were on
loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Large Cap Growth Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $284,192) $17,294,004
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $108,233) 2,904,427
=========================================================================
Total investment income 20,198,431
=========================================================================
EXPENSES:
Advisory fees 11,796,950
- -------------------------------------------------------------------------
Administrative services fees 430,973
- -------------------------------------------------------------------------
Custodian fees 244,753
- -------------------------------------------------------------------------
Distribution fees:
Class A 1,636,128
- -------------------------------------------------------------------------
Class B 4,573,816
- -------------------------------------------------------------------------
Class C 1,299,294
- -------------------------------------------------------------------------
Class R 36,208
- -------------------------------------------------------------------------
Investor Class 732,585
- -------------------------------------------------------------------------
Transfer agent fees -- A, B, C, R and Investor 7,008,561
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional 36,126
- -------------------------------------------------------------------------
Trustees' and officer's fees and benefits 53,417
- -------------------------------------------------------------------------
Other 538,037
=========================================================================
Total expenses 28,386,848
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,799,655)
=========================================================================
Net expenses 26,587,193
=========================================================================
Net investment income (loss) (6,388,762)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes net gains from securities
sold to affiliates of $2,135,340) 34,521,632
- -------------------------------------------------------------------------
Foreign currencies 118,988
=========================================================================
34,640,620
=========================================================================
Change in net unrealized appreciation of:
Investment securities 41,037,237
- -------------------------------------------------------------------------
Foreign currencies 36,028
=========================================================================
41,073,265
=========================================================================
Net gain from investment securities and foreign currencies 75,713,885
=========================================================================
Net increase in net assets resulting from operations $69,325,123
_________________________________________________________________________
=========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Large Cap Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,388,762) $ (1,737,247)
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 34,640,620 42,092,475
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 41,073,265 37,314,293
============================================================================================
Net increase in net assets resulting from operations 69,325,123 77,669,521
============================================================================================
Share transactions-net:
Class A 797,818,235 (29,524,310)
- --------------------------------------------------------------------------------------------
Class B 531,931,575 (19,664,001)
- --------------------------------------------------------------------------------------------
Class C 127,954,867 (4,708,853)
- --------------------------------------------------------------------------------------------
Class R 8,586,939 (680,651)
- --------------------------------------------------------------------------------------------
Investor Class (45,992,082) (56,611,706)
- --------------------------------------------------------------------------------------------
Institutional Class 731,505 95,851,741
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 1,421,031,039 (15,337,780)
============================================================================================
Net increase in net assets 1,490,356,162 62,331,741
============================================================================================
NET ASSETS:
Beginning of year 803,036,720 740,704,979
============================================================================================
End of year (including undistributed net investment income
(loss) of $(2,870,028) and $(141,865), respectively) $2,293,392,882 $803,036,720
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Large Cap Growth Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of seven separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. If the event is likely to have affected the
closing price of the security, the security will be valued at fair value in
good faith using procedures approved by the Board of Trustees. Adjustments
to closing prices to reflect fair value may also be based on a screening
process of an independent pricing service to indicate the degree of
certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting the approved degree
of certainty that the price is not reflective of current value will be
priced at the indication of fair value from the independent pricing
service. Multiple factors may be considered by the independent pricing
service in determining adjustments to reflect fair value and may include
information relating to sector indices, ADRs and domestic and foreign index
futures.
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.
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
F-6
AIM Large Cap Growth Fund
gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the United States of America unless otherwise noted.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gain,
if any, are generally paid annually and recorded on ex-dividend date. The
Fund may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those
classes based on relative net assets. All other expenses are allocated
among the classes based on relative net assets.
G. ACCOUNTING ESTIMATES -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period including estimates and assumptions related to
taxation. Actual results could differ from those estimates.
H. INDEMNIFICATIONS -- Under the Trust's organizational documents, each
Trustee, officer, employee or other agent of the Trust (including the
Trust's investment manager) is indemnified against certain liabilities that
may arise out of performance of their duties to the Fund. Additionally, in
the normal course of business, the Fund enters into contracts that contain
a variety of indemnification clauses. The Fund's maximum exposure under
these arrangements is unknown as this would involve future claims that may
be made against the Fund that have not yet occurred. The risk of material
loss as a result of such indemnification claims is considered remote.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
F-7
AIM Large Cap Growth Fund
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $350 million 0.75%
- --------------------------------------------------------------------
Over $350 million 0.625%
___________________________________________________________________
====================================================================
</Table>
Prior to March 27, 2006, the Fund paid an advisory fee to AIM based on the
annual rate of the Fund's average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.75%
- --------------------------------------------------------------------
Next $1 billion 0.70%
- --------------------------------------------------------------------
Over $2 billion 0.625%
___________________________________________________________________
====================================================================
</Table>
Through December 31, 2009, AIM has contractually agreed to waive advisory
fees to the extent necessary so that the advisory fees payable by the Fund
(based on the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $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 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 June 30,
2007. In determining the advisor's obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into account, and could
cause the net annual operating expenses to exceed the numbers reflected above:
(i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items; (v) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, in addition to the expense reimbursement arrangement with 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. In addition, the Fund may also benefit from a
one time credit to be used to offset future custodian expenses. These credits
are used to pay certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended October 31, 2006, AIM waived advisory fees of $358,128
and reimbursed class level expenses of $1,333,570 for Class A, Class B, Class C,
Class R, and Investor Class, in proportion to the net assets of each class. At
October 31, 2006, the advisor advanced to the Fund $541,951 for the payment of
fund expenses.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount of
$2,617.
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, 2006, AIM was paid $430,973.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AIS for certain expenses
incurred by AIS in the course of providing such services. AIS may make payments
to intermediaries that provide omnibus account services, sub-accounting services
and/or networking services. All fees payable by AIS to intermediaries that
provide omnibus account services or sub-accounting are charged back to the Fund,
subject to certain limitations approved by the
F-8
AIM Large Cap Growth Fund
Trust's Board of Trustees. For the year ended October 31, 2006, the Fund paid
AIS $7,008,561 for Class A, Class B, Class C, Class R and Investor Class shares
and $36,126 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 and 0.50% of the average daily net assets of Class R shares. The Fund,
pursuant to the Investor Class Plan, reimburses ADI for its allocated share of
expenses incurred pursuant to the Investor Class Plan for the period, up to a
maximum annual rate of 0.25% of the average daily net assets of Investor Class
shares. Of the Rule 12b-1 payments, 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, 2006, the Class
A, Class B, Class C, Class R and Investor Class shares paid $1,636,128,
$4,573,816, $1,299,294, $36,208 and $732,585, 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, 2006, ADI advised the Fund that it retained $157,503 in
front-end sales commissions from the sale of Class A shares and $371, $314,849,
$9,842 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed on redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances and cash collateral from securities
lending transactions in affiliated money market funds. The Fund and the money
market funds below have the same investment advisor and therefore, are
considered to be affiliated. The tables below show the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2006.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 9,209,656 $337,992,474 $(329,044,787) $ -- $18,157,343 $1,395,982 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 178,537,955 (160,380,612) -- 18,157,343 688,554 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 9,209,656 180,135,658 (189,345,314) -- -- 711,658 --
===================================================================================================================================
Subtotal $18,419,312 $696,666,087 $(678,770,713) $ -- $36,314,686 $2,796,194 $ --
===================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 10/31/05 AT COST FROM SALES (DEPRECIATION) 10/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $26,223,050 $ 888,868,542 $ (880,306,088) $ -- $34,785,504 $ 108,233 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $44,642,362 $1,585,534,629 $(1,559,076,801) $ -- $71,100,190 $2,904,427 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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, for the year ended October 31, 2006, the Fund
engaged in securities sales of $35,330,079, which resulted in net realized gains
of $2,135,340, and securities purchases of $52,905,351.
F-9
AIM Large Cap Growth Fund
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended October 31, 2006, the Fund received credits from these arrangements, which
resulted in the reduction of the Fund's total expenses of $105,340.
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, 2006, the Fund paid legal fees of $7,292
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At October 31, 2006, securities with an aggregate value of $34,533,067 were
on loan to brokers. The loans were secured by cash collateral of $34,785,504
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2006, the Fund received dividends on cash
collateral investments of $108,233 for securities lending transactions, which
are net of compensation to counterparties.
F-10
AIM Large Cap Growth Fund
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October, 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- -----------------------------------------------------------------------------
Unrealized appreciation -- investments $ 331,256,612
- -----------------------------------------------------------------------------
Temporary book/tax differences (418,587)
- -----------------------------------------------------------------------------
Capital loss carryforward (1,379,663,795)
- -----------------------------------------------------------------------------
Shares of beneficial interest 3,342,218,652
=============================================================================
Total net assets $ 2,293,392,882
_____________________________________________________________________________
=============================================================================
</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 recognition of unrealized gains on passive foreign investment
companies. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $660.
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, 2006 to utilizing $1,138,605,480 of capital loss carryforward in the fiscal
year ended October 31, 2007.
The Fund utilized $30,324,054 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, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ------------------------------------------------------------------------------
October 31, 2008 $ 295,983,167
- ------------------------------------------------------------------------------
October 31, 2009 617,527,392
- ------------------------------------------------------------------------------
October 31, 2010 431,057,632
- ------------------------------------------------------------------------------
October 31, 2011 35,095,604
==============================================================================
Total capital loss carryforward $1,379,663,795
______________________________________________________________________________
==============================================================================
</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 and March 27, 2006,
the dates the reorganizations of INVESCO Growth Fund and AIM Blue Chip Fund,
respectively, into the Fund are realized on securities held in each fund at
such dates of reorganizations, the capital loss carryforward may be further
limited for up to five years from the dates of the reorganizations.
On May 26, 2006, 448,605 Investor class shares valued at $20,596,454 were
redeemed by a significant shareholder and settled through a
redemption-in-kind transaction, which resulted in a realized gain of
$2,070,337 to the Fund for book purposes. From a federal income tax
perspective, the realized gains are not recognized. Furthermore, the
redemption may trigger limitations under the Internal Revenue Code and
related regulations regarding the amount of capital loss carryforward
available for future utilization by the Fund.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $1,543,808,347 and
$808,202,422, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $350,305,423
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (19,049,471)
==============================================================================
Net unrealized appreciation of investment securities $331,255,952
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,003,124,583.
</Table>
F-11
AIM Large Cap Growth Fund
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
passive foreign investment companies transactions, foreign currency
transactions, a redemption-in-kind transaction and expenses related to the plan
of reorganization, on October 31, 2006, undistributed net investment income
(loss) was increased by $6,073,967, undistributed net realized gain (loss) was
decreased by $2,042,145 and shares of beneficial interest decreased by
$4,031,822. Further, as a result of tax deferrals acquired in the reorganization
of AIM Blue Chip Fund into the Fund, undistributed net investment income (loss)
was decreased by $2,413,368, undistributed net realized gain (loss) was
increased by $183,038,921 and shares of beneficial interest decreased by
$180,625,553. These reclassifications had no effect on the net assets of the
Fund.
NOTE 12--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A, Class
B, Class C, Class R, Investor Class and Institutional Class. Investor Class
shares of the Fund are offered only to certain grandfathered investors.
Class A shares are sold with a front-end sales charge unless certain waiver
criteria are met. Class B shares and Class C shares are sold with CDSC. Class R
shares, Investor Class 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 on or about the month-end which is at least eight years after the date of
purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2006(A) 2005
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,313,552 $ 79,031,698 8,068,287 $ 79,582,099
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,428,981 25,242,050 1,697,858 15,891,658
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,736,978 17,948,117 1,441,223 13,501,428
- --------------------------------------------------------------------------------------------------------------------------
Class R 257,873 2,752,465 81,004 791,982
- --------------------------------------------------------------------------------------------------------------------------
Investor Class 2,925,879 32,053,695 2,718,103 26,734,766
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 8,121,610 89,171,285 10,222,487 101,445,516
==========================================================================================================================
Issued in connection with acquisitions:(b)
Class A 76,630,601 856,263,389 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class B 65,818,985 701,371,944 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class C 13,971,151 148,874,411 -- --
- --------------------------------------------------------------------------------------------------------------------------
Class R 684,951 7,603,848 -- --
- --------------------------------------------------------------------------------------------------------------------------
Investor Class 2,338,111 26,266,730 -- --
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 567,245 6,405,708 -- --
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 5,883,942 63,398,791 359,609 3,505,990
- --------------------------------------------------------------------------------------------------------------------------
Class B (6,181,086) (63,398,791) (374,317) (3,505,990)
==========================================================================================================================
Reacquired:
Class A (18,606,521) (200,875,643) (11,324,312) (112,612,399)
- --------------------------------------------------------------------------------------------------------------------------
Class B (12,775,786) (131,283,628) (3,417,949) (32,049,669)
- --------------------------------------------------------------------------------------------------------------------------
Class C (3,780,840) (38,867,661) (1,943,043) (18,210,281)
- --------------------------------------------------------------------------------------------------------------------------
Class R (162,796) (1,769,374) (152,178) (1,472,633)
- --------------------------------------------------------------------------------------------------------------------------
Investor Class (9,601,772) (104,312,507) (8,480,349) (83,346,472)
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class (8,833,359) (94,845,488) (558,329) (5,593,775)
==========================================================================================================================
128,737,699 $1,421,031,039 (1,661,906) $(15,337,780)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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.
(b) As of the opening of business on March 27, 2006, the Fund acquired all the
net assets of AIM Blue Chip Fund pursuant to a plan of reorganization
approved by the Trustees of the Fund on November 14, 2005 and by the
shareholders of AIM Blue Chip Fund on March 16, 2006. The acquisition was
accomplished by a tax free exchange of 160,011,044 shares of the Fund for
143,598,634 shares of AIM Blue Chip Fund shares outstanding as of the close
of business on March 24, 2006. Each class of shares of AIM Blue Chip Fund
was exchanged for the like class of shares of the Fund based on the relative
net asset value of AIM Blue Chip Fund to the net asset value of the Fund on
the close of business, March 24, 2006. AIM Blue Chip Fund's net assets as of
the close of business on March 24, 2006 of $1,746,786,030 including
$179,650,513 of unrealized appreciation, were combined with the net assets
of the Fund immediately before the acquisition of $888,920,491. The combined
aggregate net assets of the Fund subsequent to the reorganization were
$2,635,706,521.
F-12
AIM Large Cap Growth Fund
NOTE 13--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
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,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.12 $ 9.16 $ 8.88 $ 7.37 $ 8.82
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.02)(a) (0.08)(b) (0.08)(b) (0.09)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.08 0.98 0.36 1.59 (1.36)
=========================================================================================================================
Total from investment operations 1.07 0.96 0.28 1.51 (1.45)
=========================================================================================================================
Net asset value, end of period $ 11.19 $ 10.12 $ 9.16 $ 8.88 $ 7.37
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 10.57% 10.48% 3.15% 20.49% (16.44)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $981,750 $166,860 $177,498 $154,052 $105,320
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.32%(d) 1.47% 1.54% 1.82% 1.70%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.42%(d) 1.56% 1.55% 1.82% 1.70%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.17)%(d) (0.20)%(a) (0.92)% (1.01)% (1.01)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 70% 103% 111% 123% 111%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Net investment income (loss) 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 returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $654,451,350.
F-13
AIM Large Cap Growth Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.69 $ 8.82 $ 8.61 $ 7.20 $ 8.67
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.09)(a) (0.14)(b) (0.12)(b) (0.14)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.01 0.96 0.35 1.53 (1.33)
=========================================================================================================================
Total from investment operations 0.94 0.87 0.21 1.41 (1.47)
=========================================================================================================================
Net asset value, end of period $ 10.63 $ 9.69 $ 8.82 $ 8.61 $ 7.20
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 9.70% 9.86% 2.44% 19.58% (16.96)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $637,594 $103,688 $112,931 $122,011 $104,040
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.07%(d) 2.15% 2.19% 2.47% 2.35%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.17%(d) 2.24% 2.20% 2.47% 2.35%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.92)%(d) (0.88)%(a) (1.57)% (1.66)% (1.66)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 70% 103% 111% 123% 111%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Net investment income (loss) 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 returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $457,381,636.
<Table>
<Caption>
CLASS C
-------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.69 $ 8.83 $ 8.62 $ 7.21 $ 8.67
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.09)(a) (0.14)(b) (0.12)(b) (0.14)(b)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.01 0.95 0.35 1.53 (1.32)
=====================================================================================================================
Total from investment operations 0.94 0.86 0.21 1.41 (1.46)
=====================================================================================================================
Net asset value, end of period $ 10.63 $ 9.69 $ 8.83 $ 8.62 $ 7.21
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 9.70% 9.74% 2.44% 19.56% (16.84)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $179,730 $48,293 $48,420 $44,272 $36,575
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.07%(d) 2.15% 2.19% 2.47% 2.35%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.17%(d) 2.24% 2.20% 2.47% 2.35%
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.92)%(d) (0.88)%(a) (1.57)% (1.66)% (1.66)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 70% 103% 111% 123% 111%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Net investment income (loss) 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 returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $129,929,403.
F-14
AIM Large Cap Growth Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.07 $ 9.13 $ 8.87 $ 7.37 $ 8.40
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.04)(a) (0.10)(b) (0.09)(b) (0.04)(b)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.06 0.98 0.36 1.59 (0.99)
=======================================================================================================================
Total from investment operations 1.03 0.94 0.26 1.50 (1.03)
=======================================================================================================================
Net asset value, end of period $ 11.10 $10.07 $ 9.13 $ 8.87 $ 7.37
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(c) 10.23% 10.30% 2.93% 20.35% (12.26)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,231 $2,330 $2,761 $2,127 $ 9
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.57%(d) 1.65% 1.69% 1.97% 1.85%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.67%(d) 1.74% 1.70% 1.97% 1.85%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.42)%(d) (0.38)%(a) (1.07)% (1.16)% (1.16)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 70% 103% 111% 123% 111%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Net investment income (loss) 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 returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $7,241,672.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-15
AIM Large Cap Growth Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INVESTOR CLASS
---------------------------------------------------------
SEPTEMBER 30, 2003
(DATE SALES
YEAR ENDED OCTOBER 31, COMMENCED) TO
----------------------------------- OCTOBER 31,
2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.18 $ 9.20 $ 8.88 $ 8.24
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.01)(a) (0.05)(b)(c) (0.01)(b)
- -----------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.08 0.99 0.37 0.65
=======================================================================================================================
Total from investment operations 1.07 0.98 0.32 0.64
=======================================================================================================================
Net asset value, end of period $ 11.25 $ 10.18 $ 9.20 $ 8.88
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(d) 10.51% 10.65% 3.60%(c) 7.77%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $347,621 $358,498 $376,905 $ 174
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.27%(e) 1.34% 1.19%(c) 1.56%(f)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.37%(e) 1.43% 1.42% 1.56%(f)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.12)%(e) (0.07)%(a) (0.57)%(c) (0.75)%(f)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(g) 70% 103% 111% 123%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Net investment income (loss) 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 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 returns for
shareholder transactions. Not annualized for periods less than one year.
(e) Ratios are based on average daily net assets of $364,450,747.
(f) Annualized.
(g) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
----------------------- OCTOBER 31,
2006 2005 2004
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.21 $ 9.18 $ 9.13
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.03(a) (0.01)(b)
- -------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.09 1.00 0.06
=======================================================================================================
Total from investment operations 1.14 1.03 0.05
=======================================================================================================
Net asset value, end of period $ 11.35 $ 10.21 $ 9.18
_______________________________________________________________________________________________________
=======================================================================================================
Total return(c) 11.17% 11.22% 0.55%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $135,466 $123,368 $22,190
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.74%(d) 0.81% 0.92%(e)
- -------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.76%(d) 0.88% 0.93%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets 0.41%(d) 0.46%(a) (0.30)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 70% 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 per share and the ratio of net investment income 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 returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $163,263,707.
(e) Annualized.
(f) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-16
AIM Large Cap Growth Fund
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State
Auditor -- Securities Commission ("WVASC") issued a Summary Order to Cease and
Desist and Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The
WVASC makes findings of fact that AIM and ADI entered into certain arrangements
permitting market timing of the AIM Funds and failed to disclose these
arrangements in the prospectuses for such Funds, and conclusions of law to the
effect that AIM and ADI violated the West Virginia securities laws. The WVASC
orders AIM and ADI to cease any further violations and seeks to impose monetary
sanctions, including restitution to affected investors, disgorgement of fees,
reimbursement of investigatory, administrative and legal costs and an
"administrative assessment," to be determined by the Commissioner. Initial
research indicates that these damages could be limited or capped by statute.
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; and
- 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 (all the claims in this category of
lawsuits were dismissed with prejudice by the court on September 29, 2006,
except for the Section 36(b) claim which was dismissed with leave to amend
to plead it properly as a derivative claim).
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
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are
F-17
AIM Large Cap Growth Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
providing full cooperation with respect to these inquiries. Regulatory actions
and/or additional civil lawsuits related to these or other issues may be filed
against the AIM Funds, IFG, AIM and/or related entities and individuals in the
future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-18
AIM Large Cap Growth Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Equity Funds
and Shareholders of AIM Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Large Cap Growth Fund (one of
the funds constituting AIM Equity Funds, hereafter referred to as the "Fund") at
October 31, 2006, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for each of the two years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before October 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated December 15, 2004, expressed an unqualified opinion on those financial
highlights.
PRICEWATERHOUSECOOPERS LLP
December 20, 2006
Houston, Texas
F-19
AIM Large Cap Growth Fund
TAX DISCLOSURES
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDERS
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 12.31%, 16.12%, 22.56% and 18.68%, respectively.
F-20
AIM Large Cap Growth Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-21
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Large Cap Growth Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
F-22
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CONSIDER THE INVESTMENT OBJECTIVES,RISKS,AND CHARGES AND
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- ------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash
Funds Products Savings Managed Products Management
Plans Accounts [AIM INVESTMENTS LOGO APPEARS HERE]
- ------------------------------------------------------------------------------ --Registered Trademark--
AIM Select Basic
Value Fund
Annual Report to Shareholders o October 31, 2006
DOMESTIC EQUITY
Large-Cap Value
Table of Contents
Supplemental Information......... 2
Letters to Shareholders.......... 3
Performance Summary.............. 5
Management Discussion............ 5
Fund Expenses.................... 7
Long-term Fund Performance....... 8
Approval of Advisory Agreement... 10
Schedule of Investments.......... F-1
Financial Statements............. F-3
Notes to Financial Statements.... F-6
Financial Highlights.............F-13
Auditor's Report.................F-18
Tax Disclosures..................F-19 [COVER GLOBE IMAGE]
Trustees and Officers............F-20
[AIM INVESTMENT SOLUTIONS]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[DOMESTIC [INTERNATIONAL/ [SECTOR
EQUITY] GLOBAL EQUITY] EQUITY]
[GRAPHIC] [GRAPHIC] [GRAPHIC]
[FIXED [ALLOCATION [DIVERSIFIED
INCOME] SOLUTIONS] PORTFOLIOS]
[AIM INVESTMENTS LOGO APPEARS HERE]
--REGISTERED TRADEMARK--
AIM Select Basic Value Fund
===================================================================================================================================
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, 2006, and is based on total net assets.
===================================================================================================================================
About share classes About indexes used in this report o Industry classifications used in this
report are generally according to the
o The Fund is not currently offered to the o The unmanaged Lipper Multi-Cap Value Global Industry Classification Standard,
public. Funds Index represents an average of the which was developed by and is the
performance of the 30 largest exclusive property and a service mark of
o Class B shares are not available as an multi-capitalization value funds tracked by Morgan Stanley Capital International Inc.
investment for retirement plans maintained Lipper Inc., an independent mutual fund and Standard & Poor's.
pursuant to Section 401 of the Internal performance monitor.
Revenue Code, including 401(k) plans, The Fund provides a complete list of its
money purchase pension plans and profit o The unmanaged Russell 1000 --REGISTERED holdings four times in each fiscal year,
sharing plans. TRADEMARK-- Value Index is a subset of the at the quarter-ends. For the second and
unmanaged Russell 1000 Index, which fourth quarters, the lists appear in the
Principal risks of investing in the Fund represents the performance of the stocks of Fund's semiannual and annual reports to
large-capitalization companies; the Value shareholders. For the first and third
o Foreign securities have additional subset measures the performance of Russell quarters, the Fund files the lists with
risks, including exchange rate changes, 1000 companies with lower price/book ratios the Securities and Exchange Commission
political and economic upheaval, the and lower forecasted growth values. (SEC) on Form N-Q. The most recent list
relative lack of information about these of portfolio holdings is available at
companies, relatively low market liquidity o The unmanaged Standard & Poor's Composite AIMinvestments.com. From our home page,
and the potential lack of strict financial Index of 500 Stocks (the S&P 500 click on Products & Performance, then
and accounting controls and standards. --REGISTERED TRADEMARK-- Index) is an index Mutual Funds, then Fund Overview. Select
of common stocks frequently used as a your Fund from the drop-down menu and
o Investing in a fund that invests in general measure of U.S. stock market click on Complete Quarterly Holdings.
smaller companies involves risks not performance. Shareholders can also look up the Fund's
associated with investing in more Forms N-Q on the SEC Web site at sec.gov.
established companies, such as business o The Fund is not managed to track the Copies of the Fund's Forms N-Q may be
risk, stock price fluctuations and performance of any particular index, reviewed and copied at the SEC Public
illiquidity. including the indexes defined here, and Reference Room in Washington, D.C. You
consequently, the performance of the Fund can obtain information on the operation
o Prices of equity securities change in may deviate significantly from the of the Public Reference Room, including
response to many factors including the performance of the index. information about duplicating fee
historical and prospective earnings of the charges, by calling 202-942-8090 or
issuer, the value of its assets, general o A direct investment cannot be made in an 800-732-0330, or by electronic request at
economic conditions, interest rates, index. Unless otherwise indicated, index the following e-mail address:
investor perceptions and market liquidity. results include reinvested dividends, and publicinfo@sec.gov. The SEC file numbers
they do not reflect sales charges. for the Fund are 811-01424 and 002-25469.
o The value of convertible securities in Performance of an index of funds reflects
which the Fund invests may be affected by fund expenses; performance of a market A description of the policies and
market interest rates, the risk that the index does not. procedures that the Fund uses to
issuer may default on interest or determine how to vote proxies relating to
principal payments and the value of the Other information portfolio securities is available without
underlying common stock into which these charge, upon request, from our Client
securities may be converted. o The returns shown in the management's Services department at 800-959-4246 or on
discussion of Fund performance are based on the AIM Web site, AIMinvestments.com. On
o Debt securities are particularly net asset values calculated for shareholder the home page, scroll down and click on
vulnerable to credit risk and interest transactions. Generally accepted accounting AIM Funds Proxy Policy. The information
rate fluctuations principles require adjustments to be made is also available on the SEC Web site,
to the net assets of the Fund at period end sec.gov.
o Because a large percentage of the Fund's for financial reporting purposes, and as
assets may be invested in a limited number such, the net asset values for shareholder Information regarding how the Fund voted
of securities, a change in the value of transactions and the returns based on those proxies related to its portfolio
these securities could significantly net asset values may differ from the net securities during the 12 months ended
affect the value of your investment in the asset values and returns reported in the June 30, 2006, is available at our Web
Fund. Financial Highlights. 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 SEC 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.
=============================================================================
=================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=================================================
AIMINVESTMENTS.COM
2
AIM Select Basic Value Fund
Dear Shareholders of The AIM Family of Funds --REGISTERED
TRADEMARK--:
We're pleased to provide you with this report, which
includes a discussion of how your Fund was managed during
[TAYLOR the review period ended October 31, 2006, and what
PHOTO] factors affected its performance.
As we approach the end of 2006, it seems likely that
Philip Taylor many investors may see the value of their investments
increase this year. Global equity markets, collectively,
recorded double-digit gains for the year ended October
31, 2006, as did the U.S. stock market. Also, the
investment grade bond market in the United States rose
for the same period.
While stock and bond markets generally enjoyed
positive year-to-date returns, their performance was
affected by short-term economic and geopolitical events.
For example, the U.S. stock market was weak in the second
quarter of 2006 when it appeared that inflation might be
rising. Only after the U.S. Federal Reserve Board decided
in August that inflation was contained and that
short-term interest rates need not be increased--the
first time it kept rates unchanged in more than two
years--did equities truly surge.
Short-term market fluctuations are a fact of life for
all investors. At AIM Investments --REGISTERED
TRADEMARK--, we believe that investors can do two things
to deal with short-term market fluctuations: maintain a
long-term investment horizon and maintain a diversified
portfolio. AIM Investments can help by offering a broad
product line that gives your financial advisor the
necessary tools to build a portfolio that's right for you
regardless of market conditions. AIM Investments offers a
comprehensive range of retail mutual funds, including
domestic, global and international equity funds, taxable
and tax-exempt fixed-income funds, and a variety of
allocation portfolios--with varied risk and return
characteristics to match your needs. We maintain this
extensive set of product solutions for one reason: We
believe in the value of comprehensive, diversified
investment portfolios.
We've changed the look of our annual reports to
reflect that belief. In our marketing and now our
shareholder literature, we represent a fully diversified
portfolio graphically as an allocation pie chart and
assign each asset class a color--green for domestic
equity, blue for international, orange for sector and
purple for fixed income. A legend in the left column
illustrates the methodology. Your report cover now shows
your Fund's asset class color, plus the asset class and
sub-asset class name are shown in the upper-left corner.
The reason for these changes is to help you better
understand where your Fund fits into your overall
portfolio.
AIM has a variety of investment solutions, and knowing
which ones are right for your portfolio is complex.
That's why we also believe in the value of a trusted
financial advisor who will work with you to create an
investment plan you can stick with for the long term.
Your financial advisor can help allocate your portfolio
appropriately and review your investments regularly to
help ensure they remain suitable as your financial
situation changes. While there are no guarantees with any
investment program, a long-term plan that's based on your
financial goals, risk tolerance and time horizon is more
likely to keep you and your investments on track.
Our commitment to you
In the short term, the one sure thing about markets is
their unpredictability. While past performance cannot
guarantee comparable future results, we believe that
staying invested for the long term with a thoughtful plan
offers the best opportunity for weathering that
unpredictability. We at AIM Investments remain committed
to building enduring solutions to help you achieve your
investment goals, and we're pleased you've placed your
trust in us.
Information about investing, the markets and your Fund
is always available on our Web site, AIMinvestments.com.
If you have questions about your individual account, we
invite you to contact one of our highly trained client
services representatives at 800-959-4246.
Sincerely,
/S/ PHILIP TAYLOR
Philip Taylor
President - AIM Funds
CEO, AIM Investments
December 14, 2006
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.
3
AIM Select Basic Value Fund
Dear Fellow AIM Fund Shareholders:
At our meeting at the end of June, your Board completed
its comprehensive review* of each fund's advisory
[CROCKETT agreement with A I M Advisors, Inc. (AIM) to make certain
PHOTO] your interests are being served in terms of fees,
performance and operations.
Looking ahead, your Board finds many reasons to be
Bruce L. Crockett positive about AIM's management and strategic direction.
Most importantly, AIM's investment management discipline
has paid off in terms of improved overall performance. We
are also pleased with AIM's efforts to seek more
cost-effective ways of delivering superior service.
In addition, AIM is realizing the benefits of
belonging to a leading independent global investment
management organization in its parent company, AMVESCAP
PLC, which is dedicated to helping people worldwide build
their financial security. AMVESCAP managed approximately
$450 billion globally as of October 31, 2006, operating
under the AIM, INVESCO, AIM Trimark, INVESCO PERPETUAL
and Atlantic Trust brands. These companies are home to an
abundance of investment talent that is gradually being
integrated and leveraged into centers of excellence, each
focusing on a given market segment or asset class. Over
the next few years, your Board will be meeting at these
various centers of excellence to learn about their
progress and how they may serve you through our goal of
enhancing performance and reducing costs.
The seven new AIM funds--which include Asian funds,
structured U.S. equity funds and specialized bond
funds--are an early example of the kind of opportunities
the AMVESCAP organization can provide AIM clients. More
information on these funds can be found on AIM's Web
site.
Your Board is very pleased with the overall
direction and progress of the AIM Funds. We're working
closely and effectively with AIM's management to continue
this momentum. As always, your Board is eager to hear
your views on how we might better serve you. Please send
your comments in a letter addressed to me at AIM
Investments, AIM Investments Tower, 11 Greenway Plaza,
Suite 100, Houston TX 77046.
Sincerely,
/S/ BRUCE L. CROCKETT
Bruce L. Crockett
Independent Chair
AIM Funds Board
December 14, 2006
*To learn more about all the factors we considered before
approving each fund's advisory agreement, go to the
"Products & Performance" tab at the AIM Web site
(AIMinvestments.com) and click on "Investment Advisory
Agreement Renewals." The approval of advisory agreement
information for your Fund is also included in this annual
report on pages 10-11.
4
AIM Select Basic Value Fund
Management's discussion of Fund performance tations of our process. First, the
investment strategy is intended to
======================================================================================== preserve your capital while growing it at
above-market rates over the long term.
PERFORMANCE SUMMARY Second, our investments have little in
common with popular benchmark indexes and
For the fiscal year ended October 31, 2006, Class A shares of AIM Select Basic Value most of our peers. And third, the Fund's
Fund, excluding applicable sales charges, underperformed the S&P 500 Index, the Russell short-term relative performance will
1000 Value Index and the Lipper Multi-Cap Value Funds Index. naturally be different than the market
and peers and have little information
We attribute the Fund's underperformance versus its broad market and style-specific value since we simply don't own the same
indexes to below-market returns from selected investments in the information technology stocks.
and consumer discretionary sectors. Top contributors to performance were selected
investments in the financials, industrials and health care sectors. MARKET CONDITIONS AND YOUR FUND
Your Fund's long-term performance appears on pages 8 and 9. Equity markets posted healthy gains
during the fiscal year as favorable
FUND VS. INDEXES economic data and solid corporate profits
overshadowed housing market concerns
Total returns, 10/31/05-10/31/06, excluding applicable sales charges. If sales charges along with volatility and investor
were included, returns would be lower. uncertainty regarding interest rates and
oil prices. The telecommunication
Class A Shares 14.21% services and materials sectors led the
Class B Shares 14.21 market for the fiscal year while
Class C Shares 14.21 information technology and health care
S&P 500 Index (Broad Market Index) 16.33 stocks generally trailed.
Russell 1000 Value Index (Style-Specific Index) 21.46
Lipper Multi-Cap Value Funds Index (Peer Group Index) 17.74 The Fund's financials stocks were
Source: Lipper Inc. among the largest contributors to Fund
performance. A robust capital markets
======================================================================================== environment combined with generally
favorable operating fundamentals across
HOW WE INVEST o Companies have a measurable estimated most other business lines led to
intrinsic value. Importantly, this substantial share price increases for
We seek to create wealth by maintaining a estimated fair value is independent of the Fund holdings JPMORGAN CHASE and MERRILL
long term investment horizon and investing company's stock price. LYNCH. JPMorgan Chase made a significant
in companies that are selling at a contribution to Fund performance as the
significant discount to their estimated o Market prices are more volatile than company continued to drive towards its
intrinsic value--a value that is based on business values, partly because investors profitability goals in virtually all of
the estimated future cash flows generated regularly overreact to negative news. its business lines. FANNIE MAE also
by the business. The Fund's philosophy is contributed to Fund performance as
based on two elements that we believe have Since our application of this strategy concerns over past accounting issues
extensive empirical evidence: is highly disciplined and relatively dissipated and
unique, it is important to understand the
benefits and limi- (continued)
========================================== =========================================== =========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES TOP 10 EQUITY HOLDINGS
By sector 1. Pharmaceuticals 8.8% 1. Cardinal Health, Inc. 5.4%
2. Other Diversified 8.0 2. JPMorgan Chase & Co. 4.5
[PIE CHART] Financial Services 3. Merrill Lynch & Co., Inc. 4.5
3. Advertising 6.1 4. UnitedHealth Group Inc. 4.3
Industrials 12.3% 4. Systems Software 5.5 5. Molson Coors Brewing Co.-Class B 4.1
Consumer Discretionary 11.1% 5. Health Care Distributors 5.4 6. Tyco International Ltd. 3.9
Energy 6.9% 7. Interpublic Group of Cos., Inc. 3.9
Consumer Staples 4.1% Total Net Assets $1.56 million (The)
Materials 2.7% 8. Fannie Mae 3.8
Other Assets Less Liabilities 0.8% Total Number of Holdings 32 9. Sanofi-Aventis (France) 3.7
Financials 21.9% 10. Transocean Inc. 3.7
Health Care 21.3%
Information Technology 18.9%
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
========================================== =========================================== =========================================
5
AIM Select Basic Value Fund
<Table>
investors focused on the company's PORTFOLIO ASSESSMENT Bret W. Stanley
compelling fundamentals. Chartered Financial
We believe the single most important [STANLEY Analyst, senior
A modest number of Fund holdings indicator of the way AIM Select Basic Value PHOTO] portfolio manager, is
posted price declines during the reporting Fund is positioned for potential success is lead manager of AIM
period. The Fund's largest detractors from not our historical investment results or Select Basic Value Fund.
performance were Dell, Cendant and CA. popular statistical measures, but the He began his investment career in 1988
After selling its travel distribution portfolio's estimated intrinsic value--the and joined AIM in 1998. Mr. Stanley
business, Cendant split into three aggregate business value of the portfolio earned a B.B.A. in finance from The
separate operating companies: Realogy based on our estimate of intrinsic value University of Texas at Austin and an M.S.
(real estate), Wyndam Worldwide for each individual holding. At the close in finance from the University of
(hospitality) and Avis Budget Group (car of the reporting period, and in our Houston.
rental). Following the split, the Fund opinion, the difference between the market
retained only its position in Realogy. price and the estimated intrinsic value of R. Canon Coleman II
the portfolio was above the Fund's Chartered Financial
Enterprise software firm CA's stock historical average and what we believed was [COLEMAN Analyst, portfolio
declined during the fiscal year as a available in the broad market. While there PHOTO] manager, is manager of
result of investor concerns regarding is no assurance that market value will ever AIM Select Basic Value
senior management turnover, reflect our estimate of the portfolio's Fund. He joined AIM in
weaker-than-expected quarterly earnings intrinsic value, as managers and 2000. Mr. Coleman earned a B.S. and an
and a stock options issue. Despite these shareholders we believe this provides the M.S. in accounting from the University of
short-term headwinds, our estimate of best indication that your Fund is Florida. He also earned an M.B.A. from
fundamental intrinsic value for CA positioned to potentially achieve its the Wharton School at the University of
remained unchanged. objective of long-term growth of capital. Pennsylvania.
During the fiscal year, we reduced IN CLOSING Matthew W.
the Fund's energy sector exposure. While Seinsheimer
we continued to believe this energy cycle We remain optimistic about AIM Select Basic [SEINSHEIMER Chartered Financial
is based on sound fundamentals, our Value Fund's portfolio. As always, we are PHOTO] Analyst, senior
analysis led us to conclude current energy continually searching for opportunities to portfolio manager, is
equity valuations warranted less exposure increase the portfolio's estimated manager of AIM Select
to the sector. intrinsic value. We thank you for your Basic Value Fund. He began his investment
investment and for sharing our long-term career in 1992 and joined AIM in 1998. He
During the fiscal year, we also sold horizon. earned a B.B.A. from Southern Methodist
our positions in McKesson and WellPoint University and an M.B.A. from The
based on valuation and other portfolio The views and opinions expressed in University of Texas at Austin.
considerations. We initiated positions in management's discussion of Fund performance
Dell, Microsoft and UnitedHealth Group. are those of A I M Advisors, Inc. These Michael J. Simon
While Dell and Microsoft's growth and views and opinions are subject to change at Chartered Financial
business models are in the early stages of any time based on factors such as market [SIMON Analyst, senior
a transition, we believe current market and economic conditions. These views and PHOTO] portfolio manager, is
valuations do not reflect the long-term opinions may not be relied upon as manager of AIM Select
positives of their dominant market investment advice or recommendations, or as Basic Value Fund. He
positions and the compelling economics of an offer for a particular security. The began his investment career in 1989 and
their businesses. In September, long-time information is not a complete analysis of joined AIM in 2001. Mr. Simon earned a
Fund holding First Data spun off its every aspect of any market, country, B.B.A. in finance from Texas Christian
Western Union subsidiary; we continued to industry, security or the Fund. Statements University and an M.B.A. from the
own the stocks of both companies at the of fact are from sources considered University of Chicago.
close of the fiscal year. reliable, but A I M Advisors, Inc. makes no
representation or warranty as to their Assisted by the Basic Value Team
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 on the inside front cover.
For a presentation of your Fund's
long-term performance, please see pages 8
and 9.
6
AIM Select Basic Value Fund
Calculating your ongoing Fund expenses
Example together with the amount you invested, to The hypothetical account values and
estimate the expenses that you paid over expenses may not be used to estimate the
As a shareholder of the Fund, you incur the period. Simply divide your account actual ending account balance or expenses
two types of costs: (1) transaction costs, value by $1,000 (for example, an $8,600 you paid for the period. You may use this
which may include sales charges (loads) on account value divided by $1,000 = 8.6), information to compare the ongoing costs
purchase payments or contingent deferred then multiply the result by the number in of investing in the Fund and other funds.
sales charges on redemptions, and the table under the heading entitled To do so, compare this 5% hypothetical
redemption fees, if any; and (2) ongoing "Actual Expenses Paid During Period" to example with the 5% hypothetical examples
costs, including management fees; estimate the expenses you paid on your that appear in the shareholder reports of
distribution and/or service (12b-1) fees; account during this period. the other funds
and other Fund expenses. This example is
intended to help you understand your Hypothetical example for comparison Please note that the expenses shown
ongoing costs (in dollars) of investing in purposes in 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 transaction 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,
beginning of the period and held for the actual expense ratio and an assumed rate of and redemption fees, if any. Therefore,
entire period May 1, 2006, through October return of 5% per year before expenses, the hypothetical information is useful in
31, 2006. which is not the Fund's actual return. The comparing ongoing costs only, and will
Fund's actual cumulative total returns at not 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, 2006, appear in addition, if these transaction costs were
The table below provides information about the table "Cumulative Total Returns" on included, your costs would have been
actual account values and actual expenses. page 9. higher.
You may use the information in this table,
====================================================================================================================================
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 (5/01/06) (10/31/06)(1) PERIOD(2) (10/31/06) PERIOD(2) RATIO
A $1,000.00 $1,021.00 $9.12 $1,016.18 $9.10 1.79%
B 1,000.00 1,021.00 9.12 1,016.18 9.10 1.79
C 1,000.00 1,021.00 9.12 1,016.18 9.10 1.79
(1) The actual ending account value is based on the actual total return of the Fund for the period May 1, 2006, through October 31,
2006, 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, 2006, appear in the table "Cumulative Total Returns" on page 9.
(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.
====================================================================================================================================
7
AIM Select Basic Value Fund
Your Fund's long-term performance
Results of a $10,000 Investment
Fund data from 8/30/02, index data from 8/31/02
<Table>
Past performance cannot guarantee Performance of an index of funds
comparable future results. reflects fund expenses and management fees;
performance of a market index does not.
The data shown in the chart include Performance shown in the chart and table(s)
reinvested distributions, applicable sales does not reflect deduction of taxes a
charges, Fund expenses and management shareholder would pay on Fund distributions
fees. Results for Class B shares are or sale of Fund shares. Performance of the
calculated as if a hypothetical indexes does not reflect the effects of
shareholder had liquidated his entire taxes.
investment in the Fund at the close of the
reporting period and paid the applicable
contingent deferred sales charges. Index
results include reinvested dividends, but
they do not reflect sales charges.
8
==============================================================================================================
[MOUNTAIN CHART]
DATE AIM SELECT BASIC AIM SELECT BASIC AIM SELECT BASIC RUSSELL 1000 S&P 500 LIPPER MULTI-VALUE
VALUE FUND VALUE FUND VALUE FUND VALUE INDEX INDEX FUNDS INDEX
-CLASS A SHARES -CLASS B SHARES -CLASS C SHARES
8/30/02 $ 9450 $10000 $10000
8/02 9450 10000 10000 $10000 $10000 $10000
9/02 7995 8460 8460 8888 8914 8916
10/02 8628 9130 9130 9547 9698 9393
11/02 9393 9940 9940 10148 10268 10093
12/02 8807 9320 9320 9707 9665 9647
1/03 8597 9097 9097 9472 9413 9449
2/03 8233 8712 8712 9220 9271 9206
3/03 8252 8732 8732 9235 9361 9241
4/03 9036 9562 9562 10048 10132 10044
5/03 10078 10664 10664 10697 10665 10883
6/03 10259 10856 10856 10830 10801 10963
7/03 10584 11200 11200 10992 10992 11114
8/03 10871 11504 11504 11163 11206 11462
9/03 10680 11301 11301 11054 11087 11330
10/03 11139 11787 11787 11730 11714 11954
11/03 11378 12041 12041 11890 11817 12209
12/03 12058 12759 12759 12622 12436 12810
1/04 12182 12891 12891 12844 12664 13081
2/04 12421 13144 13144 13120 12840 13330
3/04 12449 13174 13174 13005 12647 13213
4/04 12373 13093 13093 12687 12448 12970
5/04 12412 13134 13134 12816 12619 13031
6/04 12698 13437 13437 13119 12864 13399
7/04 11953 12649 12649 12934 12438 13016
8/04 11867 12558 12558 13118 12488 13061
9/04 11982 12679 12679 13322 12624 13325
10/04 12068 12771 12771 13543 12816 13500
11/04 12756 13499 13499 14228 13335 14207
12/04 13342 14118 14118 14704 13788 14720
1/05 13082 13843 13843 14443 13452 14400
2/05 13232 14002 14002 14922 13735 14780
3/05 12912 13663 13663 14717 13492 14570
4/05 12611 13345 13345 14454 13237 14222
5/05 12951 13705 13705 14802 13657 14685
6/05 13152 13918 13918 14964 13677 14865
7/05 13573 14363 14363 15397 14185 15367
8/05 13273 14046 14046 15330 14056 15253
9/05 13262 14034 14034 15545 14170 15381
10/05 12932 13685 13685 15150 13933 15004
11/05 13373 14152 14152 15648 14460 15508
12/05 13766 14568 14568 15741 14465 15652
1/06 14280 15111 15111 16353 14848 16169
2/06 14248 15078 15078 16453 14888 16194
3/06 14417 15256 15256 16676 15073 16460
4/06 14468 15311 15311 17099 15276 16786
5/06 13893 14701 14701 16667 14837 16354
6/06 13683 14479 14479 16774 14856 16321
7/06 13577 14368 14368 17182 14948 16373
8/06 13902 14711 14711 17469 15303 16688
9/06 14195 15022 15022 17817 15697 17064
10/06 14772 15529 15629 18401 16208 17665
==============================================================================================================
SOURCE: LIPPER INC.
AIM Select Basic Value Fund
<Table>
========================================== =========================================== =========================================
Average Annual Total Returns Average Annual Total Returns Cumulative Total Returns
As of 10/31/06, including applicable sales As of 9/30/06, the most recent calendar 6 months ended 10/31/06, excluding
charges quarter-end, including applicable sales applicable sales charges
charges
Class A Shares Class A Shares 2.10%
Inception (8/30/02) 9.81% Class A Shares Class B Shares 2.10
1 Year 7.95 Inception (8/30/02) 8.96% Class C Shares 2.10
1 Year 1.15
Class B Shares =========================================
Inception (8/30/02) 11.13% Class B Shares
1 Year 9.21 Inception (8/30/02) 10.29%
1 Year 2.03
Class C Shares
Inception (8/30/02) 11.30% Class C Shares
1 Year 13.21 Inception (8/30/02) 10.47%
1 Year 6.03
========================================== ===========================================
The performance data quoted represent past performance reflects the applicable
performance and cannot guarantee contingent deferred sales charge (CDSC) for
comparable future results; current the period involved. The CDSC on Class B
performance may be lower or higher. Please shares declines from 5% beginning at the
visit AIMinvestments.com for the most time of purchase to 0% at the beginning of
recent month-end performance. Performance the seventh year. The CDSC on Class C
figures reflect reinvested distributions, shares is 1% for the first year after
changes in net asset value and the effect purchase.
of the maximum sales charge unless
otherwise stated. Investment return and The performance of the Fund's share
principal value will fluctuate so that you classes will differ primarily due to
may have a gain or loss when you sell different sales charge structures and class
shares. expenses.
Class A share performance reflects Had the advisor not waived fees and/or
the maximum 5.50% sales charge, and Class reimbursed expenses, performance would have
B and Class C share been lower.
9
AIM Select Basic Value Fund
Approval of Investment Advisory Agreement
<Table>
The Board of Trustees of AIM Equity Funds Agreement was appropriate and that AIM the independent written evaluation of the
(the "Board") oversees the management of currently is providing services in Fund's Senior Officer (discussed below)
AIM Select Basic Value Fund (the "Fund") accordance with the terms of the Advisory only considered Fund performance through
and, as required by law, determines Agreement. the most recent calendar year, the Board
annually whether to approve the also reviewed more recent Fund
continuance of the Fund's advisory o The quality of services to be provided by performance, which did not change their
agreement with A I M Advisors, Inc. AIM. The Board reviewed the credentials and conclusions.
("AIM"). Based upon the recommendation of experience of the officers and employees of
the Investments Committee of the Board, at AIM who will provide investment advisory o Meetings with the Fund's portfolio
a meeting held on June 27, 2006, the services to the Fund. In reviewing the managers and investment personnel. With
Board, including all of the independent qualifications of AIM to provide investment respect to the Fund, the Board is meeting
trustees, approved the continuance of the advisory services, the Board considered periodically with such Fund's portfolio
advisory agreement (the "Advisory such issues as AIM's portfolio and product managers and/or other investment
Agreement") between the Fund and AIM for review process, various back office support personnel and believes that such
another year, effective July 1, 2006. functions provided by AIM and AIM's equity individuals are competent and able to
and fixed income trading operations. Based continue to carry out their
The Board considered the factors on the review of these and other factors, responsibilities under the Advisory
discussed below in evaluating the fairness the Board concluded that the quality of Agreement.
and reasonableness of the Advisory services to be provided by AIM was
Agreement at the meeting on June 27, 2006 appropriate and that AIM currently is o Overall performance of AIM. The Board
and as part of the Board's ongoing providing satisfactory services in considered the overall performance of AIM
oversight of the Fund. In their accordance with the terms of the Advisory in providing investment advisory and
deliberations, the Board and the Agreement. portfolio administrative services to the
independent trustees did not identify any Fund and concluded that such performance
particular factor that was controlling, o The performance of the Fund relative to was satisfactory.
and each trustee attributed different comparable funds. The Board reviewed the
weights to the various factors. performance of the Fund during the past one o Fees relative to those of clients of
and three calendar years against the AIM with comparable investment
One responsibility of the independent performance of funds advised by other strategies. The Board noted that AIM does
Senior Officer of the Fund is to manage advisors with investment strategies not serve as an advisor to other mutual
the process by which the Fund's proposed comparable to those of the Fund. The Board funds or other clients with investment
management fees are negotiated to ensure noted that the Fund's performance was below strategies comparable to those of the
that they are negotiated in a manner which the median performance of such comparable Fund.
is at arms' length and reasonable. To that funds for the one year period and
end, the Senior Officer must either comparable to such median performance for o Fees relative to those of comparable
supervise a competitive bidding process or the three year period. The Board also noted funds with other advisors. The Board
prepare an independent written evaluation. that the Fund is currently in incubation reviewed the advisory fee rate for the
The Senior Officer has recommended an and has no public shareholders. Based on Fund under the Advisory Agreement. The
independent written evaluation in lieu of this review and after taking account of all Board compared effective contractual
a competitive bidding process and, upon of the other factors that the Board advisory fee rates at a common asset
the direction of the Board, has prepared considered in determining whether to level at the end of the past calendar
such an independent written evaluation. continue the Advisory Agreement for the year and noted that the Fund's rate was
Such written evaluation also considered Fund, the Board concluded that no changes comparable to the median rate of the
certain of the factors discussed below. In should be made to the Fund and that it was funds advised by other advisors with
addition, as discussed below, the Senior not necessary to change the Fund's investment strategies comparable to those
Officer made a recommendation to the Board portfolio management team at this time. of the Fund that the Board reviewed. The
in connection with such written Although the independent written evaluation Board noted that AIM has agreed to waive
evaluation. of the Fund's Senior Officer (discussed advisory fees of the Fund and to limit
below) only considered Fund performance the Fund's total operating expenses, as
The discussion below serves as a through the most recent calendar year, the discussed below. The Board also noted
summary of the Senior Officer's Board also reviewed more recent Fund that the Fund is currently in incubation
independent written evaluation and performance, which did not change their and has no public shareholders. Based on
recommendation to the Board in connection conclusions. this review, the Board concluded that the
therewith, as well as a discussion of the advisory fee rate for the Fund under the
material factors and the conclusions with o The performance of the Fund relative to Advisory Agreement was fair and
respect thereto that formed the basis for indices. The Board reviewed the performance reasonable.
the Board's approval of the Advisory of the Fund during the past one and three
Agreement. After consideration of all of calendar years against the performance of o Expense limitations and fee waivers.
the factors below and based on its the Russell 1000 Value Index. The Board The Board noted that AIM has
informed business judgment, the Board noted that the Fund's performance was below contractually agreed to waive advisory
determined that the Advisory Agreement is the performance of such Index for the one fees of the Fund through June 30, 2007 to
in the best interests of the Fund and its year period and comparable to such Index the extent necessary so that the advisory
shareholders and that the compensation to for the three year period. The Board also fees payable by the Fund do not exceed a
AIM under the Advisory Agreement is fair noted that the performance of such Index specified maximum advisory fee rate,
and reasonable and would have been does not reflect fees, while the which maximum rate includes breakpoints
obtained through arm's length performance of the Fund does reflect fees. and is based on net asset levels. The
negotiations. The Board also noted that the Fund is Board considered the contractual nature
currently in incubation and has no public of this fee waiver and noted that it
Unless otherwise stated, information shareholders. Based on this review and remains in effect until June 30, 2007.
presented below is as of June 27, 2006 and after taking account of all of the other The Board also noted that AIM has
does not reflect any changes that may have factors that the Board considered in voluntarily agreed to waive fees and/or
occurred since June 27, 2006, including determining whether to continue the limit expenses of the Fund in an amount
but not limited to changes to the Fund's Advisory Agreement for the Fund, the Board necessary to limit total annual operating
performance, advisory fees, expense concluded that no changes should be made to expenses to a specified percentage of
limitations and/or fee waivers. the Fund and that it was not necessary to average daily net assets for each class
change the Fund's portfolio management team of the Fund. The Board considered the
o The nature and extent of the advisory at this time. Although voluntary nature of this fee
services to be provided by AIM. The Board waiver/expense limitation and noted that
reviewed the services to be provided by it can be terminated at any time by AIM
AIM under the Advisory Agreement. Based on without further notice to investors. The
such review, the Board concluded that the Board also noted that the Fund is
range of services to be provided by AIM currently in incubation and has no public
under the Advisory shareholders. The Board con-
(continued)
10
AIM Select Basic Value Fund
<Table>
sidered the effect these fee o Independent written evaluation and o Historical relationship between the
waivers/expense limitations would have on recommendations of the Fund's Senior Fund and AIM. In determining whether to
the Fund's estimated expenses and Officer. The Board noted that, upon their continue the Advisory Agreement for the
concluded that the levels of fee direction, the Senior Officer of the Fund, Fund, the Board also considered the prior
waivers/expense limitations for the Fund who is independent of AIM and AIM's relationship between AIM and the Fund, as
were fair and reasonable. affiliates, had prepared an independent well as the Board's knowledge of AIM's
written evaluation in order to assist the operations, and concluded that it was
o Breakpoints and economies of scale. The Board in determining the reasonableness of beneficial to maintain the current
Board reviewed the structure of the Fund's the proposed management fees of the AIM relationship, in part, because of such
advisory fee under the Advisory Agreement, Funds, including the Fund. The Board noted knowledge. The Board also reviewed the
noting that it includes two breakpoints. that the Senior Officer's written general nature of the non-investment
The Board reviewed the level of the Fund's evaluation had been relied upon by the advisory services currently performed by
advisory fees, and noted that such fees, Board in this regard in lieu of a AIM and its affiliates, such as
as a percentage of the Fund's net assets, competitive bidding process. In determining administrative, transfer agency and
would decrease as net assets increase whether to continue the Advisory Agreement distribution services, and the fees
because the Advisory Agreement includes for the Fund, the Board considered the received by AIM and its affiliates for
breakpoints. The Board noted that, due to Senior Officer's written evaluation and the performing such services. In addition to
the Fund's asset levels at the end of the recommendation made by the Senior Officer reviewing such services, the trustees
past calendar year and the way in which to the Board that the Board consider also considered the organizational
the advisory fee breakpoints have been whether the advisory fee waivers for structure employed by AIM and its
structured, the Fund has yet to benefit certain equity AIM Funds, including the affiliates to provide those services.
from the breakpoints. The Board noted that Fund, should be simplified. The Board Based on the review of these and other
AIM has contractually agreed to waive concluded that it would be advisable to factors, the Board concluded that AIM and
advisory fees of the Fund through June 30, consider this issue and reach a decision its affiliates were qualified to continue
2007 to the extent necessary so that the prior to the expiration date of such to provide non-investment advisory
advisory fees payable by the Fund do not advisory fee waivers. services to the Fund, including
exceed a specified maximum advisory fee administrative, transfer agency and
rate, which maximum rate includes o Profitability of AIM and its affiliates. distribution services, and that AIM and
breakpoints and is based on net asset The Board reviewed information concerning its affiliates currently are providing
levels. The Board concluded that the the profitability of AIM's (and its satisfactory non-investment advisory
Fund's fee levels under the Advisory affiliates') investment advisory and other services.
Agreement therefore would reflect activities and its financial condition. The
economies of scale at higher asset levels Board considered the overall profitability o Other factors and current trends. The
and that it was not necessary to change of AIM, as well as the profitability of AIM Board considered the steps that AIM and
the advisory fee breakpoints in the Fund's in connection with managing the Fund. The its affiliates have taken over the last
advisory fee schedule. Board noted that AIM's operations remain several years, and continue to take, in
profitable, although increased expenses in order to improve the quality and
o Investments in affiliated money market recent years have reduced AIM's efficiency of the services they provide
funds. The Board also took into account profitability. Based on the review of the to the Funds in the areas of investment
the fact that uninvested cash and cash profitability of AIM's and its affiliates' performance, product line
collateral from securities lending investment advisory and other activities diversification, distribution, fund
arrangements, if any (collectively, "cash and its financial condition, the Board operations, shareholder services and
balances") of the Fund may be invested in concluded that the compensation to be paid compliance. The Board concluded that
money market funds advised by AIM pursuant by the Fund to AIM under its Advisory these steps taken by AIM have improved,
to the terms of an SEC exemptive order. Agreement was not excessive. and are likely to continue to improve,
The Board found that the Fund may realize the quality and efficiency of the
certain benefits upon investing cash o Benefits of soft dollars to AIM. The services AIM and its affiliates provide
balances in AIM advised money market Board considered the benefits realized by to the Fund in each of these areas, and
funds, including a higher net return, AIM as a result of brokerage transactions support the Board's approval of the
increased liquidity, increased executed through "soft dollar" continuance of the Advisory Agreement for
diversification or decreased transaction arrangements. Under these arrangements, the Fund.
costs. The Board also found that the Fund brokerage commissions paid by the Fund
will not receive reduced services if it and/or other funds advised by AIM are used
invests its cash balances in such money to pay for research and execution services.
market funds. The Board noted that, to the This research may be used by AIM in making
extent the Fund invests uninvested cash in investment decisions for the Fund. The
affiliated money market funds, AIM has Board concluded that such arrangements were
voluntarily agreed to waive a portion of appropriate.
the advisory fees it receives from the
Fund attributable to such investment. The o AIM's financial soundness in light of the
Board further determined that the proposed Fund's needs. The Board considered whether
securities lending program and related AIM is financially sound and has the
procedures with respect to the lending resources necessary to perform its
Fund is in the best interests of the obligations under the Advisory Agreement,
lending Fund and its respective and concluded that AIM has the financial
shareholders. The Board therefore resources necessary to fulfill its
concluded that the investment of cash obligations under the Advisory Agreement.
collateral received in connection with the
securities lending program in the money
market funds according to the procedures
is in the best interests of the lending
Fund and its respective shareholders.
11
AIM SELECT BASIC VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2006
SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-99.15%
ADVERTISING-6.05%
Interpublic Group of Cos., Inc. (The) (a) 5,524 $ 60,267
- --------------------------------------------------------------------------------
Omnicom Group, Inc. 338 34,290
- --------------------------------------------------------------------------------
94,557
- --------------------------------------------------------------------------------
APPAREL RETAIL-2.76%
Gap, Inc. (The) 2,050 43,091
- --------------------------------------------------------------------------------
BREWERS-4.08%
Molson Coors Brewing Co.-Class B 896 63,777
- --------------------------------------------------------------------------------
BUILDING PRODUCTS-2.12%
American Standard Cos. Inc. 750 33,218
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.53%
Plantronics, Inc. 1,871 39,497
- --------------------------------------------------------------------------------
COMPUTER HARDWARE-3.45%
Dell Inc. (a) 2,215 53,891
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-2.83%
Chicago Bridge & Iron Co. N.V.-New York Shares 1,802 44,257
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS-2.72%
Cemex S.A. de C.V.-ADR (Mexico)(a) 1,382 42,483
- --------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-4.69%
First Data Corp. 2,024 49,082
- --------------------------------------------------------------------------------
Western Union Co. (a) 1,100 24,255
- --------------------------------------------------------------------------------
73,337
- --------------------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES-3.36%
Waste Management, Inc. 1,400 52,472
- --------------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-2.27%
Target Corp. 600 35,508
- --------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-5.44%
Cardinal Health, Inc. 1,300 85,085
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-3.95%
Tyco International Ltd. 2,100 61,803
- --------------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-
4.47%
Merrill Lynch & Co., Inc. 800 69,936
- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES-
2.74%
Waters Corp. (a) 860 42,828
- --------------------------------------------------------------------------------
SHARES VALUE
- --------------------------------------------------------------------------------
MANAGED HEALTH CARE-4.28%
UnitedHealth Group Inc. 1,371 $ 66,877
- --------------------------------------------------------------------------------
OIL & GAS DRILLING-3.71%
Transocean Inc. (a) 800 58,032
- --------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-
3.24%
Weatherford International Ltd. (a) 1,231 50,569
- --------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-
8.01%
Citigroup Inc. 1,100 55,176
- --------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,475 69,974
- --------------------------------------------------------------------------------
125,150
- --------------------------------------------------------------------------------
PHARMACEUTICALS-8.81%
Pfizer Inc. 1,300 34,645
- --------------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 687 58,351
- --------------------------------------------------------------------------------
Wyeth 875 44,651
- --------------------------------------------------------------------------------
137,647
- --------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-
3.11%
ACE Ltd. 850 48,662
- --------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT-0.99%
Realogy Corp. (a) 603 15,545
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.67%
Brooks Automation, Inc. (a) 2,939 41,734
- --------------------------------------------------------------------------------
SYSTEMS SOFTWARE-5.55%
CA Inc. 2,050 50,758
- --------------------------------------------------------------------------------
Microsoft Corp. 1,253 35,974
- --------------------------------------------------------------------------------
86,732
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-5.32%
Fannie Mae 1,000 59,260
- --------------------------------------------------------------------------------
Freddie Mac 347 23,940
- --------------------------------------------------------------------------------
83,200
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.15%
(Cost $1,190,796) 1,549,888
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.85% 13,330
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $1,563,218
- --------------------------------------------------------------------------------
F-1
AIM SELECT BASIC VALUE FUND
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, 2006 represented 3.73% 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-2
AIM Select Basic Value Fund
AIM SELECT BASIC VALUE FUND STATEMENT OF ASSETS AND LIABILITIES
October 31, 2006
ASSETS:
Investments, at value (cost $1,190,796) $1,549,888
- --------------------------------------------------------------------------------
Foreign currencies, at value (cost $59) 59
- --------------------------------------------------------------------------------
Cash 18,646
- --------------------------------------------------------------------------------
Receivables for:
Dividends 489
- --------------------------------------------------------------------------------
Fund expenses absorbed 15,123
- --------------------------------------------------------------------------------
Other assets 126
- --------------------------------------------------------------------------------
Total assets 1,584,331
- --------------------------------------------------------------------------------
LIABILITIES:
Accrued trustees' and officer's fees and benefits 1,167
- --------------------------------------------------------------------------------
Accrued transfer agent fees 3
- --------------------------------------------------------------------------------
Accrued operating expenses 19,943
- --------------------------------------------------------------------------------
Total liabilities 21,113
- --------------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,563,218
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,094,573
- --------------------------------------------------------------------------------
Undistributed net realized gain from investment securities
and foreign currencies 109,553
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities 359,092
- --------------------------------------------------------------------------------
$1,563,218
- --------------------------------------------------------------------------------
NET ASSETS:
Class A $ 625,282
- --------------------------------------------------------------------------------
Class B $ 468,968
- --------------------------------------------------------------------------------
Class C $ 468,968
- --------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Class A 44,306
- --------------------------------------------------------------------------------
Class B 33,230
- --------------------------------------------------------------------------------
Class C 33,230
- --------------------------------------------------------------------------------
Class A:
Net asset value per share $ 14.11
- --------------------------------------------------------------------------------
Offering price per share
(Net asset value of $14.11 / 94.50%) $ 14.93
- --------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 14.11
- --------------------------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 14.11
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-3
AIM Select Basic Value Fund
STATEMENT OF OPERATIONS
For the year ended October 31, 2006
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $226) $ 19,234
- --------------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 11,081
- --------------------------------------------------------------------------------------------------
Administrative services fees 50,000
- --------------------------------------------------------------------------------------------------
Custodian fees 1,805
- --------------------------------------------------------------------------------------------------
Distribution fees:
Class A 1,477
- --------------------------------------------------------------------------------------------------
Class B 4,433
- --------------------------------------------------------------------------------------------------
Class C 4,433
- --------------------------------------------------------------------------------------------------
Transfer agent fees 53
- --------------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 15,155
- --------------------------------------------------------------------------------------------------
Professional services fees 34,553
- --------------------------------------------------------------------------------------------------
Other 8,556
- --------------------------------------------------------------------------------------------------
Total expenses 131,546
- --------------------------------------------------------------------------------------------------
Less: Fees waived, expenses reimbursed and expense offset arrangements (105,709)
- --------------------------------------------------------------------------------------------------
Net expenses 25,837
- --------------------------------------------------------------------------------------------------
Net investment income (loss) (6,603)
- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 109,570
- --------------------------------------------------------------------------------------------------
Foreign currencies (13)
- --------------------------------------------------------------------------------------------------
109,557
- --------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of Investment securities 92,119
- --------------------------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 201,676
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 195,073
- --------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-4
AIM Select Basic Value Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2006 and 2005
2006 2005
-----------------------
OPERATIONS:
Net investment income (loss) $ (6,603) $ (8,313)
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 109,557 64,964
- --------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and
foreign currencies 92,119 34,972
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 195,073 91,623
- --------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (25,622) (24,703)
- --------------------------------------------------------------------------------------------------------------------------
Class B (19,217) (18,527)
- --------------------------------------------------------------------------------------------------------------------------
Class C (19,217) (18,527)
- --------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (64,056) (61,757)
- --------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 25,622 24,703
- --------------------------------------------------------------------------------------------------------------------------
Class B 19,217 18,527
- --------------------------------------------------------------------------------------------------------------------------
Class C 19,217 18,527
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 64,056 61,757
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 195,073 91,623
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 1,368,145 1,276,522
- --------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $0 and $0, respectively) $1,563,218 $1,368,145
- --------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
F-5
AIM Select Basic Value Fund
NOTES TO FINANCIAL STATEMENTS
October 31, 2006
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 seven 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's investment objective is long-term growth of capital.
The following is a summary of the significant accounting policies
followed by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS - Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds)
is valued at its last sales price or official closing price as of the close
of the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market are valued based on
the prices furnished by independent pricing services, in which case the
securities may be considered fair valued, or by market makers. 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 recorded at amortized cost which approximates value.
Foreign securities (including foreign exchange contracts) are
converted into U.S. dollar amounts using the applicable exchange rates as
of the close of the NYSE. If market quotations are available and reliable
for foreign exchange traded equity securities, the securities will be
valued at the market quotations. Because trading hours for certain foreign
securities end before the close of the NYSE, closing market quotations may
become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE, events
occur that are significant and may make the closing price unreliable, the
Fund may fair value the security. If the event is likely to have affected
the closing price of the security, the security will be valued at fair
value in good faith using procedures approved by the Board of Trustees.
Adjustments to closing prices to reflect fair value may also be based on a
screening process of an independent pricing service to indicate the degree
of certainty, based on historical data, that the closing price in the
principal market where a foreign security trades is not the current value
as of the close of the NYSE. Foreign securities meeting
F-6
AIM Select Basic Value Fund
the approved degree of certainty that the price is not reflective of
current value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair
value and may include information relating to sector indices, ADRs and
domestic and foreign index futures.
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.
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 the United States of America unless otherwise noted.
D. DISTRIBUTIONS - Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to treat a portion of the proceeds from redemptions as
distributions for federal income tax purposes.
E. FEDERAL INCOME TAXES - The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that is distributed to shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. EXPENSES - Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund 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
F-7
AIM Select Basic Value Fund
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.
Realized and unrealized gains and losses on these contracts are included in
the Statement of Operations. The Fund could be exposed to risk, which may
be in excess of the amount reflected in the Statement of Assets and
Liabilities, if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2 -- ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------------------
First $1 billion 0.75%
Next $1 billion 0.70%
Over $2 billion 0.65%
- --------------------------------------------------------------------------------
Through at least June 30, 2007, AIM has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of:
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------------------
First $250 million 0.695%
Next $250 million 0.67%
Next $500 million 0.645%
Next $1.5 billion 0.62%
Next $2.5 billion 0.595%
Next $2.5 billion 0.57%
Next $2.5 billion 0.545%
Over $10 billion 0.52%
- --------------------------------------------------------------------------------
AIM has voluntarily agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Class A, Class B and Class C shares
to 1.75% of average daily net assets. In determining the advisor's obligation to
waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the net annual operating expenses to exceed
the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on
short sales; (iv) extraordinary items; (v) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses
that the Fund has incurred
F-8
AIM Select Basic Value Fund
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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These 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, 2006, AIM waived advisory fees of
$11,081 and reimbursed expenses of $81,771.
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, 2006, AMVESCAP reimbursed expenses of the Fund in the amount
of $1,952.
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, 2006, AIM was paid $50,000.
The Fund, pursuant to a transfer agency and service agreement, has
agreed to pay AIM Investment Services, Inc. ("AIS") a fee for providing transfer
agency and shareholder services to the Fund and reimburse AIS for certain
expenses incurred by AIS in the course of providing such services. AIS may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. All fees payable by AIS to intermediaries
that provide omnibus account services or sub-accounting are charged back to the
Fund, subject to certain limitations approved by the Trust's Board of Trustees.
For the year ended October 31, 2006, the Fund paid AIS $53.
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. Of the Rule 12b-1 payments, 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 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.
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 $1,477, $4,433 and $4,433 for the Class A, Class B and
Class C shares, respectively.
Certain officers and trustees of the Trust are officers and directors
of AIM, AIS and/or ADI.
NOTE 3 -- EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended October 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $562.
F-9
AIM Select Basic Value Fund
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 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, 2006, the Fund paid legal fees of
$3,673 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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a 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, 2006, the Fund did not borrow or
lend under the interfund lending facility or borrow under the uncommitted
unsecured revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds as a compensating balance in the account so the custodian bank can be
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank at a rate agreed upon by the custodian bank and AIM, not to
exceed the contractually agreed upon rate.
F-10
AIM Select Basic Value Fund
NOTE 6 -- DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years October 31, 2006 and
2005 was as follows:
2006 2005
------- -------
Distributions paid from long-term capital gain $64,056 $61,757
------- -------
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2006, the components of net assets on a tax basis were as
follows:
2006
----------
Undistributed long-term gain $ 109,583
Unrealized appreciation - investments 359,062
Shares of beneficial interest 1,094,573
----------
Total net assets $1,563,218
----------
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 Fund does not have a capital loss carryforward as of October 31,
2006.
NOTE 7 -- INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended October 31, 2006 was $375,827 and $383,343,
respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- --------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $395,650
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (36,588)
- --------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $359,062
================================================================================
Cost of investments for tax purposes is $1,190,826.
NOTE 8 -- RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2006, undistributed net
investment income (loss) was increased by $6,603, undistributed net realized
gain was increased by $13 and shares of beneficial interest decreased by $6,616.
This reclassification had no effect on the net assets of the Fund.
F-11
AIM Select Basic Value Fund
NOTE 9 -- SHARE INFORMATION
The Fund currently consists of three different classes of shares: Class A, Class
B and Class C. Class A shares are sold with a front-end sales charge unless
certain waiver criteria are met. 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 on or
about the month-end which is at least eight years after the date of purchase.
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------
2006 (A) 2005
-----------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------
Issued as reinvestment of dividends:
Class A 1,940 $25,622 1,889 $24,703
- --------------------------------------------------------------------------
Class B 1,457 19,217 1,416 18,527
- --------------------------------------------------------------------------
Class C 1,457 19,217 1,416 18,527
- --------------------------------------------------------------------------
4,854 $64,056 4,721 $61,757
==========================================================================
(a) Currently, the Fund is not open to investors. All shares are owned by AIM.
NOTE 10 -- NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Fund's financial statements and
intends for the Fund to adopt the FIN 48 provisions during 2007.
F-12
AIM Select Basic Value Fund
NOTE 11 -- FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
-----------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
-----------------------------------------------------------
Net asset value, beginning of period $12.92 $12.61 $11.65 $ 9.13 $10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.08) (0.09) (0.07) (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.85 1.00 1.05 2.70 (0.86)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 0.92 0.96 2.63 (0.87)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- (0.11) --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.60) (0.61) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.11 $12.92 $12.61 $11.65 $ 9.13
- --------------------------------------------------------------------------------------------------------------------------------
Total return(a) 14.21% 7.24% 8.24% 29.12% (8.70)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 625 $ 547 $ 511 $ 472 $ 365
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.77% 1.77% 1.83% 1.75%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 8.45%(b) 10.18% 9.96% 10.27% 23.74%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.45)%(b) (0.60)% (0.70)% (0.75)% (0.49)%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 26% 16% 19% 20% 4%
- --------------------------------------------------------------------------------------------------------------------------------
(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 $591,000.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-13
AIM SELECT BASIC VALUE FUND
NOTE 11 -- FINANCIAL HIGHLIGHTS-(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS B
-----------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
-----------------------------------------------------------
Net asset value, beginning of period $12.92 $12.62 $11.65 $ 9.13 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.08) (0.09) (0.07) (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.85 0.99 1.06 2.70 (0.86)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 0.91 0.97 2.63 (0.87)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- (0.11) --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.60) (0.61) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.11 $12.92 $12.62 $11.65 $ 9.13
- --------------------------------------------------------------------------------------------------------------------------------
Total return(a) 14.21% 7.15% 8.33% 29.12% (8.70)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 469 $ 410 $ 383 $ 354 $ 274
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.77% 1.77% 1.83% 1.75%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 9.20%(b) 10.86% 10.61% 10.92% 24.39%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.45)%(b) (0.60)% (0.70)% (0.75)% (0.49)%(c)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 26% 16% 19% 20% 4%
- --------------------------------------------------------------------------------------------------------------------------------
(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 $443,256.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-14
AIM SELECT BASIC VALUE FUND
NOTE 11 -- FINANCIAL HIGHLIGHTS-(CONTINUED)
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS C
------------------------------------------------------------
AUGUST 30, 2002
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
------------------------------------------- OCTOBER 31,
2006 2005 2004 2003 2002
------------------------------------------------------------
Net asset value, beginning of period $12.92 $12.62 $11.65 $ 9.13 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.08) (0.09) (0.07) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.85 0.99 1.06 2.70 (0.86)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.79 0.91 0.97 2.63 (0.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- (0.11) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.60) (0.61) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.11 $12.92 $12.62 $11.65 $ 9.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total return(a) 14.21% 7.15% 8.33% 29.12% (8.70)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 469 $ 410 $ 383 $ 354 $ 274
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.79%(b) 1.77% 1.77% 1.83% 1.75%(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 9.20%(b) 10.86% 10.61% 10.92% 24.39%(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.45)%(b) (0.60)% (0.70)% (0.75)% (0.49)%(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(d) 26% 16% 19% 20% 4%
- ---------------------------------------------------------------------------------------------------------------------------------
(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 $443,256.
(c) Annualized.
(d) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
F-15
AIM Select Basic Value Fund
NOTE 12 -- LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On 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. 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. 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.
PENDING LITIGATION AND REGULATORY INQUIRIES
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission ("WVASC") issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes
findings of fact that AIM and ADI entered into certain arrangements permitting
market timing of the AIM Funds and failed to disclose these arrangements in the
prospectuses for such Funds, and conclusions of law to the effect that AIM and
ADI violated the West Virginia securities laws. The WVASC orders AIM and ADI to
cease any further violations and seeks to impose monetary sanctions, including
restitution to affected investors, disgorgement of fees, reimbursement of
investigatory, administrative and legal costs and an "administrative
assessment," to be determined by the Commissioner. Initial research indicates
that these damages could be limited or capped by statute.
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; and
F-16
AIM Select Basic Value Fund
NOTE 12 -- LEGAL PROCEEDINGS-(CONTINUED)
- - 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 (all the claims in this category
of lawsuits were dismissed with prejudice by the court on September 29,
2006, except for the Section 36(b) claim which was dismissed with leave to
amend to plead it properly as a derivative claim).
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 issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court"). Pursuant to an Order of the MDL Court,
plaintiffs in these lawsuits consolidated their claims for pre-trial purposes
into three amended complaints against various AIM- and IFG-related parties: (i)
a Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative
Complaint purportedly brought on behalf of the AIM Funds and fund registrants;
and (iii) an Amended Class Action Complaint for Violations of the Employee
Retirement Income Securities Act ("ERISA") purportedly brought on behalf of
participants in AMVESCAP's 401(k) plan. Based on orders issued by the MDL Court,
all claims asserted against the AIM Funds that have been transferred to the MDL
Court have been dismissed, although certain Funds remain nominal defendants in
the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
IFG, AIM, ADI and/or related entities and individuals have received
inquiries from numerous regulators in the form of subpoenas or other oral or
written requests for information and/or documents related to one or more of the
following issues, among others, some of which concern one or more AIM Funds:
market timing activity, late trading, fair value pricing, excessive or improper
advisory and/or distribution fees, mutual fund sales practices, including
revenue sharing and directed-brokerage arrangements, investments in securities
of other registered investment companies, contractual plans, issues related to
Section 529 college savings plans and procedures for locating lost security
holders. IFG, AIM and ADI have advised the Fund that they are providing full
cooperation with respect to these inquiries. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Pending Litigation and Regulatory
Inquiries described above may have on AIM, ADI or the Fund.
F-17
AIM Select Basic Value Fund
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, 2006, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for each of the two years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before October 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated December 15, 2004, expressed an unqualified opinion on those financial
highlights.
PricewaterhouseCoopers LLP
December 20, 2006
Houston, Texas
F-18
AIM Select Basic Value Fund
TAX DISCLOSURES
REQUIRED FEDERAL INCOME TAX INFORMATION
The Fund distributed long-term capital gains of $64,056 for the Fund's tax year
ended October 31, 2006.
TAX INFORMATION FOR NON-RESIDENT ALIEN SHAREHOLDER
The percentage of qualifying assets not subject to the U.S. estate tax for the
fiscal quarters ended January 31, 2006, April 30, 2006, July 31, 2006 and
October 31, 2006 are 7.65%, 7.52%, 7.51%, and 6.43%, respectively.
F-19
AIM Select Basic Value Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. 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 and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
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);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company (2 portfolios))
Formerly: Partner, law firm of Baker &
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
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))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</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. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
F-20
TRUSTEES AND OFFICERS--(CONTINUED)
AIM Select Basic Value Fund
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>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director, INVESCO
Funds Group Inc.; Senior Vice President,
Chief Legal Officer and Secretary of The
AIM Family of Funds--Registered
Trademark--; and Manager, Powershares
Capital Management LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
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. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President 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. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; 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: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
OFFICE OF THE FUND
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
COUNSEL TO THE FUND
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street, 51st
Floor
Philadelphia, PA 19103-7599
</Table>
F-21
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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"). The Code was amended in September, 2006, to (i) remove
individuals listed in Exhibit A and any references to Exhibit A thus
allowing for future flexibility and (ii) remove ambiguities found in
the second paragraph of Section III. The Registrant did not grant any
waivers, including implicit waivers, from any provisions of the Code to
the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
The Audit Committee financial expert is Raymond Stickel, Jr. Mr.
Stickel is "independent" within the meaning of that term as used in
Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2006 Pursuant to Fees Billed for year end 2005
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal Pre-Approval the Registrant for of Pre-Approval
year end 2006 Requirement(1) fiscal year end 2005 Requirement(1)
------------- -------------- -------------------- --------------
Audit Fees $234,833 N/A $366,905 N/A
Audit-Related Fees(2) $ 0 0% $ 26,125 0%
Tax Fees(3) $ 77,560 0% $ 70,120 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $312,393 0% $463,150 0%
PWC billed the Registrant aggregate non-audit fees of $77,560 for the
fiscal year ended 2006, and $96,245 for the fiscal year ended 2005, 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.
(3) Tax Fees for the fiscal year end October 31, 2006 includes fees billed for
reviewing tax returns and consultation services. Tax fees for fiscal year
end October 31, 2005 includes fees billed for reviewing tax returns and
consultation services.
FEES BILLED BY PRINCIPAL ACCOUNTANT RELATED TO AIM AND AIM AFFILIATES
PWC 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:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2006 Provided for fiscal fiscal year end 2005 Provided for fiscal
That Were Required year end 2006 That Were Required year end 2005
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
--------------- -------------- --------------- --------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
-- --
Total Fees(2) $0 0% $0 0%
</Table>
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant, AIM and AIM Affiliates 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) 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 2006, and $0 for the fiscal
year ended 2005, for non-audit services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining the principal accountant's independence.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 18, 2006
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Trustees (the "Board") are responsible for the
appointment, compensation and oversight of the work of independent accountants
(an "Auditor"). As part of this responsibility and to assure that the Auditor's
independence is not impaired, the Audit Committees pre-approve the audit and
non-audit services provided to the Funds by each Auditor, as well as all
non-audit services provided by the Auditor to the Funds' investment adviser and
to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the
Funds may request and secure pre-approval of audit and non-audit services in an
orderly manner with minimal disruption to normal business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of estimated
pre-approved fee levels provided at the time the service was pre-approved will
also require specific approval by the Audit Committees before payment is made.
The Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Trustees. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant either general or specific pre-approval of other audit services, which are
those services that only the independent auditor reasonably can provide. Other
Audit services may include services such as issuing consents for the inclusion
of audited financial statements with SEC registration statements, periodic
reports and other documents filed with the SEC or other documents issued in
connection with securities offerings.
NON-AUDIT SERVICES
The Audit Committees may provide either general or specific pre-approval of any
non-audit services to the Funds and its Service Affiliates if the Audit
Committees believe that the provision of the service will not impair the
independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers, compliance with ratings agency requirements and
interfund lending activities.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court,
district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and
approved by the SEC, in connection with seeking Audit Committee pre-approval of
permissible Tax services, the Auditor shall:
1. Describe in writing to the Audit Committees, which writing may be in
the form of the proposed engagement letter:
a. The scope of the service, the fee structure for the engagement,
and any side letter or amendment to the engagement letter, or any
other agreement between the Auditor and the Fund, relating to the
service; and
b. Any compensation arrangement or other agreement, such as a
referral agreement, a referral fee or fee-sharing arrangement,
between the Auditor and any person (other than the Fund) with
respect to the promoting, marketing, or recommending of a
transaction covered by the service;
2. Discuss with the Audit Committees the potential effects of the
services on the independence of the Auditor; and
3. Document the substance of its discussion with the Audit Committees.
ALL OTHER AUDITOR SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit Committee will always factor
in the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees and such other information as the Audit Committee may
request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed
description of the services to be rendered. The Treasurer or his or her designee
will ensure that such services are included within the list of services that
have received the general pre-approval of the Audit Committees. The Audit
Committees will be informed at the next quarterly scheduled Audit Committees
meeting of any such services for which the Auditor rendered an invoice and
whether such services and fees had been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Each request to provide tax services under either the general or specific
pre-approval of the Audit Committees will describe in writing: (i) the scope of
the service, the fee structure for the engagement, and any side letter or
amendment to the engagement letter, or any other agreement between the Auditor
and the audit client, relating to the service; and (ii) any compensation
arrangement or other agreement between the Auditor and any person (other than
the audit client) with respect to the promoting, marketing, or recommending of a
transaction covered by the service. The Auditor will discuss with the Audit
Committees the potential effects of the services on the Auditor's independence
and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- Any service or product provided for a contingent fee or a commission
- Services related to marketing, planning, or opining in favor of the
tax treatment of confidential transactions or aggressive tax position
transactions, a significant purpose of which is tax avoidance
- Tax services for persons in financial reporting oversight roles at the
Fund
- Any other service that the Public Company Oversight Board determines
by regulation is impermissible.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 14, 2006, 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 14,
2006, the Registrant's disclosure controls and procedures were
reasonably designed to ensure: (1) that information required to be
disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules
and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the
PEO and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Equity Funds
By: /s/ PHILIP A. TAYLOR
-----------------------------------
Philip A. Taylor
Principal Executive Officer
Date: January 5, 2007
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ PHILIP A. TAYLOR
-----------------------------------
Philip A. Taylor
Principal Executive Officer
Date: January 5, 2007
By: /s/ SIDNEY M. DILGREN
-----------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: January 5, 2007
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.